Title:Analysis of Novo Nordisk Pharmaceuticals Company’s Strategy in China ?? Name :??? (CHEN Jianfeng) ?? ID Number :20092711001 ???? Supervisor :??? Guangdong University of Foreign Studies 2010? 10? 08? ??????? Tutor’s Comments and Grade ?? signature ?? Date 2010- Abstract In this case report we will try to analysis the detailed strategic options for Novo Nordisk as a top human Insulin provider to sustain its growth internationally.We will give comments for our recommendations and evaluate the VRIO Framework of the internal organization and provide a clear Five Forces Analysis. Novo Nordisk is a Denmark based Bio-Pharmaceuticals giant that has been one of key company which shaping diabetes care industry was known by health care professional Novo Nordisk has occupied one third European and Latin America insulin markets. The company now has high ambitious to enter into Asian market especially China Market in the coming five years. We have developed one strategy base on its Marketing strategy and China ctual diabetes healthcare situation for management to consider. We divided Our strategy into two parts, one is maintain the leading position in Insulin market ( Novo Nordisk ), another is to expand the market share of oral anti-diabetes. Follow the strategy we will suggest NN should segment the Market into different tier of cities within China, at the same time NN may need to differentiate the strategy of Insulin with oral anti-diabetes drug.Novo Nordisk manufactures and markets pharmaceutical products and services that make a significant difference to patients, the medical profession and society.
With headquarters in Denmark, Novo Nordisk employs more than 29,000 employees in 81 countries, and markets its products in 179 countries. Novo Nordisk’s B shares are listed on the stock exchanges in Copenhagen. Its ADRs are listed on the New York Stock Exchange under the symbol ‘NVO’ Novo Nordisk (China) was established on 1994 and its Headquarter was set up in Beijing.NN China has set up its sale net work over China with affiliates or offices in 6 cities nationally. NN China has employed over 1,500 people in China.
Vision of NN Our vision paints a picture of what Novo Nordisk wants to achieve as a company – our place in the market and our overall goals in relation to patients, society and employees. 3. NN’s Strategic Objectives • NN gained marketing share in modern insulin market in strategic hospitals over 70% • The market share of OAD of NN in strategic hospital increase to 14% • All product’s growth rate is more than market in the coming five years Sales in China mainland increased by 19% in local currencies. • Sales growth measured in local currencies is expected to be in the range of 6-10% whereas operating profit measured in local currencies is expected to increase by around 10% annually in the coming 5 years Key issues and problems Key issues and problems for NN China include how the company manages to coordinate its growth and to maintain its competitive advantage in the dramatically changing market environment of the dynamic Joint venture Pharmaceutical sector.VRIO Table 1.
1 The VRIO framework |Value |Rarity |Imitability |Organization |Competitive Implication | |Integrative insulin treatment|Yes |Yes |Yes |Yes |Sustained Competitive advantage | |line | | | | | | |leading hospitals penetration|No |Yes |Yes |Yes |Sustained Competitive advantage | |rate | | | | | | |National refrigerated supply |No |Yes |Yes |Yes |Temporally competitive advantage | |chain | | | | | | |R&D capacity |Yes |No |No |Yes |Sustained Competitive advantage | |Strong relationship with |Yes |No |Yes |Yes |Temporally Competitive advantage | |Health Authority | | | | | | 3. Integrative insulin treatment line One of the key elements of NN to occupy the market is its unique and excellent production line and injection tool. From fine needle to Flexpen, NN has developed humanized and easy use treatment tool for diabetes patient. Furthermore, unique insulin injection pen can develop patient’s loyalty. Currently, some companies have developed its own injection tool but none of them can exceed NN’s injection tool with regard to the convenience, quality and price. And one key point is the patient can not inject others brand insulin with NN’s injection pen that may guarantee its sale.
3. 2 Leading hospitals penetration rateTill now, production of insulin and analogue of insulin have occupied 68% consumption within all strategic hospital. And high occupation rate has experienced drastic challenge from others pharmaceuticals companies. As for key cities, NN’s market share was 57%. , its opponent Sanofi-Aventis has 33% and Lily has 10. 7% in year 2009. 3.
