Ultragenyx Pharmaceutical Company
Any company or enterprise can be analyzed from different perspectives, depending on the parameter a researcher is interested in. Porters framework of 5 forces has been applied to consider which of these factors are the most influential ones for developing a competitive strategy of Ultragenyx, a pharmaceutical company, engaged in manufacturing the medicals for genetic diseases. As a result, it has been established that such forces as threat of new market entrants and danger of substitutes are not so important for a company because of high switching costs of the customers and a focus on drugs for rare states. However, the parameter of rivalry of the existing competitors is more influential for Ultragenyx because of the numerous competitive techniques they apply. In general, the power of suppliers and buyers should be the leading force to form the competitive strategy of the company, which in its turn should be concentrated on R&D (research and development) and attracting buyers with the high quality of its products.
The current high level of competition for the majority of the industries engaged in producing different goods or the companies offering services makes them develop some effective strategies to be the best choice for customers. Pharmaceutical production is one of the spheres, for which overcoming rivalry is a key issue of success. A great number of drug producers in the USA are ready to try different techniques to make the buyers choose their products. The present paper will apply Porters 5-forces model to analyzing Ultragenyx pharmaceutical company and will determine the main strengths and weaknesses of its competitive strategy.
The State of Pharmaceutical Industry
The first point of the analysis is to determine the state of pharmaceutical industry in the USA and the world in general. Bradfield and El-Sayed (2009) write that the mentioned industry has always been highly profitable and competent in any developed state. It comprises hundreds of different biotechnical, researching, selling, and other small and medium-size companies as well as approximately 10 multinational ones. The authors state that the pharmaceutical industry faces some serious challenges nowadays, mostly related to the decline in R&D (research and design) productivity (Bradfield & El-Sayed, 2009). Bradfield and El-Sayed (2009) point out the errors made by the pharmaceutical company managers who are used to analyzing only some obvious problems they face without looking further. As a result, they develop self-induced competitive blindness (Bradfield & El-Sayed, 2009, p. 210). Summarizing the scenarios offered as a remedy for this situation, pharmaceutical companies should find a balance between the development of R&D and profitability and not forget about certain unpredictable influencing forces like the state of the world economy and globalization (Bradfield & El-Sayed, 2009). Paul et al. (2010) add that without a significant increase in the R&D methods of development, the modern pharmaceutical industry cannot offer any substantial innovation to substitute the loss of the benefit due to the patents expectations of successful products. Therefore, solving the discussed problem is a complicated task.
Ultragenyx Pharmaceutical Company
Ultragenyx pharmaceutical company occupies a separate position in the chain of the U.S. companies producing drugs. According to its official website http://www.ultragenyx.com, the company is focused on producing medicals to treat rare and ultra-rear conditions, especially debilitating genetic diseases. The company was founded in 2010, and immediately, it offered a diverse portfolio of products that were believed to solve the health problems considered incurable before. It is important to note that Ultragenyx partners with the worlds leading pharmaceutical research organizations to develop its R&D and obtain licenses to sell different drugs. Chen and Picker (2015) mention that Ultragenyx has attracted a mix of generalist and specialist investors. The authors note that the company has not earned high profits yet as the majority of their drugs are in development, but it is favored by the investors for its market potential (Chen & Picker, 2015). Thus, it is possible to state that Ultragenyxs priority is R&D of the drugs for rare illnesses, which forms the unique status of the company.
5-forces Framework for Company Analysis
Porters (2008) framework of five competitive forces, namely threat of new entrants, rivalry among existing competitors, bargaining power of suppliers, bargaining power of buyers and threat of substitute products or services will help to determine, which factors the company should take into consideration in its attempt to defeat the rivals. Porter (2008) states that the main aspect of the industry analysis is to understand the nature of competition within it and to find the roots of profitability.
