Fundamentals of Investment Management - Example

Financing New Ventures under MBA Program Task Financing New Ventures under MBA Program Introduction The company under review isthe GlaxoSmithKline plc, which is a pharmaceutical company established in the British dealing in pharmaceuticals, biologics, consumer health products and vaccines. The company has its headquarters in the Brentford London and has been named the sixth largest pharmaceutical company considering their revenues for the year 2013. The merger of 2000 between Glaxo Wellcome resulted from the purchase of Wellcoem plc Company by the Glaxo plx company. The two also associated with SmithKline Beecham plc to form the current GlaxoSmithKline Company. The company has been trading on the London stock exchange for a long time now with its market capitalization leveling at 79 billion Euros (Stock Challenge, 2014). It is a multinational company; it has spread all over the world with many roots in many different countries. The presence of the company in many countries has created the need to invest massively on the funding of the operations of the business and hence ability to sustain the market needs that lead to better returns. The understanding of these needs creates the ability to understand the financing needs of the company. The global presence has also created the ease of marketing and increased the market presence that has led to better returns for the company rated in relation to the performance over the years rated with 2013 where it performed best running as the sixth in the different pharmaceutical companies. The investment that the company employs in running its business and managing their working capital has helped the business sustains the expansion abilities. The research paper developed below deals with detailing of the company, its products, the market within which it trades the valuation aspects and the different competition aspects of the company. Life cycle analysis Considering the normal life cycle of companies and products, the company is in the mature phase of its life cycle. The life cycle of any company runs in four stages, that is the first stage that deals with research and development that initiates the company in response to the needs of the market. The second stage is that which deals with the growth aspects through which a company launches the products and starts growing to final maturity. At this stage, the market that buys the company’s products majorly are the initiators and their closest allies, families and friends. The growth stages indicate the company is on the take off and its future does not seem so bright at the initial stages. The company is therefore vulnerable at this stage and has the owners use more resources than they earn. More of the company’s finances are involved here and little returns are registered. The mature stage is the one in which the company proves a success or failure. Companies that reach this stage struggle with competition majorly if they pioneered the product or industry. Companies face more challenges in this stage and require tactical management to survive through these times. Companies that make it through this stage remain here for a long time and those that fail end up in the declining stage that if not worked out of leads to failure of the company hence its collapse. The company GlaxoSmithKline is at this stage of the life cycle where it has survived for a long time based on the demand aspects for its products and the commitment of the owners and the teams employed to run the affairs of the business. The company here involves more research and development to help it keep reinventing their products as a way of keeping the competition in their favor. Products The manufacture of pharmaceutical products has proven an essential need for the market. The prevailing need for these products has created a persistent demand that has played a role in leading the business of GlaxoSmithKline plc in their efforts to match the demand of their pharmaceuticals. The company deals with drugs and different vaccines that provide support for prevention and treatment of a variety of diseases. The company has manufactured products that aid in the treatment of diseases such as asthma, different infections, digestive disorders, mental conditions and cancer. Among the many products that the company has gained prominence in include advair, augmentin, lovaza, flovent and lamictal as per the 2013 reports. These products sold most and hence streaming in good revenue returns for the company. The market established for these products is based on the demand aspects for medicines and vaccines. The company values the quality of their products much as it values its customers making it consider through quality maintenance measures that have guided the company in leading a positive life and managing to scale through the challenges that rock its everyday affairs. The company having been among the historical discoverers of many of the medicines makes it a pioneer in the business with most of these products now sold as generic products. The company obtained a 21.3 billion euro from the sale of drugs in the year 2013 with the other section of its business relating to customer health care earning 5.2 billion Euros in the year 2013. The combination of viable marketing mix elements that is the price, the product, physical evidence, people that mark the customers and the place make the company’s products successful in the market. The product is also based on continuous research and development that enables the product development covers the customer demands. Markets The markets for pharmaceutical products remain challenging. This market is marked with much research and development hence more costs of operations and product development, legal aspects