3 National refrigerated supply chain NN has set up it national refrigerated supply chain since 1995, and keep strategic relationship with all key supplier within China. This expensive supplier chain cost millions of dollar to maintain it annually. That is why some domestic company can not expand its market into remote area. 3.
4 R&D capacityWe can see whole company’s profit primarily driven by the robust sales growth for our portfolio of modern insulins. The launch of Victoza® in Europe is very encouraging and we look forward to continuing the global roll-out of Victoza® following the recent approvals in the US and Japan. ” NN strong R&D capacity makes it impossible to surpass by its opponents recently. And new and advanced treatment will ensure NN to maintain its leader position in diabetes treatment field. Victoza will be approved by sFDA in China at year 2013.
3. 5 Strong relationship with Health Authority In China, we value the relationship with health authority, especially, during national bid process.NN has build up its relation net web since 1995 as pioneer joint venture Pharmaceutics Company in China.
The strong relationship has given NN a lot of advantage in participating primary healthcare system reform and national bid process. 4. Porter’s five forces 4. 1 The threat of established rivals 1. Sanofi-Aventis Company Information ? Total number of Lantus’s rep.
would reach about 380 in 2009. ? Set up an exclusive sales team for Amaryl in 2009, around 180 rep. in China.
? Sanofi-Aventis would pay more and more attention on the Lantus; its sales revenues target in 2009 is RMB 220-250 million. Marketing Activities ? Frequently hold the news conference of kinds of activity; highly pay attention to media’s direct participation. Launched its disposable pen-OptiSet at the end of year 2007 to replace its penfill product. ? Promote the principle of ADA: the best treatment to diabetes is to use basal insulin plus first-line oral anti-diabetic drugs (for example, Metformin) by the methods below: 1. To train 100 young speaker in China national wide to expand influencing coverage 2.
To promote principle among doctors by frequent provincial academic conference 3. To promote principle from the association of Chinese endocrinology and diabetes by sponsoring them with other 5 companies 4. To conduct VIP summits in China to influence doctors of low level Unethical Promotional Activities Expansive coverage of PMS: about RMB 50 (in small hospitals or peripheral cities)-250 (in large hospitals or important cities) as prescription incentive for each new OptiSet patient.Product Information ? Apidra, short-acting modern insulin, is expected to be launched in 2009. And its disposable pen-SoloSTAR will be launched after that very soon. Performance in IMS 21+3 cities/regions ? About 60% of total Lantus’ rep. located in IMS 21+3 cities.
? Substantial investment in important hospitals, such as invite chief of department to attend abroad meeting and give prescribing doctor more incentive. ? Recruit more rep. in important cities to add visiting number to key hospital ; doctor. Start to promote Lantus in middle ; small even community hospitals in some city in which it has better performance Sanofi-Aventis’s Impact to NN ? Its young speaker training plan pointed to the promising doctors in important cities. Generally, those doctors are considered as the successor of current chief of department. They are limited resources that every player in this market would exert much effort to use. ? Its effort in promoting new ADA’s principle of diabetes treatment in China would provide much more help for its sales.
? Dangerous cities which maybe lose leading position to Sanofi-Aventis: Wuhan ? Its unethical promotional method deeply influenced NN’s sale. 2. Lilly Company Information It clones our small-city plan to increase the number of rep. in small cities at the peripheral of large cities.
? Lilly pays same attention both on human insulin and modern insulin. Its sales forecast of 2008 in human insulin is around RMB 290 million; modern insulin is 32 million. Marketing Activities ? Investment in Chinese clinical research in diabetes through sponsoring CDS.
It would invest about RMB 18 million in basic research in three years. The total investment also includes inviting the specialists in EASD ; CDS to conduct short-term academic courses for helping more young diabetic doctors. ? More novel and creative patient educational method. Promotional Activities Expansive coverage of presenting its injection pen to patients when they purchase Humalog, from 3 (in large hospitals or important cities) to 5 penfill (in small hospitals or peripheral cities).
