GlaxoSmithKline (GSK) is a British pharmaceutical, biological, and healthcare company, formed in December 2000 through the merger of Glaxo Welcome and SmithKline Beecham, and it is the world's second largest pharmaceutical company, by employees; and a research-based company with a wide portfolio of pharmaceutical products covering anti-infectives, central nervous system, respiratory, gastro-intestinal/metabolic, oncology, and vaccines products. It also has a Consumer Healthcare operation comprising leading oral healthcare products, nutritional drinks, and over the counter medicines.
It is listed on the London Stock Exchange and it is constituent of the FTSE 100 Index, Head quarters in United Kingdom and the operation base in US and in one of the industry leaders with an estimated about 7 percent of the world pharmaceutical Market . GSK has operated its business in 114 countries and sold products over 150 countries. The GSK operates in two segments: Pharmaceuticals and Consumer Healthcare. On June 5, 2008, GSK acquired Sirtris Pharmaceuticals Inc., a biopharmaceutical company. On October 14, 2008, group also acquired the Egyptian mature products business of Bristol Myers Squibb (BMS). GSK places a lot of emphasis on research and development (R&D) in order to provide medicines that are a result of the latest research in medical science
AstraZeneca is one of the world leading pharmaceutical and agro-chemical British-Swedish pharmaceutical company formed on 6 April 1999 by the remerger of Swedish Astra AB and British Zeneca Group plc.
Company products range from antacids and hay fever remedies to important new drugs to thwart diabetes, cardiac disease, asthma and cancer, And it engaged in the research, development, manufacture and marketing of prescription pharmaceuticals and the supply of healthcare services, is one of the top five pharmaceutical companies in the world world , invest over $4 billion in R&D each year and have over 11,000 people in research and Devolopment organisation. . It is a public company and is listed on the London Stock Exchange, the New York Stock Exchange and the OMX exchange. AstraZeneca has employees of 60,000 are active in more than 100 countries, generating some $32 billion sale in 2009. The company is headquartered in London, but a quarter of all employees are based in the Swedish cities of Mölndal
Research and Devolopment
GlaxoSmithKline expenditure for Research and Devolopment
Increased 4% and included charges related to the major restructuring programmes of £175 million (2007 – £90 million). Excluding these charges, R&D expenditure increased 2% in CER terms as investment in the late stage pipeline was partly offset by restructuring savings.
Were as AstraZeneca invest over $4 billion in R&D each year and have over 11,000 people in R&D organisation
GSK has built one of the strongest pipelines of potential new medicines in the industry. In 2009, Pharmaceutical R&D was actively managing over 150 projects in human clinical trials across the globe. Delivering this pipeline to patients safely and efficiently is the number one goal.
GSK is making a vital contribution to developing country healthcare
through action in a number of areas including: preferential pricing of our anti-retrovirals and anti-malarials; tiered pricing of our vaccines; we are the first pharmaceutical company to adopt this practice. For comparative purposes the total value of donations in 2009 using WAC for products would be £467 million compared with £343 million in 2008.
Managing for value is related to the maximisation of long-term cash-generating capability of an organisation. There are three main issues which can determine the value creation of an organisation. They are funds from operations, investment in assets, and financing cost. These factors can increase shareholder value. The key value and cost value drivers have influence on the cash generation capability of the organisation.
Funds from operations: It is the main contributor to value creation. In long term, it concerns the length to which the firm is operating profitably. It is decided by:
• Sales revenue: based on sales volume and the prices that the firm is capable to maintain in its markets
• ‘Production’ and selling cost: both includes fixed and variable elements
• Overhead or indirect costs
Investment in assets: the length to which working capital and assets are being extended is also a key consideration. This can influence value creation as follows:
• The cost of capital investment or in sometimes, disposal of redundant assets
• The management of the factors of working capital like debtors, stock, and creditors will decrease or increase shareholder value as indicated
Financing cost: the mix of capital in the business – between debt (requiring interest payment) and equity will decide the cost of capital.
