IntroductionThis study is a comparative analysis of the strategic financial management and relative financial health of two large pharmaceutical producers, GlaxoSmithKline plc and AstraZeneca plc. The methods used to compare the two companies are horizontal and vertical analysis, ratio analysis, and the Altman Z-score analysis. The financial information for the two companies is primarily drawn from the annual Form 20-F filings of each as required by the US Securities and Exchange Commission, for the years 2005 through 2008.Company Overview: GlaxoSmithKline plcGlaxoSmithKline plc was incorporated in England in December 1999, in preparation for the formation of the company by the merger of GlaxoWellcome plc and SmithKline Beecham plc, both major pharmaceutical manufacturers, in December 2000.
(GSK, 2005) The company is the producer of well-known prescription medicines such as Avandia, Tagamet, and Zantac, and also produces a number of consumer healthcare products, among which are Aquafresh toothpaste, Tums, and Lucozade. As of 2007, GSK was the second-largest pharmaceutical company in the world with a market share of 5.4%, just behind Pfizer (6.2%) and ahead of Roche (4.3%). It is forecast that GSK will surpass Pfizer by 2012.
(Medical News Today, 2008)Company Overview: AstraZeneca plcAstraZeneca plc is also the product of a merger of two pharmaceutical firms, Astra AB of Sweden and Zeneca Group plc of the UK; the merger was completed in May 1999. (AZ, 2009) Among the medicines produced by AstraZeneca, the most familiar are Inderal, Prilosec, Nexium, and Xylocaine. According to Wood Mackenzie (2006), AstraZeneca is the sixth-largest pharmaceutical company in the world based on sales, and the second-largest behind GlaxoSmithKline in the UK. (Wood Mackenzie, 2006, and Ruddick, 2008)Key Business Strategies: GlaxoSmithKline plcGSK has dedicated itself to three strategic priorities: Grow a diversified global business, deliver more products of value, and to simplify its operating model.
(GSK, 2009) Geographical expansion is focused on emerging markets, and particularly on Japan. Key product expansion is in the areas of vaccines and consumer healthcare products. Simplifying the operating model is planned through streamlining processes, developing a single commercial support structure for Europe and Asia/Japan, and centralising operational management in a single US headquarters for the North American market. Another key initiative is reducing the current working capital requirement, which was about £8 billion in 2008.
(GSK, 2009)Key Business Strategies: AstraZeneca plcThe key strategies at AstraZeneca are described as strengthening the pipeline, growing and re-shaping the business, and improving the culture of responsibility and accountability. (AZ, 2009) A major part of AstraZeneca’s strategic planning focus is a program called SEWS, which stands for Strategic Early Warning System; it is a program of intensive market and competitor analysis, designed to keep the company fully informed of developments and trends in the industry. (Gilad, 2003) The 2007 acquisition of biomedical firm MedImmune was one component of AZ’s expansion strategy; others included various organisational restructuring initiatives in a fashion similar to those pursued by GSK. Horizontal Analysis Comparison (Profit and Loss Accounts) [Tables 1.1 & 1.2]: Horizontal financial statement analyses permit the specific comparison of line items between companies.
In the case of GSK and AZ, however, there is one obvious difficulty in this, because GSK’s financial information is presented in British Pounds (£) and AZ’s is in US Dollars ($). Accordingly, the vertical analyses of the profit and losses accounts and the balance sheets will provide a better direct comparison.
Nonetheless, there are a number of conclusions that can be drawn from the horizontal analyses.