Case Study Description of AM-Pharma: Creating Value (B)
AM-Pharma is a biotech company developing a medicine for patients with acute kidney injury. The case describes the company's journey from inception in 2001 to a large deal with Pfizer in 2015. The aim is to discuss the value creation of AM-Pharma through its strategic decisions over time. It highlights the patient journey, company challenges, market size potential, and how the management team was able to raise multiple financing rounds from venture capitalists. It further provides the readers with a unique insight in the key risks and operational challenges of a biotech company and the value of an experienced management team backed by strong investors. The drug development process is inherently risky, long and expensive and the probability of commercializing a new drug is very low. The company's CEO is the protagonist and the case is split in three parts to provide the readers with surprises and open strategic questions which are time related. The case is semi-chronologically and a patient story is intermingled to provide a different perspective on clinical trials, ethical dilemmas and the high unmet medical need for new therapies. The case ends with a valuation simulation, in which the readers can negotiate the AM-Pharma/Pfizer deal themselves. Learning objective: The aim of the case study is to evaluate the value creation of AM-Pharma strategic decisions over time. 1/ The strategy diamond and Porter's Five Forces will be applied as a tool for understanding the industry and the company's strategy. 2/ The key success factors are also assessed for this challenging setting of a biotech startup. 3/ Role of Serendipity and management vision in opening new doors. 4/ Different exit options are discussed, highlighting pros, cons and what actually happened. 5/ How clinical outcome, and exit timing highly impact the valuation. The case will trigger discussions on the strategic options listed, and engage the students into exit negotiations simulation.
Authors :: Jim Pulcrano, Tim Knotnerus, Marion Owczarczak-Fogli, Mohammed El Ansari
Swot Analysis of "AM-Pharma: Creating Value (B)" written by Jim Pulcrano, Tim Knotnerus, Marion Owczarczak-Fogli, Mohammed El Ansari includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Pharma Biotech facing as an external strategic factors. Some of the topics covered in AM-Pharma: Creating Value (B) case study are - Strategic Management Strategies, International business, Mergers & acquisitions, Negotiations, Venture capital and Strategy & Execution.
Some of the macro environment factors that can be used to understand the AM-Pharma: Creating Value (B) casestudy better are - – increasing government debt because of Covid-19 spendings, increasing commodity prices, competitive advantages are harder to sustain because of technology dispersion, banking and financial system is disrupted by Bitcoin and other crypto currencies, digital marketing is dominated by two big players Facebook and Google, customer relationship management is fast transforming because of increasing concerns over data privacy, geopolitical disruptions,
increasing inequality as vast percentage of new income is going to the top 1%, challanges to central banks by blockchain based private currencies, etc
Introduction to SWOT Analysis of AM-Pharma: Creating Value (B)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in AM-Pharma: Creating Value (B) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Pharma Biotech, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Pharma Biotech operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of AM-Pharma: Creating Value (B) can be done for the following purposes –
1. Strategic planning using facts provided in AM-Pharma: Creating Value (B) case study
2. Improving business portfolio management of Pharma Biotech
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Pharma Biotech
Strengths AM-Pharma: Creating Value (B) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Pharma Biotech in AM-Pharma: Creating Value (B) Harvard Business Review case study are -
Strong track record of project management
– Pharma Biotech is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Successful track record of launching new products
– Pharma Biotech has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Pharma Biotech has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
High switching costs
– The high switching costs that Pharma Biotech has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Sustainable margins compare to other players in Strategy & Execution industry
– AM-Pharma: Creating Value (B) firm has clearly differentiated products in the market place. This has enabled Pharma Biotech to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Pharma Biotech to invest into research and development (R&D) and innovation.
