Glaxo Holdings PLC - Company Profile, Information, Business Description, History, Background Information on Glaxo Holdings PLC

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History of Glaxo Holdings PLC

One of Britain's most esteemed companies, Glaxo Holdings PLC is one of the world's largest pharmaceutical entities, second only to Merck & Co., Inc. Glaxo manufactures prescription drugs in over 40 plants throughout the world. The company was transformed from a moderate-sized health care conglomerate into a fast-growing pharmaceutical colossus as a result of the development of the anti-ulcer drug, Zantac. Zantac captured over half of the world's market for anti-ulcer medication and soon became the largest-selling prescription drug in the world. Glaxo executives are quick to refute any suggestion that the company's future depends solely on the strength of one product. Instead they point to Glaxo's long history in drug innovation, its strong emphasis on research and development, and new products soon to be released on the market.

Glaxo began as a merchant trader. After a New Zealand partnership between Joseph Nathan and his brother-in-law was dissolved in 1873, the English-born entrepreneur started an independent company under the name Joseph Nathan & Company. Importing and exporting goods ranging from whalebone to patent medicines, Joseph Nathan prospered. He eventually returned to London in order to supervise his growing business there, while his sons remained in Wellington to manage the company activities in New Zealand.

While on a purchasing trip in London, one of the Nathan sons discovered an American process to dry milk. After securing the rights to this process, the company began production of dried milk at Bunnythorpe factory in New Zealand. Research on the sanitary quality of the milk soon caught the attention of the medical establishment; sales of the product, however, proved disappointing. The most promising market emerged in infant food. Thus, production of Glaxo baby food products began.

Alec, the youngest Nathan son, moved from New Zealand to London to supervise an expansion of the baby food business there. Much of the sales momentum Alec thereafter achieved is attributed to his Glaxo Baby Book, a practical guide to child care. In it could be found the Glaxo slogan, "Builds Bonnie Babies," which would soon become famous. Only a year after the product registered its first impressive sales figures, Joseph Nathan died and the chair passed to his son Louis. Sales continued to grow, and within a relatively short period of time Glaxo Baby Foods had become an important U.K.-based manufacturer.

By the outbreak of World War I production demands compelled the company to build a more modern facility and to hire new staff. Ernest Rose joined the company to supervise manufacturing processes, and Harry Jephcott was placed in charge of Glaxo's rudimentary laboratory. With the completion of Glaxo House, the company's new headquarters, Jephcott's laboratory grew and employed a staff of eight scientists including two women.

In the years that followed, Harry Jephcott moved up the ranks from chemist to company chair. Born in 1891, the son of a train driver, Jephcott received his education in pharmacy. When first hired by the Nathan family he was regarded as "Alec's folly," but he quickly proved his worth and became indispensable to Glaxo's success. As a top executive he was known for his firm leadership and business acumen--a perfect complement to Alec Nathan, who tended to focus on worker welfare. Jephcott's accomplishments eventually were rewarded with a knighthood.

Glaxo Baby Foods sales continued to grow in the years following World War I, and the company expanded into such markets as India and South America. Jephcott's 1923 visit to the International Dairy Congress in Washington, D.C. soon changed the course of Glaxo's history. There he observed Professor Elmer V. McCollum's and Dr. Theodore Zucker's original work in identifying and extracting vitamin D. Recognizing the huge market potential in fortifying Glaxo products with this anti-rachitic, Jephcott persuaded the company's directors to secure a process license. After achieving an immediate success with vitamin D fortified products, Glaxo moved on to produce a pharmaceutical item, Ostelin Liquid, Britain's first commercial vitamin concentrate. Ostelin products eventually included a comprehensive line of vitamin preparations.

In the 1930s Glaxo's major advancements included the production of Adexolin (vitamins A and D) and Oster-milk, a retail version of Glaxo's vitamin fortified milk that soon surpassed the pharmaceutical version in sales. Because of increased business overseas, the company built a factory in India, established a company in Italy, and secured distributorships in Greece, Malaya, and China. In an effort to strengthen the company's increasing activity, Glaxo's pharmaceutical department was organized into a separate subsidiary called Glaxo Laboratories Ltd.

During World War II, the company concentrated on producing pharmaceuticals for the war effort, including anesthetics, penicillin, and a variety of vitamin supplements. After the war Glaxo began the mass production of penicillin in earnest, using the American process of deep fermentation. During this time, several long-time Glaxo employees retired. Harry Jephcott became chairperson of the company upon Alec Nathan's retirement. Ida Townsend, Glaxo's successful export manager, joined the board in 1947, the company's first woman director. Changes also occurred in the company's structure: Glaxo's parent company, Joseph Nathan & Company, was dissolved, and Glaxo became an independent public company. All Joseph Nathan's diversified interests, from butter importing to fencing exporting, were sold to finance Glaxo's growth.