and regulations that aim at controlling the manufacture, distribution and other market aspects related to the manufacture of these pharmaceutical products. For one to fully engage in the trade of pharmaceutical products there is need to have a license that authorizes them to deal the products. Any manufacture of new products is highly restricted to massive tests that will ensure its effectiveness in dealing with the purported problem and its ability to prove harmless to the consumers. Most of the products developed in the market have approval from major bodies including the medications board in different countries and on the international standard. The market is therefore challenging especially for new entrants. The sale of generic products has become the order of the day and these regulated strictly making the field a more cautious one that needs a critical consideration of the products and the ability of the company to sustain the pressure from the competition. The laws in variety and the different regulations that surrounding the patenting aspects, testing and safety measures involved in this field have regulated the market and made it more associated with a few players. The same aspects have covered the regulations of the efficacy of the drugs and their market. The market of drugs is therefore quite challenging and the old companies that obtained the green light earlier have enjoyed more profits. GlaxoSmithKline plc has managed to run in the market due to its pioneering of a number of products in the industry. The company has controlled the market and remains profitable due to their efforts in keeping to the regulations in the industry. The company has managed to command the market making it among the top most companies that deal in the drugs and vaccines. Financial health of the company The financial health of the company is based on the different analysis of the financial statements that include the income statements and balance sheet. The statements play a role in defining the financial abilities of the company and its ability to sustain the costs of operation and remain profitable in the business. The analysis includes a profitability analysis, a market analysis that all relates to consideration of the values in the income statements, balance sheets and the cash flow statement. For the analysis also enables one value the company for the investors. These result from the analysis and the results obtained. Based on the financial performance of the company one understand that the company is in position to prove profitable for the investors that would allow one to consider investing in it. The different return abilities that the company has proven to cover helps it prove good in returns. Considering their improvement in profits from 7313000 to 9003000 from 2012 to 2013 indicate a positive improvement that if maintained would indicate a positive return ability of the company (Income Statement, n.d). The company is in good shape and could prove positive in covering the necessary returns needed by investors. Economic structure The economic structure of the industry is anchored on different pillars including research and development, different price management regulations by the different countries, different regulations that cover registration and acceptance of new players in the market and tax incentives that favor the development of the industry. Considering the research and development aspects, one learns that research and development of the industry is vital in leading to better product and company management. Research aims at improving the abilities of the products that the different companies produce. The research and development also covers the ability of the company to understand the market needs and cover them more efficiently leading to better business management. The product development is much reliant on the research and development efforts that aim at identifying the needs of the market and developing the products based on that as a way of leading to better product development. Price regulations that have worked towards the management of the prices that the products have on them all play towards the economic aspects of the company (Danzon, 2006). The production of medicines and vaccines are marred with regulations that aim at providing the products to the customers at an affordable price. The prices on drugs are aimed at making them affordable to all hence helping serve the purpose they are destined to serve. Governments that in return want the products developed and sold at a cheap price that is affordable to all people supplement most of the costs of the production of drugs. These reflect the price management regulations covering the sector. Tax incentives play a role in controlling the costs of the products. Some of the products that the international community views more difficult to obtain or that have a huge need like HIV/AIDS drugs have either been subsidized or have taxes limited in many countries to allow easy accessibility. These aspects have played a huge role in controlling the competition in the industry making it more based on the regulations and the essence of the products. A good example is the drugs produced for HIV/AIDS that have much been issued based on humanity rather than profit making. Economic factors to consider Other economic factors include the mergers and acquisitions that led to the formation of the company, external spillovers that affect the reception and changes of prices and production of drugs and vaccines in different countries, these and other aspects of inflation all affect the way the production of drugs and vaccines affect the economy. The aspects of financing also cover grounds in limiting and affecting the economy around the production of drugs and vaccines. The availability of