Superior customer experience
– The customer experience strategy of Pharma Biotech in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Operational resilience
– The operational resilience strategy in the AM-Pharma: Creating Value (B) Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Diverse revenue streams
– Pharma Biotech is present in almost all the verticals within the industry. This has provided firm in AM-Pharma: Creating Value (B) case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Effective Research and Development (R&D)
– Pharma Biotech has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study AM-Pharma: Creating Value (B) - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Learning organization
- Pharma Biotech is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Pharma Biotech is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in AM-Pharma: Creating Value (B) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Analytics focus
– Pharma Biotech is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Jim Pulcrano, Tim Knotnerus, Marion Owczarczak-Fogli, Mohammed El Ansari can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
High brand equity
– Pharma Biotech has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Pharma Biotech to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Pharma Biotech digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Pharma Biotech has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Weaknesses AM-Pharma: Creating Value (B) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of AM-Pharma: Creating Value (B) are -
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study AM-Pharma: Creating Value (B), is just above the industry average. Pharma Biotech needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High bargaining power of channel partners
– Because of the regulatory requirements, Jim Pulcrano, Tim Knotnerus, Marion Owczarczak-Fogli, Mohammed El Ansari suggests that, Pharma Biotech is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Slow to strategic competitive environment developments
– As AM-Pharma: Creating Value (B) HBR case study mentions - Pharma Biotech takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Aligning sales with marketing
– It come across in the case study AM-Pharma: Creating Value (B) that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case AM-Pharma: Creating Value (B) can leverage the sales team experience to cultivate customer relationships as Pharma Biotech is planning to shift buying processes online.
High operating costs
– Compare to the competitors, firm in the HBR case study AM-Pharma: Creating Value (B) has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Pharma Biotech 's lucrative customers.
Skills based hiring
– The stress on hiring functional specialists at Pharma Biotech has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Low market penetration in new markets
– Outside its home market of Pharma Biotech, firm in the HBR case study AM-Pharma: Creating Value (B) needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Increasing silos among functional specialists
– The organizational structure of Pharma Biotech is dominated by functional specialists. It is not different from other players in the Strategy & Execution segment. Pharma Biotech needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Pharma Biotech to focus more on services rather than just following the product oriented approach.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study AM-Pharma: Creating Value (B), it seems that the employees of Pharma Biotech don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Pharma Biotech supply chain. Even after few cautionary changes mentioned in the HBR case study - AM-Pharma: Creating Value (B), it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Pharma Biotech vulnerable to further global disruptions in South East Asia.
High cash cycle compare to competitors
Pharma Biotech has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Opportunities AM-Pharma: Creating Value (B) | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study AM-Pharma: Creating Value (B) are -
Low interest rates
– Even though inflation is raising its head in most developed economies, Pharma Biotech can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Pharma Biotech to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Pharma Biotech to hire the very best people irrespective of their geographical location.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Pharma Biotech is facing challenges because of the dominance of functional experts in the organization. AM-Pharma: Creating Value (B) case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Better consumer reach
– The expansion of the 5G network will help Pharma Biotech to increase its market reach. Pharma Biotech will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Strategy & Execution industry, but it has also influenced the consumer preferences. Pharma Biotech can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Manufacturing automation
– Pharma Biotech can use the latest technology developments to improve its manufacturing and designing process in Strategy & Execution segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Using analytics as competitive advantage
– Pharma Biotech has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study AM-Pharma: Creating Value (B) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Pharma Biotech to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Pharma Biotech can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Developing new processes and practices
– Pharma Biotech can develop new processes and procedures in Strategy & Execution industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Pharma Biotech can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Pharma Biotech in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Leveraging digital technologies
– Pharma Biotech can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Creating value in data economy
– The success of analytics program of Pharma Biotech has opened avenues for new revenue streams for the organization in the industry. This can help Pharma Biotech to build a more holistic ecosystem as suggested in the AM-Pharma: Creating Value (B) case study. Pharma Biotech can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Threats AM-Pharma: Creating Value (B) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study AM-Pharma: Creating Value (B) are -
Stagnating economy with rate increase
– Pharma Biotech can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study AM-Pharma: Creating Value (B), Pharma Biotech may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Pharma Biotech in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Pharma Biotech can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study AM-Pharma: Creating Value (B) .
Consumer confidence and its impact on Pharma Biotech demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Increasing wage structure of Pharma Biotech
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Pharma Biotech.
High dependence on third party suppliers
– Pharma Biotech high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Pharma Biotech in the Strategy & Execution sector and impact the bottomline of the organization.
Shortening product life cycle
– it is one of the major threat that Pharma Biotech is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Regulatory challenges
– Pharma Biotech needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Pharma Biotech will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Weighted SWOT Analysis of AM-Pharma: Creating Value (B) Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study AM-Pharma: Creating Value (B) needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study AM-Pharma: Creating Value (B) is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study AM-Pharma: Creating Value (B) is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of AM-Pharma: Creating Value (B) is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Pharma Biotech needs to make to build a sustainable competitive advantage.