The Threat of Entry
The power of the first force of the threat of entry depends on how high the barriers of the entry are (Porter, 2008). Two criteria of the customer switching costs and capital requirements make this force not the leading factor for improving the policy of Ultragenyx. The reason for this is the fact that the customers of the company will not likely change the vendor, as the costs of switching will be too high. New pharmaceutical companies, which will specialize on rare diseases, will not be able to establish lower prices because of the capital investment. The capital requirements for entering pharmaceutical industry are high in general, and for the investment into scientific research of the genetic diseases, it is even higher. Therefore, the threat of entry force has low strength for Ultragenyx.
Rivalry among the Existing Competitors
Rivalry among the existing competitors may take various forms, namely the introduction of new products, diverse advertising campaigns, service improvements discounts, and others (Porter, 2015). As for Ultragenyx and other companies, which specialize on the production of some specific drugs (Mylan, Pfizer), not all of the mentioned methods are possible for them. The most common pricing competition is not appropriate in this sphere because it is impossible to influence the high research and production costs. However, other types of competition on the base of the dimensions, support, and delivery services as well as the criterion of the governmental restrictions on certain drugs may create additional problems for Ultragenyx. The company seems to follow the example of Merck, the American pharmaceutical giant that was one of the first to apply the academic style to its R&D and to start cooperation with a number of research universities. As a result, Merck received a chance to create more significant core values than its rivals (Eriksen & Mikkelsen, 2013). The governmental regulations are not limited by banning certain drugs. Sometimes, the state may be involved into the decisions made by the pharmaceutical companies that try to increase their investment into R&D by decreasing other expenditures. Pfizer decided to delay its takeover of Allergan PLC after the Obama administration started to control the business deal that had a potential to move the biggest drug company in the USA to Ireland to lower its tax payments (Rockoff, Hoffman, & Rubin, 2016). Therefore, the force of the existing competitors rivalry has a moderate strength for Ultragenyx.
The Power of Suppliers and Buyers
The next two forces can be considered together as they have a direct connection with each other. They are the power of suppliers and the power of buyers. The suppliers can be very powerful and they can influence almost all the activities of a company (Porter, 2008). Thus, Porter (2008) states that the supplier is influential, if there are no substitutes for the goods that this supplier produces. This criterion perfectly works for Ultragenyx because its drugs may be unique in case of proper financing of its R&D. Moreover, the suppliers, which offer differentiated products, have some benefits (Porter, 2008). Porter (2008) states that those pharmaceutical companies that produce and sell patented drugs with distinctive medical characteristics and benefits have more influence on hospitals, health care organizations, and other drug consumers as compared to the producers of the generic drugs. Therefore, the power of suppliers is of the highest strength for Ultragenyx and it should be not forgotten. The power of buyers plays a vitally important role for any pharmaceutical company as well. It is true that when buying the drugs for rare diseases and having no other option to solve the health issues, the patients are more interested in quality than in price (Porter, 2008). Ultragenyx has a correct strategy of R&D to ensure the highest quality and efficiency of its drugs. The company cannot boast of a few buyers who buy their products in large volumes because the conditions, for which the company produces drugs, are rare or too-rare (Porter, 2008). This fact makes Ultragenyx think about how to attract more small-scale customers and prove the uniqueness of their drugs to them. Therefore, the power of buyers and the power of suppliers are very strong forces for Ultragenyx.
The Threat of Substitutes
The last threat of substitutes is believed to be present in all industries as stated by Porter (2008). The author thinks that companys profitability may suffer because of the presence of the substitutes (Porter, 2008). The criteria of low buyers switching costs to a substitute and being alert and ready for the innovations introduced by the competitors are appropriate in the context of this force (Porter, 2008). However, in the situation with Ultragenyx, the company directs its basic investments in R&D and products improvement and development. Their actions result in the fact that the threat of substitutes is not so important for Ultragenyx as long as the quality is controlled. The most important aspect related to this force, which is to be observed by all pharmaceutical companies, is accurate research trials that generate real results. Unfortunately, Schott et al. (2010) complain that financial support of different pharmaceutical companies influences numerous aspects of the way the drug trials are performed and it often leads to fake favorable results to satisfy the corporate sponsor of the trial. Therefore, if Ultragenyx does not sacrifice its image for the sake of the investors, it has a chance to be the customers first choice.