credit and other financial aspects that encourage the development of the products affect the product either positively or negatively. Government regulations to consider A number of government regulations exist that affect the production and distribution of drugs. These include regulations on the prices and regulations on distribution and sale of the products. The different regulations have aimed at restricting the production, distribution and access of drugs and vaccinations. The effect that these products can cause on a person plays a huge role in ensuring that the government regulates their access and consumption. Consumption of drugs is controlled through restriction of sale with evidence of prescriptions from qualified medical personnel that guides the usage of the products. The products administration is also controlled through different measures. The production limitations allow for production of controlled drugs and those that only aid in keeping the products on the market controlled. Competition The competition in the industry is more regulated by the government and international bodies that aim at keeping discipline in the sector. Different companies involved have existed for longer enough to know the different needs that the market needs to satisfy. The competition has also ensured that the current companies involved cover the necessary grounds to ensure that the products developed match up to the standards developed by the regulatory authorities. There exits different competitors that the company faces that include the Johnson & Johnson, Hoffmann-LaRoche, Sanofi, Novartis and Pfizer. These beat GlaxoSmithKline in the past year 2013 and pose a threat to continuing ruling the market off the company. Competition strategies For success in the industry, companies need to ensure that their strategies cover all the necessary regulatory aspects (Hirt, & Block, 2011). The companies majorly aim at product development and quality maintenance as a competitive strategy. The companies are limited in price wars; they keep their prices within the range accepted by the government. The current challenges of the counterfeits on the market have affected the competition. The best approach that the different companies have employed includes the product management aspect and constant research. The research and development has helped the company understand the market and the competition that has helped the management of GlaxoSmithKline. Porter’s five competitive forces The porter’s five competitive forces is a model that covers the aspects of threat of new entrants in the market, the threat that substitute products or even the services the company has, the bargaining power of the different buyers, the power of bargaining that the suppliers employed and the intensity of the rivalry in competition all cover the porter’s model (Porter, 2008). Considering the new entrants in the market, the company GlaxoSmithKline has managed to contribute to the market of drugs and vaccines through the management of their quality and meeting the demands of the products. The threats have of new entrants are not as much in the industry based on the different regulations that industry have. These have also managed to support the industry and control the new entrants. The substitute products that have also covered the market and the fact that most are counterfeit and going for a cheaper price affect the company. The presence of these products on the market generally affects the ability of the real products produced by different companies. These affect the company and needs control if the company is to maintain their positive performance. The bargaining power of the customers does not affect much of the production aspects in this industry since most of the products developed by the company have their products prices regulated by the different regulatory bodies. These have all covered the effect of the price changes and allowed for accessible and favorable access by the consumers. The bargaining powers of the suppliers have a role in controlling the prices of the products. It is for this reason that many government organizations have come to provide funds for the producers of these products as a way of cushioning the supplier price effects and ensuring that the products prices remain favorable for consumers. The intensity of the competitive rivalry has created the need to keep the industry vibrant making its players more vigilant with their products and the level of sophistication they employ. Many have also embraced technology as a way of keeping more costs controlled and allowing for empowerment and the improvement of the profits that the company realizes overtime. In conclusion, the company being in an industry that is heavily regulated registers good returns if well controlled and operational costs remain streamlined. The availability of counterfeit goods on the market threat to affect the ability of the company to obtain good profits but the continuous management of the costs will aid the company maintain their returns. Following the performance of the company in the previous year’s 2011, 2012, and 2013, the company is in position to cover positive returns over the years. References Danzon, P. M. (2006). Economics of the Pharmaceuticals Industry. Retrieved from http://www.nber.org/reporter/fall06/danzon.html. Hirt, G. & Block, S. (2011). Fundamentals of Investment Management. McGraw Hill Irwin. Income Statement, (n.d). Income Statement. Retrieved from http://finance.yahoo.com/q/is?s=GSK+Income+Statement&annual Porter, M. E. (2008). Competitive Strategy: Techniques for Analyzing Industries and Competitors. Simon and Schuster. Stock Challenge, (2014). FTSE ALL-Share Index Ranking (unofficial guide). Retrieved from http://www.stockchallenge.co.uk/ftse.php. Read More