Case Analysis Smith Kline Beecham Simply Better Team

Case Analysis – Smith. Kline Beecham Simply Better Team C (A 13)

Team A 13 Simply Better Team C (A 13)

Index • Pharmaceutical Industry Trends • Synergy – Smith. Kline & Beecham Chris Mourikis • Industry Analysis • Company Analysis • "Simply Better" Campaign • Value Chain – Speed, Value & Cost • Reccomendations • Smith. Kline Beecham Today Simply Better Team C (A 13)

The Pharmaceutical Industry 1980 s • Governments control healthcare expenditure (“black list” – Roche) 1970 s Biotech Companies • Tighter regulatory • 1960 s • Brand Loyalty controls threatened • Muscle • Generics – branded generics Marketing Impetus on R&D • Permanent • patent protection • Short time to market Simply Better 1990 s • Aging population – over 65 • Increased patient expectations • Patent expirations • Increased competition Team C (A 13)

Index • Pharmaceutical Industry Trends • Synergy – Smith. Kline & Beecham • Industry Analysis Fang Liao • Company Analysis • "Simply Better" Campaign • Value Chain – Speed, Value & Cost • Reccomendations • Smith. Kline Beecham Today Simply Better Team C (A 13)

Synergies Smith. Kline (1988) Beecham (1988) Synergies Sales - Total sales of £ 1. 8 billion - Ranked 14 th in global pharmaceutical sales - Total sales of £ 2. 5 Billion - Ranked 23 rd in global pharmaceutical sales Est. Total sales = £ 4. 3 billion (Expected: 1+1=3) Segments/ Sales Ethical pharmaceuticals Clinical Laboratories Animal Health Consumer Health Care Eye & Skin Care Instruments & Supplies OTC Medicines (US) Ethical - Synergies in Ethical pharmaceuticals, Animal health and consumer health care - Minimal overlap in other segments 42% 14% 7% 5% 16% Animal Health Consumer Health Care 58% Marketing Sales Team Merge sales teams R&D - Driven by R&D, 10% of sales, £ 167 M, - Significant treasure trove 10 year out. - Largest network of diagnostic lab in US -9 th in the world in animal health -9 facilities - £ 132 M, commercially minded researchers, - strong in penicillin-base antibiotics -13 th in the world in animal health. - Overlap in animal health - Combined R&D becomes a significant force in the Pharmaceutical industry -Reduced facilities from 13 to 4 Operations Concentrated in North America Concentrated in Europe Some overlap – From 21 to 9. Distribution Global Reach Limited Global Reach Some overlap – From 16 to 8 Simply Better Team C (A 13)

Synergy – Smith. Kline Beecham • Merger of Equals – Horizontal (Desire to return to the core – Health care) • Economies of Scales and Size • Reduction in Transaction Costs • Integrated Synergies in Consumer care, Ethical Pharmaceutical, Pooled R&D & Operations, Enhanced marketing reach Simply Better Team C (A 13)

Index • Pharmaceutical Industry Trends • Synergy – Smith. Kline & Beecham • Industry Analysis • Company Analysis Fang Liao • "Simply Better" Campaign • Value Chain – Speed, Value & Cost • Reccomendations • Smith. Kline Beecham Today Simply Better Team C (A 13)

Industry Analysis - Porter 5 Forces Power of Suppliers • Power of research labs, pathology labs and medical institutions Threat of Entrants • Generic producer coming up with their own patent • Increased Market and R&D costs • Slow success rate in new drug development (Late market reach) Industry Competitors • • • Many Strong Well Known companies Globalized industry Better Market Reach (Glaxo) Bigger product pipeline (Pfizer) Bio-tech companies Threat of Substitutes • More so in the full umbrella drugs • Power of generic and off patent drugs • Surgery makes drug intervention unnecessary Power of Buyers • Government Price containment measure • Difference between prescription and dispensing role • Increased elasticity (generic’s preferred over branded) Simply Better Team C (A 13)

Competitor Analysis Merck #Patents Citation Impact Innovation Speed Science Linkage Chem. Pharma. Biotech. Top 25% Bottom 25% Trend: Glaxo Wellcome 5 0 5 6 0 0 5 5 5 5 5 6 0 6 5 5 0 5 5 6 6 5 5 Top 25% Bottom 25% Trend: Smith. Kline Beecham Top 25% Bottom 25% Trend: Simply Better Team C (A 13)

Index • Pharmaceutical Industry Trends • Synergy – Smith. Kline & Beecham • Industry Analysis • Company Analysis • "Simply Better" Campaign Sierhei Novik • Value Chain – Speed, Value & Cost • Reccomendations • Smith. Kline Beecham Today Simply Better Team C (A 13)

