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Focus on Orphan Drugs & Effect on Degree of Competition
The market is shielded from competitors due to the concept of market exclusivity, implying that Genzyme is free to operate at its own pace for the first seven years after putting an orphan drug into the market.
Competitors cannot manufacture and patent similar drugs to compete with orphan drugs, demonstrating a near-monopoly in the market. A monopoly is not healthy for competition.
Orphan drugs benefit significantly from tax breaks as per the Orphan Drug Act, additionally implying less competition from rivals and more profits arising from a shielded and supported market.
Minimal competition, market zoning, as well as monopolistic overtures are known to affect the bargaining power of customers negatively. When competitors are not allowed to offer competition through the principles of a free-market economy, the bargaining power of customers suffers under a monopolistic culture.
Focus on Orphan Drugs, Resources & Capabilities
The Orphan Drug Act is clear that biotech organizations focusing on orphan drugs should be allowed significant tax breaks to recoup drug development and research costs. Consequently, more financial resources are freed up to the firm, translating into success in the face of good business practices and innovative strategies.
Market exclusivity granted to orphan drugs implies that the firm’s capabilities for success are enhanced because developers are allowed adequate time not only to recoup their development and research costs but also earn a rate of return that would certainly make the undertaking more attractive.
Focus on Orphan Drugs & Long-Term Strategic Intent
The company’s focus on orphan drugs is making sense to the extent that it can maintain enviable profit margins for its shareholders as it attempts to reduce the suffering that people with extremely rare medical conditions go through.
The company has a long-term intent of remaining one of the top-most firms in the provision of orphan drugs by (1) diversifying services and products, (2) maintaining its independence for more profits, and (3) building its business and clientele around small disease populations.
It is obvious the company has diversified into other spheres of medicine and its business outlook is now organized around four critical units – genetic medical conditions, cardiometabolic and renal, biosurgery, as well as hematologic oncology.
It is felt the company has diversified into these areas to survive and remain competitive in the already flooded biotech industry; diversification is a strategic direction that has been used by the biotech firm to take it into other products and markets through its internal mechanisms.
Advantages of diversification include the protection of the market, risk reduction, expansion of the firm’s capabilities, capital preservation, efficiency gains, and increase in market power.
Among the disadvantages, diversification may result in slow growth in the core business, additional management costs and bureaucratic complexity, negative synergies, and losses in the process of market consolidation.
Recommendations for the Future
The drug industry is very competitive, thus the firm needs to make huge investments in research and development (R&D) initiatives, with the view to sharpen its innovative strategies.
Although the firm needs to maintain its independence, it should consider collaborating with other like-minded organizations if it expects to maintain the pace in breakthrough medical discoveries. Collaboration drives competitive advantage, innovation, and creativity.
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The firm should structure its diversification initiatives to avoid negative synergies among business units.