By far the most important of Glaxo's postwar achievements was the isolation of vitamin B12. Along with their American counterparts at Merck, who had achieved the same feat virtually simultaneously, Glaxo had made a major advance in the treatment of pernicious anaemia. Of similar magnitude was Glaxo's synthesis of the hormone necessary for the treatment of hypothyroidism.

In the 1950s Glaxo grew through acquisition and consolidation. The company acquired both a chemical and a medical supply subsidiary and established an independent veterinary department to meet the increasing demand for animal pharmaceuticals. Through a merger Glaxo joined forces with Allen & Hanbury's, one of Britain's oldest pharmaceutical manufacturers. Britain's first commercial cortisone product emerged from Glaxo's laboratories during this time. The discovery of sisal as an abundant source of an important steroid led to the commercial synthesis of a series of corticosteroids.

Glaxo's growth continued into the 1960s. To monitor this growth, the directors formed a new parent company, Glaxo Group Limited. Jephcott assumed the title of chairperson for the holding company. In 1963 he retired from this position, becoming Glaxo's first honorary president, and the physicist Sir Alan Wilson assumed the chair. Glaxo's scientists worked to develop Betnovate, a new corticosteroid. Through a licensing agreement with Schering U.S.A., a pharmaceutical company engaged in original research in corticosteroids, Glaxo developed a production process essential to the manufacture of the drug.

During the next decade, Beecham, an industry competitor, attempted the largest takeover in British history by making an unfriendly bid for Glaxo. To protect its independence, Glaxo management sought to increase its holdings through a merger with a company of similar interests. Thus Glaxo and Boots, another competitor, planned to combine their company resources. Yet neither the takeover nor the merger ever happened. The Monopolies Commissioners ruled against the proceedings on the grounds that innovation declines as companies grow above a certain size. In the wake of the aborted takeover attempt, the company was renamed Glaxo Holdings.

In 1973 Sir Alan Wilson retired and Austin Bide, a long time Glaxo employee, assumed the titles of chairperson and chief executive officer. Other changes during the 1970s included the establishment of a U.S. subsidiary. Domestic consolidation brought all Glaxo's UK operations under one holding company. In pharmaceuticals Glaxo's innovative research in cephalosporins resulted in the development of Zinacef.

Near the end of the 1970s Glaxo suffered from the effects of inflation. Citing Glaxo's continuing dependence on export trade, its failure to expand significantly beyond the British and Commonwealth markets, and its persistent reputation for poor marketing decisions, city analysts projected slower growth in the company's future. What industry observers did not foresee was the release of a drug destined to become highly successful throughout the world. Zantac, Glaxo's tradename for its anti-ulcer drug ranatidine, was still in testing during this time. However, based on the emerging results of these tests, Glaxo knew that Zantac was ready to present a competitive challenge to SmithKline's Tagamet, then the preeminent anti-ulcer medication and best-selling drug in the world.

Soon after Austin retired as chief executive officer, Zantac was launched in several European markets with a high degree of success. Paul Girolami, a long time Glaxo employee who had formerly served as Group Financial Director, assumed Sir Austin's position. Over the next several years Girolami established himself as the architect of Zantac's marketing policy in the United States and Japan. In a joint venture with Hoffmann-La Roche, the Swiss pharmaceutical concern responsible for developing the world's two best-selling tranquilizers, Glaxo introduced Zantac to the U.S. market.

By 1984 Zantac had captured 25 percent of the new prescription market. Glaxo announced plans to build a $40 million plant in North Carolina to manufacture the drug in the United States. Joseph J. Ruvane, Jr., president of Glaxo's U.S. company, claimed Glaxo would become one of America's top ten pharmaceutical firms. The company's actively traded shares increased in price from £2.40 a share in 1980 to £10.25 after a two-for-one split. By the end of the decade, Zantac captured more than half of the world market in its class and became the largest-selling prescription drug in the world. The company employed a unique marketing strategy in 1981: it developed strategic partnerships with drug companies around the world to get an edge in each market. From 1980 to 1988, Glaxo's sales nearly tripled, and in 1989 profits soared 13 percent over the previous year to L1.14 billion, ensuring the company's role as the second-largest pharmaceutical company worldwide.

