Executive Summary
Glenmark is an Indian pharmaceutical firm that has broadened its business portfolio to involve high-risk research for new drug invention. Poor global economy situation between 2007 and 2008 affected the company as sales dropped.
Glenmark encountered further business challenges as its venture into high-risk research failed to generate the requisite revenues for its business. The company should have considered pursuing generics business, instead of considering the drug discovery business.
Generics business requires less capital and does not entail high skill in employee capabilities. Generics business also requires a short period before a firm can recoup its initial business capital.
Drug discovery business takes between 10 and 12 years before firms break even. Glenmark had only $40 million in capital raised from IPO when it decided to venture into research vusiness.
This strategy is expensive for the company because the firm has to readjust its operations to fit well into the foreign business market environment. The firm pursues a chemical leasing type of business model as it supplies its original product idea for further manufacturing to third parties.
However, it retains the original ownership of the product. The company needs to consider forming partnerships with other firms to sustain its funding activities. This will eliminate the need for the company to enter into contracts with third party firms for further research development activities.
Operating as a single entity currently subjects Glenmark to more vulnerability, including high losses because of the uncertain business scenario involved.
Comparison between the Generics and Drug Discovery Businesses
The decision by Glenmark to venture into drug discovery business was not the best of choices. Although the company had the capabilities required to succeed in generics business, it ventured into the discovery business that was evidently out of its capabilities.
A comparison using VRIO framework
Valuable
The drug discovery business requires a huge amount of resources and time to succeed. Given the uncertainty involved, this alternative was eventually going to consume a large amount of the company’s financial resources and increase its operating costs at the end (Greenwald, 2010, p. 118).
Acquiring and maintaining skilled personnel who were not part of the organization at the start was a costly affair that would use more funds. The research procedures taking between 10 and 12 years imply that the company’s capital base must be large enough to sustain steady operations (Monappa & Deepali, 2013, p. 68).
Glenmark’s paltry $40 million raised during its IPO in the year 2000 is by far less an amount to sustain operations for this grace period. With 99% of the company’s profits coming from India in 1998, it is critical to point out that Glenmark lacked a steady financial base that would have sustained its new business area comfortably.
India is a developing country whose buying power is low compared to developed countries. It means firms relying on the market for their business also suffer from relatively low revenues. Glenmark was also moving out of India to attract skilled workers, a move that required more funds to achieve.
Such experts are rare and definitely are compensated highly to retain them, which further diminished the firm’s thin capital base.
On the other hand, the generics business would have increased the company’s revenues by a greater margin. This business area does not involve research, which is expensive and time-consuming (Cox, 2012, p. 293).
Glenmark would have enjoyed the lucrative opportunity to make significant revenue amounts over a very short period, given that India is one of the leading global markets for generics.
Rare
Glenmark does not possess the unusual skill needed to venture into the discovery business. India has very scarce expertise in high-risk innovation in drug manufacturing (Lin et al., 2012, p. 1396), a fact highlighted by the firm’s relocation from India.
The generics business, however, requires no complex skills to pursue. Many global drug-manufacturers are seeking the Indian market, indicating the obvious availability of such skills in the country.
Imitable
It would take long for other industry players to imitate the drug discovery business. Because of the strict regulatory framework established in this industry, it is difficult for firms to copy and produce the same drugs as produced by the company that conducted the original research.
This implies companies are poised to earn the high revenue amounts that are associated with new researched drugs, for as long as they have the funds to sustain their operations during the 10-12 grace periods of research.
This differs from generics business, where players can easily imitate the drugs manufactured by another player.
More than one pharmaceutical can manufacture the same generic drug for as long as they obtain the license from the copyright holder (Angell, 2010, p. 7), which makes imitation a reality in this instance.
Organization
Glenmark was not efficiently organized to undertake the drug discovery business in terms of strategy.
The firm was forced to spend its entire $10 million profit on the strategy, meaning it had no extra funds set aside for emergency.
It implies that any slight complexity would have seen the firm declared bankrupt because it had utilised all its available funds to try out the research business.
The high demand for more funds required to uphold the firm’s research activities, and the limited capital base point out to the fact that Glenmark lacked strategic organisation to back up its new business venture (Barney & Clifford, 2010, p. 2).
In terms of the generics business, nonetheless, it had all the efficient organization to undertake the strategy. The financial position of the company was healthy enough to enable it fund all the prerequisite obligations.
Glenmark’s long stay in the drug business and industry provided it with the right experience to venture into generics business, thus giving it the opportunity to come up with a good strategy (Sachan & Dhanaraj, 2013, p. 3).
A comparison using Porter’s Five Forces Analysis
Buyers’ Power
Buyers in the drug discovery business industry have low bargaining power. Thus, firms can manipulate prices to their advantage because of the unique market discovery.
In the generics business, however, buyers have more bargaining power because there are many firms manufacturing generic drugs. Glenmark, in essence, would enjoy greater market power by pursuing high-risk discovery research than would be the case if it focused on generics business.