Company Analysis - Smith. Kline Beecham plc Aging of the world population with growing incomes Growing attention to health, prophylaxis, and soft medication Bio-technology Vast number of untreated diseases, new social diseases New therapy approaches New markets Generic and OTC drugs production Opportunities Strengths Weaknesses Good and broad long-term R&D portfolio R&D reputation, efficient technologies Patent expiration of leading drugs No major blockbuster in the short-term R&D pipeline Dependency of sales on several drugs Geographical concentration of sales Efficient sales force Potential in OTC market, major block-busters "Simply Better" Campaign philosophy Threats Price controls, containment of rising health-care cost Stricter registration procedures High costs of discovering and fewer discoveries High costs of sales and marketing Takeover threats, increasing competition Spreading use of Generic and OTC products More potential new drugs and more efficient therapies Simply Better Team C (A 13)

Index • Pharmaceutical Industry Trends • Synergy – Smith. Kline & Beecham • Industry Analysis • Company Analysis • "Simply Better" Campaign • Value Chain – Speed, Value & Cost Herman Lombard • Reccomendations • Smith. Kline Beecham Today Simply Better Team C (A 13)

Challenges of the merger Challenges: • Two national cultures • Two different markets • Two different shareholder bases The result is a fit for Pharmaceutical Industry Smith. Kline has a scientific and academic orientation Beecham has a commercial focus Underlying synergies Simply Better Team C (A 13)

Simply Better Cohesive Committed Senior Team Customers Innovation Develop a Strategy Integrity People Design a Culture Performance Management System Promise (Vision) Performance (Mission) Common Language Methods & Tools Invest in Education & Skills required to create a common culture Strategic Intent (10 Year) 3 Year Requirement Goals Improvement Themes Breakthrough Projects Simply Better Strategic Initiatives Team C (A 13)

Simply Better - Analysis Simply Better Team C (A 13)

Index • Pharmaceutical Industry Trends • Synergy – Smith. Kline & Beecham • Industry Analysis • Company Analysis • "Simply Better" Campaign • Value Chain – Speed, Value & Cost Yadu Singh • Reccomendations • Smith. Kline Beecham Today Simply Better Team C (A 13)

Value Chain – Cost, Value & Speed • Harmonization of NDA filing shrank time required from 9 years to 6 months (CD based and centralization of filing) • Increasing efficiency within by measuring results of cross-functional coordination • Sales force integration leading broader portfolio to be detailed: umbrella coverage • The power of the five values (CIIPP), partnership with employees • Development time reduced from 12 years to 4 -5 years • Number of clinical trials reduced from 150 to 25 viable and relevant ones, therefore reduced the time to market • Ranked in top quartile in terms of its Development efficiency and effectiveness Speed (R&D) Value (Marketing & Culture) Cost (Operations) • Increasing efficiency within by measuring results of cross-functional coordination • Sales force integration leading broader portfolio to be detailed: umbrella coverage • The power of the five values (CIIPP), partnership with employees 11% compound annual sales growth , Sales of £ 6 Billion, 4 th in the world, (12% compound annual growth, £ 600 m ) Simply Better Team C (A 13)

Index • Pharmaceutical Industry Trends • Synergy – Smith. Kline & Beecham • Industry Analysis • Company Analysis • "Simply Better" Campaign • Value Chain – Speed, Value & Cost • Reccomendations Yadu Singh • Smith. Kline Beecham Today Simply Better Team C (A 13)

Recommendations Segments Recommendations Financial Implication People Implications Marketing • Build stronger customer relationships (Customer Relationship Management) • Higher technology spend Training costs • Sales force needs to adjust to new way of working • Significant change of mindset Research & Development • Collaboration across function and strategic alliances (biotech) • Investment in joint research projects, equipment and possibly facilities • Segmentation of people into research teams across continents. • Classical change management issues. Operations • Keep cost and quality focus, • Enhance capacity and planning & scheduling capabilities, maintenance capabilities • Investment in improvement projects and technology • Automation -> layoffs • Negatively influence morale Culture • Customer, Innovation, Performance, People, Integrity • Cost of training • Training and shared experience will build some form of cohesiveness in the teams IT Strategy • Leverage technology for collaborative product development • Documentation management, • Supplier relationship management • Supply chain event management • Cost of implementations (Business case justification) • Education • Training • Motivation Simply Better Team C (A 13)

Index • Pharmaceutical Industry Trends • Synergy – Smith. Kline & Beecham • Industry Analysis • Company Analysis • "Simply Better" Campaign • Value Chain – Speed, Value & Cost • Reccomendations • Smith. Kline Beecham Today Chris Mourikis Simply Better Team C (A 13)

Smith. Kline Beecham Today Do more, feel better, live longer • The facts prior to merger: Combining Glaxo-Wellcome with Smith. Kline Beecham creates a company with – Combined Sales of $32 Billion – Combined R&D Budget of almost $4 Billion – A Market Capitalization of $189 Billion Simply Better Team C (A 13)

Thank You Simply Better Team C (A 13)