Over the next few years, however, Glaxo's status declined somewhat. A wave of drug company mergers in 1989 left the company fourth in worldwide sales. The company was reorganized that year, and CEO Bernard D. Taylor was replaced by Ernest Mario, formerly head of U.S. operations. Zantac sales plateaued by the start of the 1990s, when newly formulated anti-ulcer drugs threatened its commanding share, and some industry analysts doubted the company's ability to maintain its lead in new drug introductions.

In 1990, Glaxo announced worldwide regulatory trials for its new anti-migraine drug, Imigran (or sumatriptan, generically). Moreover, Zofran Injection, an important new treatment for the prevention of nausea and vomiting in cancer patients receiving chemotherapy, was approved by the United States Food and Drug Administration early in 1991. Within just over a year, the drug was available in most of the world's markets and registered sales of L259 million in Glaxo's 1991-92 fiscal year.

Glaxo tried to capture some of the entrepreneurial energy of smaller companies through joint ventures. In 1991, Glaxo entered into an agreement with Gilead Sciences Inc. In exchange for about $20 million, Glaxo purchased an equity stake in the company and its potential for creating anti-cancer drugs. The company also sold its interests outside of prescription drugs and increased its research and development allocations. One such development, Ceftazidime, an injectable antibiotic, received a strong market reception in Japan.

Zantac's arrival in Japan had involved major competition in the form of an anti-ulcer drug discovered by the Japanese Yamanouchi Company. The company's difficulties in Japan continued in the early 1990s. Corporate executives cited frequent price reductions and registration delays as impediments to greater success in this, the second-largest market in the world. Glaxo did penetrate the Chinese, Eastern European, and Russian markets in the early 1990s, opening a factory in China and establishing branches and companies in many former Communist bloc countries.

By 1992, Glaxo had captured 3.7 percent of the world's pharmaceutical market, and marked its twelfth year of continuous growth. Profits, however, did not maintain the same pace, having been eroded by research, marketing, and infrastructure costs. At the same time, Glaxo was threatened by competition from Wellcome PLC, a rival that was able to launch more than a dozen drugs during the 1980s and early 1990s, including Zovirax, a herpes treatment, and Retovir, a drug to combat AIDS. Glaxo has been able to retaliate with the introduction of new asthma and hypertension treatments, in limited markets, but has yet to launch a product that could duplicate Zantac's success. Industry observers and the company's directors remain confident, however, that Glaxo's continuing success will be generated by its long history of developing noteworthy pharmaceuticals and effectively marketing them.

Principal Subsidiaries:Glaxo Group Ltd: Glaxo Group Ltd. (U.K.); Eschmann Bros. & Walsh Ltd. (U.K.); Evans Medical Ltd. (U.K.); Farely Health Products Ltd. (U.K.); Glaxo Animal Health Ltd. (U.K.); Glaxochem Ltd. (U.K.); Glaxo Group Research Ltd. (U.K.); Glaxo Operations UK Ltd.; Glaxo Pharmaceuticals Ltd. (U.K.); Glaxomed Ltd. (U.K.); W. H. Deane (High Wycombe) Ltd. (U.K.); Macfarlen Smith Ltd. (U.K.); Glaxo Export Ltd. (U.S. and U.K.); Matburn (Holdings) Ltd. (U.K.); Glaxo Inc. (U.S.); Glaxo India Ltd. (40%); Glaxo Korea Co. Ltd. (50%); Glaxo Nigeria PLC (40%); Chongqing Glaxo Pharmaceuticals Ltd. (50%).

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Further Reference

Feinberg, Phyllis. "Creating Joint Ventures for David and Goliath," Corporate Cashflow, May 1991, pp. 57-58.Foster, Geoffrey. "How to Make Yourself Wellcome," Management Today, July 1992, pp. 68-71.Gerrie, David. "Can Marketing Keep Glaxo in Pole Position?" Marketing (UK), October 18, 1990, pp. 24-25."Glaxo Goes It Alone," Chief Executive, June 1990, pp. 22-25.Reekie, Duncan W. The Economics of the Pharmaceutical Industry, London: Macmillan, 1975.Rosenberg, Jack, and Cynthia Starr. "New Drugs of 1990," Drug Topics, January 21, 1991, pp. 31-43.Savitz, Eric J. "Glaxo's Headaches: A Remarkable Drug Company Faces Some Challenges," Barron's, June 17, 1991, pp. 8-9, 18-22."Science and Technology: Glaxo's Headaches," Economist (UK), November 17, 1990, pp. 111-112.Sheeline, William E. "Glaxo's Goal: New Wonder Cures," Fortune, v.120, November 6, 1989, pp. 101-108.Teitelman, Robert. "Staying Power," Financial World, April 4, 1989, pp. 28-30.

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