The percentage of the total sales of given type of product or service those are attributable to a given company. The three characteristics of market share are descriptive, competitive and profit oriented. Market-share analysis: evaluating competitive marketing effectiveness .[Cooper ,2000]
Global pharmaceutical sales in 2009 were £468 billion compared
With £366 billion in 2008. AstraZenaca have total revenue of 2009 is 32,804 , which is 1.2 million increase in the past year .despite in worlds economy AstraZenaca sales increase by 7 % compare to last year sale . It has total sale of $ 32,804 million in that $ 11,543 as a operating profit While Gsk have the market share of 7 percent of total world pharmaceuticals market . While compare to Astrazeneca it has only 3 % increase in the last year sales. Gsk has total 28.4 billion dollar sale in 2009.
Glaxo SmithKilin Astrazeneca
Operating Profit 28.4
GSK’s share price is strengthening day by day due to their business operation which covers over 100 countries and also the ever-diversifying product line
makes a significant impression on their stock prices. But the price of AstraZeneca is quite fluctuating while compare with Gsk. AstraZeneca was pretty dramatic, with the “disappointing” fourth-quarter and annual earnings AstraZeneca’s share price plummeted, despite efforts by the company to prop it up through a $1 billion share buyback. “If you throw in the uncertainty surrounding US health care reform, it’s clear that 2010 is going to be a challenging year,” was the somewhat understated comment from the company’s CEO, David Brennan. Most of the brokers and stock analysts have estimated a bright future to GSK’s stock in the market (http://uk.finance.yahoo.com). All the analysts have suggested the existing stock holders to hold the current stock as GSK is expected to report its highest net income in the coming year which is why its value in the short and long run will probably rise (Telegraph, 2009).
Product structure - Dividend Yield and Price Earning
The Dividend payout ratio calculates the proportion of earnings that a business pays out to shareholders in the form of dividend .
In order to calculate and discuss the Dividend Yield and Price Earning Ratio, let us consider the share price of GSK listed in the FTSE 100 as of July 15, 2009 of 1.238 p.
Now, the dividend yield can be calculated by using the formula:
Dividend Yield = Annual dividend per share / Stock’s price per share
= 53.00 / 1,238 = 5.90%
AstraZeneca reported earnings per share for the full year were $5.19 (2008: $4.20). The Board has recommended a second interim dividend of $1.71, a 14% increase over the second interim dividend awarded in 2008
This ratio helps an investor compare and decide the relative attractiveness of a stock as compared to other investments such as bonds, certificates of deposits, etc. A yield of 5.90% is not very impressive but one has to consider the current economic turmoil that has been surfacing for sometime now. This economic downturn has had its due share of impact on the company’s ability to give out dividends and thus the yield is lower.
Price Earning Ratio
The price Earning Ratio is used as a ratio that indicates the price paid for a share relative to the net income earned by the company per share. So, this ratio tries to establish a relationship between the stock price and company’s earning. P/E ratio can be calculated by using the formula described below
Now, taking Gsk stock price as 1,238 p and dividing it by the current EPS (as of July 17, 2009) of 88.60 p, we get:
= 1,124.5 / 88.60 = 13.97 years
This means that it will take about 12.5 years of dividends to cover up the price paid for a stock.
AstraZeneca : EPS for the full year increased by 23 percent to $6.32,
=2905/6 = 8.66
So that AstraZeneca showing better performance that Gsk in price earnig per ratio. They also have better growth rate of 23 % while compare to last year
The profitability ratios and other ratios are key to understanding financial statements. Our ratio calculation spreadsheets reduce time and effort in calculating decision making ratios. They reduce risk for lenders and investors and enable owners, managers and consultants to increase productivity and business profits. These spreadsheets are bargain priced to provide a huge return on investment.
Gross Profit ratio is calculated by
GlaxoSmithkline in the last 3 year starting from 2007
YEAR 2009 2008 2007
Gross Profit Ratio 76.5% 76% 77%
Net Profit Ratio 19.5% 19% 23%
YEAR 2009 2008 2007
Gross Profit Ratio 82.5% 79% 78%
Net Profit Ratio 32.5% 27% 26%
Current Asset Ratio : Gsk and AstraZeneca foryear on 2008 and 2009
YEAR 2009 2008
GlaxoSmithkline 1.4 1.7
Astrazeneca 1.3 3.4
Liquidity Ratio or Acid Test ratio
YEAR 2009 2008 2007
GlaxosmithKline 1.29 1.29 1.00
AstraZeneca 3.8 1.06 1.00
GSK’s current ratio is slightly tentative and indicates a lower margin of safety with respect to meeting current obligations. GSK's current ratio will not allow the management to take more debt as compared to previous years (Bized, 2009).