Suppliers’ Power
Suppliers have a higher bargaining power within the drug discovery business or industry than in the generics business. There are fewer supplier firms in existence because of the limited number of pharmaceuticals pursuing new drug research (Burke, van Stel & Thurik, 2010, p. 6).
By pursuing generics business, therefore, Glenmark would have more bargaining power against the suppliers than the case is within the drug discovery business.
Barriers to Entry
There are higher entry barriers in the drug discovery industry in terms of higher capital and highly competent skills (Kim & Mauborgne, 2004, p. 5).
The long research period and uncertainty involved also discourages many firms from venturing into this business area. This is different in the case of generics business where firms can easily venture into the business.
Threat of Substitutes
There are minimal threats of substitutes in the case of drug discovery research business. Relatively few firms have ventured into the business, making the availability of original and unique drugs limited in the market.
The generics business, however, has numerous possible substitutes because more pharmaceutical firms manufacture generic drugs (Porter, 2008, p. 12).
Competitive Rivalry
There is less rivalry in the drug discovery business area compared to the case with the generics business. The limited number of firms venturing into new research and the consequent amount of time eliminates high rivalry and competition.
Compared to generics business, however, more firms are competing for the same market (Kim & Mauborgne, 2004, p. 6).
A comparison using SWOT Analysis
Strength
Glenmark has been in existence since 1977, where it succeeded to establish over 60 pharmaceutical products. This significant period in business gave it a better understanding, especially in the generics business area, as opposed to a new venture in research that it had little knowledge.
Weakness
Glenmark was purely focused on generics business, where its business involved reproducing products copyrighted medicine.
This business required very little research and development activities, as the copyright holders handed down all the production procedures to the company. Initiating a research business, therefore, was an unlikely business area for Glenmark because it had little capacity in this area.
Opportunity
India is an emerging market, which offers a better market opportunity for generics than it does for researched drugs.
Because of the country’s relatively weaker economy, Glenmark had a promising market if it had focused on generics business, which is comparatively affordable in the market than venture into research.
Threats
Research business is highly unpredictable, which can result to firms losing their businesses altogether. Glenmark’s DPP4 (Merck molecule) lost its $1 billion market value to only $200-300 million following Merck Serono’s decision to restructure its operations.
The unpredictability of the research business increases the business risk faced by the firm, more than would have been had the company focused on generics business.
Specific Constraints Faced by Emerging Market Firms when they pursue High-Risk Discovery Research
Company Incapability
Firms in the emerging markets lack the adequate financial power or capital base to sustain high-risk discovery research. The buying power within the emerging markets is far less superior to the case in the developed world markets (Sachan & Dhanaraj, 2013, p. 10).
In essence, firms in the emerging markets make relatively inferior sales that translate to relatively inferior revenues and minimal profits. Such firms equally cannot attract significant foreign markets, further limiting their resource base.
In the case of Glenmark, the company could only rely on the local Indian market up to 95 percent for its sales. Emerging market firms also lack competitive employee capability to enable them to pursue high-risk research discovery (Brown, Bush & Norberg, 2001, p. 15).
Industry Challenges
High-risk discovery research takes a long duration before firms can recoup their initial capital and benefit from the profits.
This long duration between 10 to 12 years means that firms have to have a stable financial base to sustain their operations meanwhile as they pursue their research activities (Kaplan & Norton, 2007, p. 6).
Such industry dynamics deny the firms originating from emerging markets an ample opportunity to pursue this type of business. They lack the adequate financial muscle to allow them to take the risks for a long duration (Arora, 2010, p. 43).
Glenmark Business Model
Glenmark is pursuing the chemical leasing type of business model (Scott, 2010, p. 14) where it supplies its product idea for further development.
The firm, however, retains the original ownership of the product idea. Its new drug ideas formulated after the initial phase of research is transferred to a third party drug developer to continue with the advanced phases of research.
Glenmark sustains an out-licensing model because of the long duration involved in research. In this model, Glenmark receives a down payment for its product idea.
However, the firm retains the original ownership of the product idea such that it would continue earning from the sale of the product once it is released into the market.
Recommended Action Plan for the Company in terms of its Discovery Research
Glenmark should consider forming business partnerships to aid its discovery research (Sull, 2009, p. 2). New drug research business area requires a lot of funds to sustain it. Lack of these funds is currently affecting the firm negatively.
Glenmark will get support in terms of combining resources by agreeing to work in partnership with other firms, mainly pharmaceutical enterprises. Glenmark has already built a name for itself, emerging as a formidable and competent company in research.
This position will enable it to attract other competent and capable firms to form a formidable partnership. Pharmaceutical firm such as Eli Lilly can form a highly competent partnership with Glenmark and help both companies to cut down on high research expenses.
Conclusion
Glenmark considered venturing into drug discovery business as a way of increasing its business potential in pharmacy. This business alternative, however, has affected the firm’s business performance negatively.
The research activity requires expenditure of a significant amount of financial resources and expertise, both of which the firm could not afford at the time it ventured into this type of business.
A generics business alternative would have been Glenmark’s best option had the firm considered it as an option. With its new discovery research portfolio, Glenmark should consider forming a partnership to enable it venture into the business efficiently.
List of References
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