Executive summary
On the basement of the information obtained a new strategy was proposed. Strategy formulation, implementation and contingency plan were outlined. Perspectives of further development of the company were proposed.
Introduction
Health care institutions started endure severe trials since new Medicare’s payment system was implemented in 1983. Actually, they proceed operating in confusing and threatening environment because of legislation, demographic and lifestyle changes, economic forces and technological advances (Swayne, L., Duncan, J., & Ginter, P., 2009).
Salix Pharmaceuticals’ concern is tied to the company strategy and development of products. This case study is to analyze the situation and make proposals regarding possible ways of overcoming obstacles.
1. Brief Introduction of the Company
Salix Pharmaceuticals Inc. is a company manufacturing drugs for gastroenterologist and their patients since 1989. The company’s mission is to provide their clients with pharmaceutical products. Salix Pharmaceuticals posed its strategy as “search and development” rather than “research and development” (“Salix Pharmaceuticals Inc.”, n.d.). At the present the company hires 130 employees, its sales made up $498.3 million with revenue $146.25 million in comparison to 2005 when sales equaled $100 million.
2. Brief Description of Key Issues
As the dugs market is highly competitive, there must be a good strategy for Salix Pharmaceuticals Inc. to retain its position in the pharmaceutical market. Founders of the company started to think whether changing company’s strategy, mission or the way of doing business is reasonable.
3. SWOT Analysis
Table 1 SWOT Analysis of Salix Pharmaceuticals Inc.
Strengths:
- Growth of Xifaxan (gastrointestinal-specific antibiotic) sales
- Strong performance of top line
- Cooperation with strategic suppliers of pharmaceutical products
Weaknesses:
- Dependence on drugs manufacturers
- Ethical issues (lawsuits)
Opportunities:
- Growth of healthcare expenditures in the United States
- Development of conceptually new products
- Opportunity to sign strategic contract with Progenics
Threats:
- Drugs pricing policy
- Liability of products
The potential market capacity for Xifaxan is more than twelve million patients. Xifaxam competed antibiotic market being considered more successful that Colazal.
Strategic alliances give several opportunities to Salix Pharmaceuticals Inc., namely: the company has exclusive rights for certain products and can buy drugs at a fixed price. Thus, the company acquired the exclusive right for developing, making, and selling of Rifaximin from aaiPharma LLC. Biorex granted Salix the exclusive right for balsalazide disodium; signed an agreement with Dr. Falk Pharma for developing and selling mesalamine; bought the rights for hydrocortisone product in 2004 (“Salix Pharmaceuticals Inc.”, n.d.).
On the other hand, dependence on third party drug manufacturers is a serious weakness since Salix has to constantly search new partners manufacturing drugs.
One more serious issue of Salix is a lawsuit received from Napo Pharmaceuticals claiming that Salix has violated the term of the contract concerning development of Crofemeler. The lawsuit had negatively affected the company’s business reputation.
Expenditures for pharmaceutical products comprise approximately 12.9% of total health care costs. This figure is growing giving the company new opportunities for further growth.
Development of new products will give main competitive advantages for the company. Signing contract with Progenics, a company which is specialized in development and commercialization of drugs intended to treat life-threatening diseases. This would give Salix an opportunity to enter new market segment (“Salix Pharmaceuticals Inc.”, n.d.).
Drug prices in the United States are considered highest in the world. The issue is constantly debated in Congress. On the one hand, it ensures high revenues for the company. On the other hand, if the level of prices reduces, there would be no sources for financing new drugs acquisition and development or the price for acquired product would be uncompetitive.
5. Strategy formulation
One of the key advantages of the contemporary pharmaceutical market is to have exclusive rights for products. Salix has built its niche strategy on gastroenterology. Further development of pharmaceutical market and severe competition force the company to find new ways to survive and prosper. Now Salix uses diversification strategy which suggests marketing of large number of drugs to small niches. One of the key Salix’s competitors, GlaxoSmithKline Plc, successfully employs blockbuster strategy which involves development and distribution of small number of drugs aiming to attain considerable global sales. Intermediate model which borrows some of each is considered the most successful in the pharmaceutical market.
6. Recommendation
Taking into account the fact that one of the company founders expertise in inflammatory diseases, there is an opportunity to investigate other diseases and then switch to another strategy.
In general there are several recommendations for the company:
implement intermediate strategy instead of strategy of diversification;
searching potential suppliers providing new drugs which do not relate gastroenterology;
together with in-licensed gastroenterology drugs search for drugs treating other inflammatory diseases.
Focusing on a certain line of product is not reasonable in contemporary pharmaceutical market environment. Using intermediate model would help to mix advantages of blockbuster and diversification strategy (Rasmussen, 2002).
7. Implementation of the Strategy
Salix employs direct sales force to promote its products since this is a very prospective sales approach. The same idea would work for another product as well. Another product would serve as hedge in case if the company does not find supplier of gastroenterology drugs or if it is not able to afford developing or distributing these drugs. The general scheme of this strategy: start searching for the second product designed to treat another inflammatory disease, while the first product (gastroenterology) is maturing. Forming alliances ensures substantial competitive advantage.
8. Benchmarks for Success and Contingency Plan
The main benchmark for success is to use intermediate strategy instead of diversification strategy the company used before. Implementation of intermediate strategy will help the company to diversify risks. Development of two different products would help save costs and further investment to compete effectively (Rasmussen, 2002).
Contingency plan:
switch to the second product in case if the first product is too expensive for development or if supplier initiates changes of the terms of a contract;
outsourcing company’s functions may help save on variable costs that would help to develop a significant competitive advantage;
direct sales are a very flexible method of sales which could be regulated depending on the situation.
References
Salix Pharmaceuticals Inc. (n.d.). Salix Pharmaceuticals Inc. Retrieved from http://www.salix.com
Swayne, L., Duncan, J., & Ginter, P. (2009). Strategic management of health care organizations (6th ed.). West Sussex: John Wiley and Sons, Inc.
Rasmussen, B. (2002). Implications of the Business Strategies of Pharmaceutical Companies for Industry Developments in Australia. Pharmaceutical Industry Project Equity, Sustainability and Industry. Development Centre for Strategic Economic Studies, 1-12.
