Executive summary p.3
Introduction p.4
Generic drugs vs drug discovery businesses pp.4-6
Specific constraints in high-risk R&D, being faced by emerging markets pp.6-7
Glenmark business model pp.7-8
R&D action plan pp.8-9
Conclusion p.9
References pp.10-11
Executive summary
The following case study analysis is aimed at getting an insight into a wide range of issues, being associated with the activities of Glenmark Pharmaceuticals, one of most well-known pharmaceutical companies in the world, headquartered in Mumbai, India. Ckenmark business is currently being divided between two enterprises, namely Glenmark Pharmaceuticals Limited and Glenmark Generics Limited. Aligned managerial teams of both enterprises pursue such common goals as becoming a global company, focusing on emerging markets for branded generics business; launching generics business in developed countries, as well as focusing on high-risk discovery research. The first purpose of the analysis is comparing the generics and drug discovery markets with a special focus on deciding whether it was worth entering discovery space for Glenmark Pharmaceuticals business. In this respect both markets will be analyzed with the help of Porter Five Forces analysis. Peculiarities of the markets will be considered in the light of most common global and national trends of their development. Secondly, specific constraints, being faced by emerging market firms with regard to pursuing high-risk discovery research, will be analyzed. Thirdly, an insight into Glenmark Pharmaceuticals business model will be provided. Last, but not least focus of case study analysis will be considered with elaborating on an action plan for Glenmark Pharmaceuticals Limited in terms of discovery research. Blue ocean strategy, which have been developed by W.Ch Kim and R.Maubogrne (2005), will be applied to the activities of Glenmark Pharmaceuticals Limited in terms of deciding on top priorities of Glenmark Pharmaceuticals Limited action plan in the area of high-risk discovery research.
Introduction
One of most debatable issues in modern healthcare concerns the difference between brand name drugs and related generics, which are being marketed after the expiry of patent or marketing rights of the patented drug (Bera&Mukherjee, 2012, p.576). Being involved in generic drugs production business can be considered a good investment, which does not require long period of time to pass before extracting value. Extra benefits, which can be used in this regard by Indian companies, include exploiting various cost advantages, reverse-engineering related strengths, as well as world largest number of the plants, approved by the U.S.FDA (Greene, 2007, p.26). In this regard one can easily question the need to get involved in other sectors, especially the ones, concerned with high risks, while involvement in generic drugs market and related growth can be viewed as a prerequisite for success.
Comparing generics and drug discovery business
Drugs and pharmaceutical industry plays a crucial role in the economic development of India. As the knowledge-driven industry, which have recently shown a tremendous growth with regard to the development of infrastructure, technology and labour force, pharmaceutical industry in India offers wide range of investment opportunities. Most important ones are concerned with such activities as low cost of producing high-quality bulk drugs and formulations, strong scientific, technical and innovative manpower, low research and development costs, as well as being an excellent clinical trials with regard to the diversity of population (Business.gov.in, 2013). The important benefit to be mentioned with respect of both markets is being associated with laws and regulations, governing pharmaceutical industry in India, being in line with India’s obligations under the WTO and TRIPS. So, generics and drug discovery businesses in India share a range of common traits, such as relatively low costs, associated with running the business and, therefore, allowing to establish competitive pricing after having imported drugs or generics to developed countries; strong leadership in terms of knowledge and innovation, as well as laws and regulations, aligned with internationally set requirements. After having discovered common traits of the businesses, let us separately analyze them with regard to Porter’s Five Forces Model.
The threat of entry into drug discovery business can be estimated as low due to heavy expenditures to research and development (even if it is mentioned above that the costs are low, it is worth remembering that this estimation is made by comparison with related costs, being spent on research in developed countries). The process of developing a drug is time-consuming, expensive and associated with the need to comply with wide range of highly specific regulations, developed by regulatory agencies abroad, such as FDA in the USA or CSM in the UK. Substantial barriers also apply to intellectual property matters. Supplier power can be estimated as low due to the fact that there are lots of companies in India, willing to sell raw materials to rapidly developing pharmaceutical industry. Bargaining power of consumers can be estimated as extremely low due to the fact that substitutes are not likely to exist for newly developed drugs. Furthermore, consumers may lack choice and be totally insensitive for price due to the fact that buying a drug can be a matter of life and death. As the research is innovative, the threat of substitutes is quite low. Nevertheless, it exists due to the fact that global pharmaceutical industry faces common tasks with regard to combating particular diseases. Completive rivalry is intense both in global and national terms. Main threats in R&D are to be associated with high costs, long term, needed to extract value from innovations, as well a threat of substitutes, being developed by other R&D ventures. In order to get involved into drug discovery business, a company needs a guarantee that it will be able to make all necessary investments and recover in case something goes wrong over a period of extracting value.
