Review of Recent Activities in the Biotechnology Industry Sector - Focusing on Pharmaceuticals and the Company Glaxosmithkline

Review of Recent activities in the Biotechnology Industry Sector :

Focusing on Pharmaceuticals and the Company GlaxoSmithKline

Biotechnology can be defined as the industrial application of living organisms or biological techniques developed through basic research . One type of product derived from these techniques is pharmaceuticals. Many pharmaceutical companies exist globally and produce mainly human health related products such as medicines, vaccinations and dental care products.

Due to the nature of the products being produced in the market, the speed at which new technological breakthroughs affect new products and the high levels of competition within the market, the biotechnological pharmaceutical sector is an extremely difficult industry to exist in. The vast sums of investment required in research of new products and the low percentage success rate of these products has lead to the market being dominated by a few key companies. When referring to the pharmaceuticals market the big players are AstraZeneca, GlaxoSmithKline, Pfizer and Novartis. Recent changes to codes of practice and price legislation, could however affect the performance of some of these market leaders.

The body which governs the pharmaceuticals market, ABPI (Association of the British Pharmaceutical Industry) is introducing a new code of practice as of 1st January 2006. One of the key changes is a requirement for all promotional material to prominently include information on the possible adverse reaction of the drug. To include this information on the advertising for medicinal products could harm sales of all of the companies. These side effects could be extremely unlikely to happen; however having negative effects could scare potential customers from using the drug.

The new code is also reducing the number of pages permitted to advertise and promote medicines. Although initially this would save companies money through reduced advertising costs it could hinder them in the long run. By being unable to promote new products as much as they wish to firms may see that sales figures are not reaching their highest. Not being able to earn enough money to cover research and development costs could mean in the future pharmaceutical companies will not be able to develop drugs for new illnesses which would negatively affect the consumer.

More new legislation which could alter the performance of this sector is the current review by the Office of Fair Trading of the PPRS (Pharmaceutical Price Regulation Scheme) . This scheme has been in place for nearly 50 years and aims to; produce safe, effective medicine, promote a profitable research lead industry, and encourage efficient and competitive development. It aims to achieve these goals by placing a cap on the profits earned from selling branded and prescription medicines to the NHS. This new study could be seen as a cause for concern for the market. If it is determined that the cap should be lowered it would mean a substantial decrease in the profits within the industry. However it could be viewed as great benefit as it encourages more money to be invested back in the business research and development of new products. A clear example of this can be seen at GlaxoSmithKline who as of February 2005 had 140 new products in clinical development .

A recent bankruptcy of a promising drugs developing company, Nobex Corp. has caused a lot of interest in the pharmaceutical sector. Nobex were working towards developing an insulin pill which would revolutionise the way diabetes is treated. However since GlaxoSmithKline pulled out of a deal for scientists from both companies to work together on the project, they have struggled. This case is particularly relevant to the market due to the intellectual property which is now available for other companies to purchase. Nobex have technology to turn injectable drugs into pills without changing the drugs effectiveness . This technology is likely to tempt larger companies such as AstraZeneca and Glaxo in to purchasing in order to produce their own form of orally taken medicine. In the near future we could see a massive growth in a companies sales and profits if any companies are able to use this technology to produce the highly demanded insulin pill.

In general the biotechnological pharmaceuticals industry is looking very strong. High levels of turnover, profit and growth in the market can be displayed by the forecast beating results produced from two of the sectors market leaders. AstraZeneca's operating profits for the third quarter of this year were up 49% to Ð'Ј952million, while competitor GlaxoSmithKline's profits were up 19% to Ð'Ј1.7billion . It puts this increase down to strong sales of asthma and diabetes drugs. However continued growth in sales and profits over the next year looks likely for the company as it has developed a new vaccine for the strain of bird flu threatening to cause a global epidemic.

GlaxoSmithKline

The company was founded in 1873 by Joseph Nathan as an import-export business in New Zealand. He then obtained the rights to a process for drying baby milk and sold it as baby food Glaxo. The company went public in 1947 when it began producing penicillin, however a steep drop in antibiotic prices in the mid-1950's led the company to diversify in to medical instrument and drug distribution firms. In the 1980's Glaxo shed its nondrug operations and began to focus only on pharmaceuticals. In 2000 Glaxo merged with rival SmithKline Beecham to create the company we have today GlaxoSmithKline .

GlaxoSmithKline is currently one of the top five biotechnological companies in the world and claims to be the number one research-based pharmaceutical company. It has an estimated seven per cent of the world's pharmaceutical market . Its top product is asthma medication Advar which largely contributes to the company's Ð'Ј17billion turnover in pharmaceuticals alone. Add to this their healthcare turnover of Ð'Ј3.2Billion and 2004's annual turnover sits at Ð'Ј20.3billion, with the company recording a pre tax profit of Ð'Ј6.1billion . This high profit making and turnover has continued into 2005 where shares in the company have rallied by about 25% .

SWOT Analysis GlaxoSmithKline

Strengths Weaknesses

- Operating profits for 2005 have exceeded forecasted results.

- Many new products in advanced development stages.

- Poor short-term liquidity

- Reliance on