And it pays doctor about RMB 100-150 as prescription incentive.Product Information ? In the near further 3 years, Lilly would launch at least 15 drugs and medical instrument; many of them are related to diabetes, including Byetta (GLP-1) in 2009, ruboxistaurin (Arxxant) for diabetic retinal disease and diabetes peripheral neuropathy (DPN), anti-obesity drug (to prevent the occurrence of diabetes). Performance in IMS 21+3 cities/regions ? About 60% of total insulin rep. located in IMS 21+3 cities.
? Recruit more rep. in important cities to add visiting number to key hospital and doctor. Substantial investment in important hospitals, such as invite chief of department to attend abroad meeting, give doctor more incentive, and present its injection pen to patients when they purchase 3-5 penfill of Humalog.
Lilly ’s Impact: Not only treatment, but to all of areas in diabetes ? Its investment of RMB 18 million may not produce immediately impact to NN, since it is a three-year’s plan and includes the fee which would pay for the invitation of EASD’s experts. But it certainly can help Lilly to build a very good impression in China’s CDS and diabetes patient. ? What is more, Lilly’s patient education methods are very creative and novel; if NN has no further improvement in it, NN’s leading position in this area will face with substantial challenge. The investment in basic clinical research, more patient education activities, all of above which Lilly did is to enlarge and then occupy much more diabetic market through the improvement of patients’ awareness and treatment rate on disease.
? As for the prevention of diabetes and diabetes complication’s treatment, Lilly also made great effort. ?Furious competition in IMS cities listed below: Qingdao, Fuxiaquan, Shenyang, Hangzhou, Suxichang, ? Dangerous city which maybe lose leading position to Lilly: Chengdu ? Its unethical promotional method deeply influenced NN’s sale. 3.
Bayer Company Information ? Bayer hopes to build up its good public image through many projects involving enterprise’s social responsibility since its huge investment in company image in 2007. ? The sales revenue of Glucobay in 2007 is around at RMB 920 million. Marketing Activities Glucobay is trying to strengthen and maintain its leading position in OAD market. After achieving better performance in large hospitals in large cities, Bayer has begun to promote its product in small cities and small, even community hospitals in large cities, since it conducted many marketing activities in these areas, such as ‘diabetes cabin’ in community hospitals in large cities, and designed training plan for doctors in country level hospitals at some small cities.
? Set up an academic team in Chinese Medical Doctor Association to build Glucobay’s image in cardiologist; and promote its function in diabetes prevention through ACE (Acarbose Cardiovascular Evaluation) project. Promotional Activities Glucobay’s mainly focused patients are elder citizens, patients of no-good PPG control, and patients who frequently happen cardiovascular events; and it also conduct a post-clinical trail (RMB 100-300 incentive to doctor for each new diagnosed diabetes patient) in North China to catch new patients. ? About RMB 5-10 per box as prescription incentive. Product Information ? Its human insulin, Insugen, expected to be launched in China in 2010.Bayer’s Impact ? NN has no new OAD product in the future two years, NovoNorm’s job is to catch up with Bayer’s Glucobay. ? Among all of 21+3 cities/regions, NovoNorm has advantage in value share only in Harbin ? After leading the market of large hospitals in large cities, Bayer begins to enter small cities and small, even community hospitals in large cities.
. 2 Threat of substitute products The threat of substitutes for diabetes treatment over the existing medication is moderate. Patient has to choose OAD at the beginning, now one of new OAD is DPP4 and its effect is similar to Novonorm of NN but it may has less side effect based on current research but the new OAD may be more expense then existing OAD. So its impact to existing OAD is moderate.
Long acting GLP-1 was considered as pivotal revolutionary medication in Diabetes, and NN has developed its GLP-1 10 years ago, now Vitoza has launched in USA and European. But Roche’s weekly GLP-1 was regarded as potential opponent in the coming 10 years.In a conclusion, the threat of substitute can be reasonable moderate in this industry based on the R&D plan within top 10 pharmaceuticals companies over the world.