The threat of entry into generic drugs market is lower than the one, associated with drug development due to lower costs, which are to be invested. Bargaining power of suppliers can be estimated as the same by comparison with drug development business, while bargaining power of customers is higher due to the fact that more substitutes are available. Thus the threat of substitutes is also higher. The competition (especially with regard to export) can be also considered high due to the fact that when there are multiple generic versions of the same drug available, develop countries’ pharmacies tend to choose the generic version, which can be best substitute for a drug (Guha, Lacy & Woodhouse, 2008, p.7). Special concern is related to high level of uncertainty in generic drugs’ market (Puente, Fuente, Lozano &Gascon, 2011, p.33). Nevertheless, competition-, substitutes-and uncertainty-related threats are being balanced by relatively low costs, needed to launch a new product development and related chance to deal with a broad range of products.
Specific constraints, which emerging market firms face, when they pursue high risk R&D
Constraints, being faced by emerging firms in this regard can stem from peculiarities of operation in terms of emerging economy, risks, associated with discovery research, as well as the combination of both factors under study. According to Hoskisson, Eden, Lau and Wright(2000), most common constraints, which are being faced by companies in emerging economies relate to the lack of market-based strategies development and the lack of stability both in political and economic terms (p.264). Endeavour-specific risks include long-leading times from actual discovery of the drug and its being approved by regulatory authorities, the significant probability of failures at the stage of clinical trials and unpredictability of sales, once a product was marketed (Dickson, 2009). Extra risks, associated with the developments of the industry, also relate to increasing complexity of clinical trials and the overall drop in success relating to clinical approval (Mashi, Feldman, Seckler and Wilson, 2010, p.275). Moreover, drug development is concerned with therapeutic competition (more than one company is likely to develop drugs with similar mechanism of action), generic competition and public policy issues. Significance of therapeutic competition-related risk lies in the fact that competition comes from powerful multinationals, which tend to launch large-scale drug development ventures, using cost-saving outsourcing directions.
Constraints, associated with operation under unpredictability circumstances, stemming from emerging nature of an economy under study, alleviate risks, peculiar to drug development, thus creating highly specific and risky business environment.
Glenmark business model
In general, four major types of business models are manufacturer, distributor, retail outlet or franchiser. Glnemark business model is based on manufacturing approach. Its peculiarity lies in running business with the help of two enterprises, one focusing on high-risk drugs development and one more, concentrating on generic drugs market. Such a separation allows both directions of company’s activities to be managed with more significant extent of independence, while their management is still aligned. The marketing model of companies seems to be based on product development and diversification as both of them are open to both developing new products and introducing them to new markets, including the ones of developed countries. Most questionable aspect of Glenmark business lies in the fact that it tends to giving away promising molecules at early stages of drug development to powerful multinationals for further R&D, thus orienting on sourcing approach to running business (Sharma, 2011) (Glenmark Pharmaceuticals, 2013).. It is evident that at more advances stages of R&D, a company is likely to get more profit in terms of using the molecule. Nevertheless, to my mind, using out-licensing model can be of significant use for a company with respect to reducing risks, associated with long time, needed to extract value from an innovation, as well as a range of operational risks (e.g., variations in median time frames and clinical development costs (McKerney, Shrinivasan, Payne, 2010) and the risks, stemming from such factors as high degree of therapeutic competition and risk of substitutes. In this light it can be beneficial to view usage of out-licensing model as a temporary phenomenon, needed to manage risks, associated with long-term engagement into drug development process.
