Monday, May 17, 2010

Glaxo Plays Catch-Up to Rivals in Emerging Markets ‘Land Grab’ - BusinessWeek

By Trista Kelley

May 17 (Bloomberg) -- GlaxoSmithKline Plc plans to double revenue from India and China by 2015 as the drugmaker cuts prices to catch up to Pfizer Inc., Sanofi-Aventis SA and Novartis AG in emerging markets.

Glaxo aims to beat the industry’s 12 percent to 14 percent growth in developing-country sales, said Abbas Hussain, the president for emerging markets at the London-based company. Worldwide, drug revenue will increase at least 5 percent a year through 2014, according to IMS Health Inc., which tracks pharmaceutical sales. The difference underscores the importance of winning business in emerging markets, f said.

“There’s absolutely a land grab going on right now because obviously there’s no growth in the U.S. and Europe, or very little growth,” Hussain, 45, said in a May 13 interview at Bloomberg’s New York headquarters. “There’s a real fight on for market share.”

Chief Executive Officer Andrew Witty hired Hussain, a 20- year veteran of Eli Lilly & Co., in 2008. Glaxo’s sales in emerging economies have jumped by 50 percent since 2007 to 3 billion pounds ($4.4 billion) last year. He’s increasing the sales force and snapping up smaller companies. Glaxo now has 30,000 sales representatives in emerging markets, more than it has in the U.S. and Europe combined, and will expand further, especially in China, Hussain said.

“We’ve been playing catch up, particularly in China and Russia, with the likes of Novartis and the Sanofis and the AstraZenecas,” Hussain said. Glaxo is first among its peers in India, Pakistan and the Middle East, he said.

Slashing Prices

Glaxo has been slashing prices of products in emerging markets by as much as 70 percent. Price reductions have helped boost volumes in some markets by sixfold to ninefold in the past four quarters, he said. In February, the company introduced the Avamys allergy treatment in Mexico after doing “very sophisticated pricing research,” Hussain said.

“The old mindset at GSK would have been: Come in and launch it and have access only to the top 5 or 10 percent, to the top people who can afford it,” he said. “We brought it in at a 50 percent discount.” Within four months the company had won 50 percent of patients, he said.

Glaxo is trying a similar strategy in Brazil for the medicine, he said. The company defines emerging markets as Latin America, Africa, the Middle East including Turkey, Russia and former Soviet states, India and China. Sales in those countries, excluding swine flu products, grew 17 percent last quarter.

Volume Play

Operating margins, at about 35 percent, are “matching GSK’s operating margin as a whole,” he said. “It really is an absolute volume play. If we decide we need 500 reps in China we’ll go ahead and do that,” he said.

The emerging-markets strategy carries risks, said Jeremy Batstone-Carr, London-based head of research at Charles Stanley & Co.

“All companies are facing up to the fact that this is where the growth is coming from, and Glaxo is a little bit further down the road than most,” the analyst, who has an “accumulate” rating on the stock, said in a telephone interview. “But it’s very important to be focused on value. If you just go for volumes, there is a risk that earnings are going to be more volatile and be lower quality, and may ultimately feed into the rating of the shares.”

Seeking Acquisitions

Glaxo also has looked for growth through acquisitions, though Witty said in a May 7 interview that he walked from away from five potential purchases or partnerships since October because prices were too high. In December, the company bought Algerian drugmaker Laboratoire Pharmaceutique Algerien for 26 million pounds and paid 87 million pounds for NovaMin Technology Inc. of the U.S.

Net income in the first quarter rose 19 percent to 1.34 billion pounds, boosted by sales of the vaccine for pandemic flu. Glaxo’s stock has returned 17 percent in the past year including reinvested dividends, compared with a 26 percent increase in the Bloomberg Europe Pharmaceutical Index.

“The next eight quarters will define who really is positioned in terms of the land grab that’s going on,” Hussain said. “You can’t be half pregnant in these markets. You either have to go for it, and realize you need huge portfolios, big scale, and reach and distribution, and be willing to innovate, or you decide you’re going to be a boutique player.”

--With assistance from Shannon Pettypiece in New York. Editors: Phil Serafino, Kristen Hallam

To contact the reporter on this story: Trista Kelley in London at

To contact the editor responsible for this story: Phil Serafino at

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