4. 3 The threat of new entrants The threat of new entry highly influenced by the R&D strategy of others pharmaceutical companies and Chinese huge market potential. Till now, Roche has announced it will enter into diabetes care with its weekly-dose GLP-1, and it is expected to get the FDA approval in year 2017. Some pharmaceutical giants such as Norvatis and Merks has speeded up their R&D progress and their market plan to capture Chinese market. 4. 4 Suppliers Supplier’s power in this industry is low.In the raw material part of the insulin, most of the company has developed their manufacture factory and Lab centre, so the suppliers of the insulin have a low impact on the price of products. Furthermore some big joint venture Pharmaceutical companies has set up their own factory in China to cut down the cost of product.
4. 5 The bargaining power of customers Till now, China has about 100 million diabetes patients. And the average cost of diabetes care has reached 200 RMB/per mother/per patient based on the current epidemiology investigation.
Now about 50% patients were covered by social insurance system and most of the existing anti-diabetes drugs were listed into primary drug list, so this part of patients will not sensitive to the price of drug. Table 2. 1 Market Positioning Grid: High |Coverage | |Lily |Novo Nordisk | |Sanofi-aventi | | | | | | | | |Low |High | |Market share |Bayer Market share | |GSK | | |Norvatis | | | | | |Low |Coverage | 5.Strategic proposal There is lots of Challenge in the diabetes care market in China in the coming five year even NN China has occupied two third market shares for a long time. The manager teams of NN experienced heavily pressure to maintain its leading position because there are some uncertain factors such as national healthcare reform and annual bid. The strong R&D capacity can give NN the opportunity to be in front of all the competition in the Chinese market. What we propose that NN enlarge its market with market segmentation. As for insulin market, NN should enlarge the market by increasing the diabetes diagnosis rate and boosting insulin use rate.
Also, NN need to increase market share by capturing OAD failed patient to use insulin and switch the patient who use other brand insulin to use NN insulin. Moreover NN also can promote production combination concept to increase the analogue use rate. All of above measure may increase the insulin and insulin analogue’s penetration rate in the existing diabetes treatment market. As for city segmentation, we can divide mainland cities into three tiers. Firstly, we resist the competition form others companies in east China region and Guangzhou, Chengdu cities. Secondly, we may increase analogue use rate in Tianjin.
Finally, we can enlarge the market in Beijing and Zhuhai cities. The key point of the market strategy is to increase the possession rate of new diagnosed diabetes patients.With a strategy to enter and take a market share in potential cities, NN does not have to make large fixed investments in the cold supply chain. Instead NN can use its strategic relationship to expel its competitors. To occupy the new diagnosed diabetes patients within large patient pool, NN should concentrate community hospital on the big cities first, making access to general physician available in the city of NN product that only NN can access. This way the company can see how the patients and doctors like being connected to a faster and better treatment with a more advanced injection tool through its strong customer service center located at each branched offices.As we know, we can make fixed monthly payment for the patient once they recognized NN‘s treatment package. 6.
Strategy Implementation Considering the industry and competitive conditions, we think the pharmaceuticals industry belongs to rapid growth industry; in particular, diabetes treatment market was ranked as 3rd biggest market in China. There are total about 100 billion patients need OAD and insulin treatment , and the number of patients will increased 10% annually. Comparing company’s resource and capabilities with the potential and existing competitors, NN is in the industry – leading position. Hence, the strategy of NN China is to enlarge the market volume then increase its market share.Likewise, NN still need to cultivate its competitive culture to pay attention the potential competitors in the coming yars. We therefore recommend NN choose to move forwards with our recommended strategy.
This strategy involves the most stable and fit for NN culture, so we firmly believe that the industry is moving more and more towards and more and more patients may choose advance and safety treatment . Implementing strategy we recommend that NN keep firm strategic alliances with cold chain supplier to explore the second tier cities such as cities of west China. Also establish alliances or strengthen alliances with the health authority and National Diabetes Association.