GlaxoSmithKline (GSK) Pakistan

Celebrating a decade of operations and leadership, GSK is the largest pharmaceutical company in the country. GlobalSmithKline is a market leader in value, volume and prescription. GSK was created on January 1, 2001, through the merger of SmithKline and French Pakistan Limited, Beecham Pakistan (Private) Limited and Glaxo Wellcome (Pakistan) Limited.
The Company operates two-industry segments within the pharmaceutical sector: Pharmaceuticals, which includes prescription drugs and vaccines and the Consumer Healthcare, which includes Over the Counter (OTC) medicines, oral care and nutrition.
The drug highlights The pharmaceutical Company's brand Augmentin became the first to cross 3-billion mark in the history of pharmaceutical industry. According to the Company's annual report CY11, the Company ranked number one in terms of values, volumes and prescriptions as top 8, top 10 and top 6 products out of 20 in terms of value, volume and prescription, respectively, belong to GSK.
CY11 marked a good year for introductions and new entries as GSK launched five new products into the market. These included drugs for cancer, meningitis, pneumonia, typhoid, nasal and ocular symptoms, urological diseases and gastro-enteritis.
Revenue highlights for CY11 The challenging macro-economic environment in the country and adverse law-and-order situation affected the supply. However, GSK was able to churn satisfactory sales growth of 15 percent during CY11. This was better than 13 percent that the Company could amass during CY10.
The pharmaceutical segment grew by 13 percent over CY10, exceeding the Rs 20-billion mark. Within the pharma business, the antibiotics, cardiovascular, CNS portfolio, dermatology, gastro-intestinal and oncology segments achieved robust double-digit growth during CY11. The legacy brands continued to maintain the momentum alongside new products and SKUs.
The other business segment, consumer healthcare witnessed exorbitant growth of 33 percent during the said period with sales crossing Rs 2.4-billion mark. Aqua Fresh, Horlicks, Panadol and Sensodyne are the main drivers of growth for consumer healthcare business segment especially with line extension of Horlicks brand. The export revenue stood at Rs,727 million during CY11, representing 3.3 percent of total revenues primarily from Afghanistan and Sri Lanka.
Profitability amid costs Eighty percent of the Company's expenses are the cost of sales; and any fluctuation in the input prices and supply constraints would explain the route taken by the profits of the Company. During CY11, GSK witnessed an increase in gross profits by 20 percent as compared to CY10; it is due to not so steep increase in cost of sales in comparison with the revenue growth.
Over the last 5 years, the gross margins have been shrinking constantly due to rising cost of raw and packing materials, higher inflation, depreciating local currency, escalating fuel prices. Moreover, the gross margins have been eroding due to stagnant prices of various products.
However, the gross margins for CY11 at 27 percent were marginally higher than that of CY10.This was consequently due to the better product mix and cost saving aims of the Company. Company invested heavily in its healthcare products; Sensodyne and Horlicks, to increase the market penetration. This explains most part of the rise of 21 percent rise in the marketing, selling and distribution expenditure during CY11.
The administrative costs affected the overall profitability, rising by 24 percent in CY11 vis-à-vis CY10. This was, however, due to one-time severance cost borne by the Company during the said period. Financial charges also inflated due to heavy exchange losses. However, some respite came from the other income, which increased by 16 percent in CY11 over CY10 in shape of better return on short-term investments and bank deposits and efficient disposal of operating assets.
Debt and leverage position The pharmaceutical sector is a low leverage sector. The Company too operates with no debt on its books. The short-term solvency position has improved gradually from current ratios of as high as 5 in CY06 to 2.48 in CY11. During CY11, GSK carried out capital expenditures worth Rs 835 million for plant modernisation, plant improvement and purchase of vehicles. On the current assets side, the surplus funds of the Company decreased due to inventory build-up, which strained the working capital of the pharmaceutical Company.
1QCY12 Performance As the year knocked, the revenues for 1QCY12 did remained pretty flat with only 2 percent increase in total sales by Rs 101 million only from Rs 5,732 million during 1QCY11. The consumer healthcare division grew by 15 percent during 1QCY12 versus 1QCY11, while the pharmaceutical segment churned 8 percent during the aforementioned period.
Net profit for the Company improved by 16 percent to Rs 485 million during 1QCY12 versus comparable time. This was due to cost cutting measures to offset increased freight costs amid escalating oil prices.
Outlook The year remained stressful due to internal and external challenges. For the pharmaceutical industry, the turbulence brought by the devolution of ministry of health, high inflation, depreciating Rupee and the adamant pricing policy remained critical issues year round.
Although the Company bears comparatively lesser risk on account of its market leadership position, quality regulation issues, particularly affecting the Company in the international markets, ongoing energy crisis, counterfeit drugs, patent expiration, bureaucratic procedures, intellectual property rights' issues and transparency in pricing mechanisms are the serious issue of the sector.
Though the sector has a lot of potential, still it remains heavily price-controlled which is a severe blow to the companies operating in the industry. It is high time that the authorities should take immediate steps to approve a pricing policy that is flexible across the board in order to stop the shortage of drugs in the near future. Also concerns loom over the progress of the industry regarding regulatory framework. Much of the viability of the pharmaceutical companies depends upon the development in this regard.