Beginning Stock Quote

Better late than never: The opening stock price for GlaxoSmithKline for Wednesday September 2, 2009 (the day I “bought” the stock) was $38.59. It has since risen to a closing of $39.25 on Friday September 25, 2009. (source)

The Lesser Known Vaccine Battle

Health care news in the United States seems to center around two topics these days: President Obama’s health care reform policies and the Swine Flu virus. The average American would have little concern with news that the Food and Drug Administration has proclaimed the “new” cervical cancer vaccine Cervarix “safe and effective” (source). To an informed individual with a vested interest in GSK, however, this news has many financial implications. (image source)

Cervarix targets the two most common types of human papillomavirus (HPV), strains 16 and 18, which cause more than 70% of cervical cancer cases.  The vaccine was developed to provide long-term, sustained levels of antibodies that protect against HPV, and studies thus far have proven protection to an ongoing 6.4 years . Its only competitor currently on the market is a joint venture of Merck and Co Inc. and Sanofi-Pasteur called Gardasil (source).

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One of the biggest challenges a pharmaceutical company faces when developing new drugs are the strict regulations set by governmental organizations equivalent to the American Food and Drug Administration (FDA).  Customer bases in multiple countries only makes this process more difficult because the regulations are not uniform. While working at a pharmaceutical company this summer, Boehringer Ingelheim, I saw this first hand. The drug I worked on was manufactured in both the United States and Germany, but the product produced in one country was shipped for sale to the other. Although the testing facilities were in the US, the FDA had not approved the manufacturing plant but the European Union (EU) equivalent had. GSK has faced similar challenges when bringing Cervarix into a global market, and has fallen behind its main competitor as a result. Although both Cervarix and Gardasil were both being distributed in 2007, Gardasil had a larger market base and an additional year of market exposure which led to its much higher revenues.

Despite a late start GSK scored a huge victory over Merck Co Inc. in June of 2008 when it won a contract with the UK Department of Health to provide the HPV vaccine for a immunisation programme that began in September 2008. The initial contract is worth an estimated £100m (€143.5m) a year to vaccinate 11 and 12 year old females ,with a catch-up program targeting those under 18 that could cost up to £200m in 2009/2010 and 2010/2011 (source). Given the structure of the UK’s health care system, this contract will essentially remove Gardasil from that market.

Since Gardasil provides additional protection that Cervarix does not,  it can be assumed that GSK was able to provide the vaccines for a lower cost per unit to acquire the contract. GSK’s ability to produce a very similar product at a lower cost makes them a tough competitor to beat. Profit margins in the vaccine industry are narrow and price reduction very difficult. Although both France and Denmark have chosen Gardasil for their respective vaccination programs, countries with similar health care structures and a heavier emphasis on decreasing health care costs are likely to choose Cervarix. source

Metric	2006	2007	2008	First Half of 2009
U.S. sales of Gardasil (in millions)	$235	$1,194	$1,041	$363
Year-over-year increase (decrease)	N/A	408%	(13%)	(34%)

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The situation in the United States is much different. Cervarix has not yet been approved for use, leaving Gardasil unchallenged in the HPV vaccine market and although there is no overreaching immunization program Gardasil has been heavily promoted in doctor’s offices across the country. Its sales peaked in 2007 and were strong in 2008 but have fallen drastically this year. The most logical explanation is that the target population (teenage females) have either already received the vaccination or do not intend on getting it. This brings into question how big an impact releasing Cervarix  in the US will have  on sales. If the market is already close to saturated, Cervarix cannot have higher sales than Gardasil did as the sole provider of the vaccine.  This combined with large governmental contracts in Europe could make the US market seem obsolete.

With so many uncertainties and variables it is difficult to predict the financial success of Cervarix in the United States. A lower unit cost certainly gives GSK an advantage, but an inconsistant demand makes steady sales growth incredibly difficult. It will be interesting to see how well Cervarix does in the US market, especially with an impending change in the structure of the health care system.

GlaxoSmithKline

Mission Statement: to improve the quality of human life by enabling people to do more, feel better and live longer.

While reading the Technician last week I came across an article discussing the resurgence of Swine Flu and was taken aback by the President’s Council of Advisors on Science and Technology’s predictions.  According to an article originally cited from CNN.com 30 to 50 percent of the American population could become infected, causing as many as  1.8 million hospital admissions.  With this in mind I began considering companies in the pharmaceutical industry for my blog focus. After doing some research  GlaxoSmithKline (GSK) became the most logical choice because of it’s production of the H1N1 influenza vaccine, global consumer base, and diversity of products. In addition, they have a clear business strategy and a commitment to aiding those in the lower demographic. Over the course of the semester I will analyze how GSK interacts with its macro environment, discussing topics such as  influenza vaccine production, competition within the industry, and patent laws.  Below is a brief history of GSK and description of its product lines to provide context for later discussion.

Although the corporate entity GlaxoSmithKline is only ten years old, it traces it’s roots back to the 1715 establishment of  the Plough Court Pharmacy in London, England.  During the next 284 years John K. Smith’s drugstore (established in 1830) and Joseph Nathan’s Glaxo dried milk company (established in 1906) would undergo many acquisitions, mergers, and name changes, including the integration of the original Plough Court Pharmacy. On December 6, 1999 Glaxo Wellcome and SmithKline Beecham merged to form the corporation that exists today. Click for more information on company HISTORY.

One of the top five pharmaceutical firms in the world, GlaxoSmithKline products span the globe with sales in over 150 countries. Although the majority of their sales are in the United States and Europe, the rest of the world accounts for 26 percent of  2008′s TOTAL SALES.Their products are separated into two categories: pharmaceuticals and consumer health care. Pharmaceuticals can then be broken down into eight focus areas: respiratory, central nervous system,  metabolic, cardiovascular and urogenital,  anti-virals, anti-bacterials, oncology and emesis, and vaccines. Common examples  include Flonase, Paxil, and  Valtrex, and vaccines for influenza, hepatitis B, and poliovirus. The consumer health care section also includes a broad range or products such as over the counter medication, dental health products, and nutritional drinks. Examples of these brands include Aquafresh, Abreva, Nicorette, and Tums. Click here for a complete list of GSK PRESCRIPTION DRUGS, VACCINES, and CONSUMER HEALTH CARE products.

Image References: Flonase, Tums, Glaxo, Smith, GSK Logo