Profit Margin may change because of changes in sales ,product mix , market mix for sales and profit ,expansion due to merger or acquisition or changes in selling price .Over the entire 5 year period, GSK’s profit margin has been quite stable. Although GSK has made significant additions to its product line and have tried to come up with innovative products using state of the art technology, which obviously adds to its Reaserch and Devolopment .
But in the case of AstraZeneca profit margin is bit wider than the GlaxoSmithkline . Profit margin is increasing in 20 % in 2008-2009 . Its mainly because of acquisition of Smaller pharmaceutical firm .
Future Plan and Policies
AstraZeneca has five products awaiting regulatory approval and that the company is planning to sustain double-digit growth in its emerging markets business with selected branded generics. The company is also looking to expand its number of external partnerships to fulfil its goals.
By way of contrast to the AstraZeneca news, Bristol-Myers Squibb was able to report “strong operational and strategic performance” in its fourth-quarter results, capping a year of “transformation” in 2009. The company’s chairman and CEO, James M. Cornelius, said key products and a continued focus on productivity were major contributors to this success, but that strategic initiatives such as the splitting off of Mead Johnson, the acquisition of Medarex, and an extended product commercialisation agreement with Otsuka Pharmaceutical had also played an important part.
GSK held investments, including associates and joint ventures,with a carrying value at 31st December 2009 of £1,349 million(2008 – £1,030 million). The market value at 31st December 2009was £2,225 million (2008 – £1,883 million). The largest of theseinvestments are in two associates: Quest Diagnostics Inc., whichhad a book value at 31st December 2009 of £410 million(2008 – £463 million) and Aspen Pharmacare Holdings Limited,acquired this year, which had a book value at 31st December2009 of £372 million. The investments include equity stakes incompanies where the Group has research collaborations, which
provide access to biotechnology developments of potential interest
and interests in companies that arise from business divestments.
Trade and other receivables of £6,492 million have increased from
2008 reflecting the relatively high vaccine sales
Although AstraZeneca portrays a very strong and positive position in the market place and without doubt is the market leader, there are certain areas where in AstraZeneca should pay attention to. AstraZeneca is loosing the patronages of its investors. Although the investor’s confidence in the company is in considerably good position, there is a huge drop in the indication levels of investor confidence. For any public organization investors are the key to their success, AstraZeneca should become aware of this fluctuation and increase its investor’s confidence towards the organization.
More efforts need to be concentrated towards improving AstraZeneca Research and Devolopment , Patends and sales processes. This includes almost the whole functionality of the logistics department. If properly managed AstraZeneca could see an increase in sales for ever $1.00 of inventory.
On the whole the organization is profitable and in an excellent position. Since AstraZeneca is one of the top five market leader its influence over the industries performance is paramount. With the introduction of their new patends , AstraZeneca is bound to maintain its position as the industry’s leader.
GlaxosmithKline (GSK) Inc has a huge business volume and due to high business volume the level of risk associated with the company is also high so in order to reduce the risk audit firm formulates and designs techniques like adaptation to managing risk. The risk would include:
• Interest rate risk
• Foreign currency exchange risk
• Operational risk
• International Economic situation
GlaxosmithKline (GSK) management also needs to address these issues. It should try to minimize the dependency on third party agreements and in this regard management should redefine its role. Different Government policies exist in different parts of the world and customer preferences may also vary from place to place, so GlaxosmithKline (GSK) would require policies and strategies to counter these issues. Due to the rapid change in the global markets and the product innovation that goes along with customer’s desire, GlaxosmithKline (GSK) modifies and upgrades their products and services. They have to bit more cautious for developing new product that doesn’t effect any harm for the brand name
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