R&D action plan for the company
As it was already mentioned above, operating within research and development field in India is beneficial for companies due to significant cost advantages and developed knowledge pool. To my mind, using an out-licensing business model in the light of strengthening alignment between generic drugs and R&D businesses is most suitable short-term solution of the company. In this regard it is important to emphasize the need to carefully plan and budget all R&D-related activities, so that investments can be made with the help of costs, derived from the results of operation at generic drugs market. Risk assessment and proper balancing of different areas of company’s activities can be viewed as most important managerial tools, which can be used to prevent the company from suffering from negative consequences of misbalanced investments. Blue Ocean strategy can be of great use for company at this stage of development as the company is to aim at creating value both for itself and multinationals, when developing promising molecules, so that it becomes more beneficial to exploit blue ocean strategy with the help of innovative R&D developments, creating the demand for molecules among multinational enterprises, rather than aiming at pursuing traditional red ocean strategy (Kim&Maubogrne, 2005, p.5-7).
In the future, in case a company has success in terms of its generic drugs -related business, and its managers gain a significant experience of planning and budgeting R&D projects, as well as properly balancing the activities of its two enterprises, it can be possible to aim at either out-licensing compounds after clinical trials at much higher prices than the ones, being used for the time being or getting fully engaged into the process of marketing a new drug, starting from elaboration of a molecule and ending up with a drug, imported to world’s major markets, such as the USA, the UK etc.
Conclusion
Glenmark Pharmaceuticals is one of world’s leading companies in the area of R&D and generic drugs’ production. Both markets are currently facing different challenges, mainly with respect to competition and substitutes-related threat. To my mind, it was a good path for Glenmark Pharmaceuticals to get engaged in the operation of high-risk R&D due to the fact that India has been recognized as one of top locations for R&D. Usage of out-licensing model can be also considered beneficial in terms of uncertainty and significant time frames, associated with extracting value. While for the time being out-licensing model can be viewed as best solution in case a company adheres to continuing its operation within R&D sector under current circumstances, while in the future Glenmark Pharmaceuticals can become able not only to develop promising molecules, but develop them to the level, necessary for elaborating on and marketing a drug.
References
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Dickson, M., 2009. The cost of new drug discovery and development. Available through: Discover Medicine http://www.discoverymedicine.com/Michael-Dickson/2009/06/20/the-cost-of-new-drug-discovery-and-development/ [Accessed 26 December 2013]
Dimaisi, J., Feldman, L., Seckler, A., Wilson, A., 2010. Trends in risks associated with new drug development: success rates for investigational drugs. Available through: Tufts center for the Study of Drug Development < http://www.eoncology.eu/site/wp-content/uploads/2013/01/clinical-trials-success-rates.pdf> [Accessed 26 December 2013]
Glenmark Pharmaceuticals, 2013. Official website. Available through: Glenmark Pharmaceuticals < http://www.glenmarkpharma.com/GLN_NWS/homepage.aspx?res=P_GLN/> [Accessed 26 December 2013]
Greene, W., 2007. The emergence of India’s pharmaceutical industry and implications of the U.S. drug market. Washington, D.C.: U.S. International Trade Commission
Guha, R., Lacy, A.M., Woodhouse, S., 2008. Analyzing competition in a pharmaceutical industry. Economics Committee Newsletter, 8(1), pp.1-9
Haskisson, R.E., Eden, L., Lau, Ch.M., Wright, M., 2000. Strategy in emerging economies. Academy of Management Journal, 43 (3), pp.249-267
Kim. Ch.W, Mauborgne, R., 2005. Blue ocean strategy. Harvard: Harvard Business School Press
McKerney, A., Srinivasan, B., Payne, P., 2010. Managing the three drivers of risk in drug development. Available through: Pharmaceutical executive <http://www.pharmexec.com/pharmexec/R&D/Managing-the-Three-Drivers-of-Risk-in-Drug-Develop/ArticleStandard/Article/detail/665660> [Accessed 26 December 2013]
Mollah, H.D., Baseman, H., Long, M. (eds.), 2013. Risk management applications in pharmaceutical and biopharmaceutical manufacturing. London: John Wiley&Sons
Sharma. K., 2011. Glenmark pharma- the persevering innovator. Available through: Business Today < http://businesstoday.intoday.in/story/glenmark-pharma-among-promising-companies/1/18664.html> [Accessed 26 December 2013]
