Session 5: Fundamentals of strategy: industry analysis of Biotech and Pharmacuetical Firms

Question 1

3 Main Features of Biotech Industry

Answer 1

1. High Level of
   Knowledge and
   Technology
   * Highly
   Specialized
   * Constant
   Innovation
   * Primary focus on
   R&D
2. Large Capital
   Investment
   * High costs
   * Strong
   Competition
3. High Risk
   * Success rate of
   launched products between
   5-10%
   * Development range between 8-
   10 years
   * Strict regulations

Question 2

Biotech firms Comparison with Pharmaceutical
Companies

Answer 2

• Biotechnology is based on development and manipulation of biological
  organisms whereas pharmaceuticals are produced through chemical
  reactions
• Pharmaceutical companies have established value chain for their
  products however biotech companies have few products on the market
• Pharmaceutical companies increasingly have biotechnology holdings but
  not vice versa

Question 3

Technologies That Will
have The Greatest Impact On The biotech and Pharmaceutical Industry

Answer 3

1. Big data
2. Artificial Intelligence

Question 4

Trends in the Pharmaceutical industry and Biotech

Answer 4

1. Novartis and Microsoft announce collaboration to transform medicine with artificial intelligence
2. Quantum Computing: Boehringer Ingelheim and Google Partner for Pharma R&D

Question 5

Porters 5 forces model with a 6th

Answer 5

1. Rivalry among established firms - The larger the number of competitors, along with the number of equivalent products and services they offer, the lesser the power of a company
   - Conversely, when competitive rivalry is low, a company has greater power to charge higher prices and set the terms of deals to achieve higher sales and profits

• Price competition
• Advertising battles
• New products
• First-to-market rule
• Global industry

2. Potential of new entrants into the industry - An industry with strong barriers to entry is ideal for existing companies within that industry since the company would be able to charge higher prices and negotiate better terms.

• Economies of scale
• Long lead times in R&D
• Distribution and marketing
  channels
• Strategic patent portfolios
• Know-how based
  competition

3. Power of suppliers - The fewer suppliers to an industry, the more a company would depend on a supplier. As a result, the supplier has more power and can drive up input costs and push for other advantages in trade. On the other hand, when there are many suppliers or low switching costs between rival suppliers, a company can keep its input costs lower and enhance its profits

• Raw material a commodity
• Co-marketers
• Patients
• Parallel imports
• Biotech firms
• University research

4. Power of customers - A smaller and more powerful client base means that each customer has more power to negotiate for lower prices and better deals

-patients, doctors, hospitals
-rising healthcare costs
-low switching costs
- generic products

5. Threat of substitute products - Companies that produce goods or services for which there are no close substitutes will have more power to increase prices and lock in favorable terms. When close substitutes are available, customers will have the option to forgo buying a company’s product, and a company’s power can be weakened.

• Generic products
• Alternative treatment such
  as homeopathic therapies,
  implants or surgery

6. Regulative Force
   * Patent protection in
   developing countries
   * New product registration
   procedures
   * R&D experiment and test
   regulations
   * Price regulations
   * Health care financing laws

Question 6

Most profitable industry in the US

Answer 6

1. Drugs
2. Foods

Question 7

Industry analysis according to Michael Porter can be used to

Answer 7

 Explain differences in profitability between industries and changes in the
profitability of a given industry over time

 Assist managers in positioning the firm advantageously

 Predict possible changes in competition and profitability in the near
future

 Identify opportunities for changing industry structures and alleviating
competitive pressures.

Question 8

SWOT Analysis of the health sector

Answer 8

1. Strenghts - special expertise, reputation, cost advantages strategies, technological advantages
   ex. state of the art medical equipment, employing highly specialized personnel, deploying successful informatics (medical records)
2. Weaknesses - forces that negatively affect the qualtiy of products or services, increase costs, undermine sales
   ex. challenges in securing reimbursements, poor trained staff, tensions among medical staff, outdated facilities for providing care
3. Opportunities - Key business initiatives that increase sales or generate a new customer base
   ex. joint ventures or collobariotns with other clinics or networks, grants to better the medical informatics, streamline the patient experience,
4. Threats - factors that will harm the performance of the organization

ex. growth of specialized service sites, cost cutting by medicaid and medicare, new technologies that make existing infrastructure absolete, disruptive technologies