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AstraZeneca
Group 5:
Emily Heather-Maher
Vu Hoang
Rui Maricato
Deniz Morali
Abbas Omaar
Hui Erh Tay
Contents Page
1. Introduction
2. Current Red Sea Environment
2.1 Porters five forces
2.2 SWOT analysis
3. Breakout Strategy
3.1 Rationale for development
3.2 The Blue Ocean concept
3.3 Competency gaps
3.4 Resource requirements/Corporate structure
4. Key developmental steps and broad financial forecasts
4.1 Key development steps
4.2 Broad financial targets
5. Sustainability and CSR
6. Conclusion and Evaluation
7. References
8. Appendix
1. Introduction
The emergence of pharmaceutical science can be dated back to the 19 th century. The
discovery and development of drugs as well as the study of the effect on
pathological systems, ultimately led to the rise of the pharmaceutical industry.
Today, it is extremely competitive and there is overwhelming competition from
thousands of big pharmaceutical companies. As a major player in this industry,
AstraZeneca must overcome this competition by employing a breakout strategy (also
known as a blue ocean strategy) to enter an uncontested market space through
the creation of new demands (Kim and Mauborgne, 2005).
This report firstly analyses the current competitive environment of AstraZeneca in
the pharmaceutical industry and examines the rationale for development, the
breakout concept and its key milestones.
Barriers
to Entry
Suppliers
Competitive Rivalry
Buyers
Substitutes
Figure 1: Porters Five Forces framework (Porter, 1997)
d) Threat of substitutes - 4
The major substitute for AstraZenecas drugs is complementary and alternative
medicine (CAM), which consists of a wide range of treatments such as homeopathy
and acupuncture (NCCAM, 2010). However, evidence of CAMs safety and
effectiveness lacks scientific validation and is mostly based on personal experiences,
unlike AstraZenecas scientific approach with strictly regulated experimental
research and clinical trials. Therefore, CAM does not pose a high threat for
AstraZeneca.
e) Competitive rivalry - 3
Some of the key competitors of AstraZeneca include Amgen, GlaxoSmithKline,
Genentech and Novartis, to name a few. Although AstraZeneca is ranked highly (8th
in the industry) (Forbes, 2013), the top 20 companies are equally powerful, meaning
that competition is fierce for the limited profit pool.
A total score of 19/25 suggests AstraZeneca has moderate power in the industry.
Specifically, it has power over its customers and is relatively safe from new entrants
because of high entry barriers. Unfortunately, it faces high competitive rivalry.
Therefore, by implementing a blue ocean strategy, AstraZeneca will be diversifying
and reducing the threat of mainstream competition.
Weaknesses
- Focus is only on 6 core competencies;
has no generic or over-the-counter drugs
- Failure in a few late-stage clinical trial
drugs
Threats
- Increasing competition in the industry,
with more companies developing more
effective drugs
- Patents expiring: Revenue lost to sale of
generic drugs from other companies in
3rd quarter of financial year1
The SWOT analysis above provides the basis for development of a breakout strategy.
Our blue ocean strategy will enable the company to extend its competencies by
developing presence in another industry, which both helps to overcome its
weakness of having too few competencies as well as reducing the relative threat of
patents expiring and leveraging its strong commercial presence in emerging markets.
Moreover, armed with a global reputation and a high investment in R&D,
AstraZeneca is well-positioned to develop innovative solutions for todays problems.
3. Breakout Concept
The analysis indicates that AstraZeneca needs to enter a new market; by leveraging
the big pharma umbrella of drug substances to manage the crops health by
developing agrochemicals (pesticides, herbicides, fungicides and insecticides) and big
data and drone technology. This section discusses the rationale for development, the
project itself, competency gaps and resource requirements/corporate structure.
Profit fell by 31% as sales of a cardiac drug failed to fend off competition from generic drugs (Connolly, 2013)
The world population is predicted to reach 40 billion people by the end of this century (Barnes, 2013)
Recently, Ukraine signed a fifty-year land grab agreement to lease three million hectares of land to China, an
area equivalent to Belgium or Massachusetts, for growing crops (Spillius, 2013).
3
The average farm size in France increased by 39% over the past 4 decades. During this time, the number of
farms in France also decreased by over 69% (Momagari, 2013)
2
3.1.3 Drones
Unmanned aerial vehicles, commonly known as drones, have risen from being
essentially unknown entities to commanding great significance across many
industries. Military bodies have been the single biggest users of drones with
development stretching as far back as the World War I (Miller, 2013). In this context,
drones have been mostly employed for the purposes of achieving foreign
surveillance and monitoring. More recently, civilian use of drones has flourished, as
exemplified below.
Despite the declining costs of drones, their performance is increasing (Bradshaw,
2013). They can easily be controlled from a computer or mobile device and can
follow pre-defined routes through built-in GPS (Rao, 2013). Excellent surveying
capabilities have allowed the charity Coolearth to use drones to monitor the
presence of endangered primate species across South East Asia (DiNapoli, 2012).
These drones are able to fly for a period of 20 minutes and can achieve a range of
20-25km. Upcoming models are expected to have capabilities that enable drones to
travel a distance of roughly 100 hectares during each flight (DiNapoli, 2013).
Many multinational corporations are exploring the use of drones in product delivery
operations. For instance, Dominos Pizza, Google, UPS and Amazon have all publicly
announced their efforts to incorporate drone technology into the delivery of goods
sold to consumers (Pepitone, 2013; Griffiths, 2013 and BBC, 2013)
Currently, in the agricultural field there are tests being performed with drones which
show promise (Sharma, 2013 and Anderson, 2013).
Figure 2: Overlap of four industries to develop the blue ocean strategy for AstraZeneca
Dcubed
START
Drones
Big
data
AgroChemical
Government/
organisations
Farms
The percentage of agriculture contribution to annual GDP in South Asia is significantly high,
averaging 17% in South Asia as compared to 2% in the EU (WorldBank, 2013), therefore suggesting
the higher importance of agriculture in the South Asian countries.
development of this strategy. Also, a team of staff to deal with the devices
operation, maintenance and technical problems will be required.
3.3.3 Big data gap
AstraZeneca currently manages big data to a limited extent (SAS, 2013) as it informs
drug research and other operations. However, this process is limited and outsourced
(it is mainly done by consulting companies Dotmatics and HealthCore [Dotmatics,
2013 and Flinders, 2011]). Specific analytical technology must also be developed to
interpret agricultural datasets, of the type that will be collected by the drones.
by Nufarm outweigh these costs. In long term, the profit generated by D-Cube will
pay back the initial capital investment.
3.4.2 Drones
As mentioned above, AstraZeneca currently does not have the capability to develop
drones, so a significant part of D-cubed will be the commissioning the services of a
company that specializes in the production of drones. To this end, we propose
establishing an exclusive deal with 3D Robotics, the worlds leading company
producing drones. The company will take on the role of supplier, selling drones
exclusively customized for AstraZeneca. A crucial element of this deal will be that 3D
Robotics will have the responsibility of maintaining the drones after sale. The drones
can easily be piloted by anyone using a GPS autopilot or a smartphone application;
however, if the need arises, staffs can be hired to assist on-location or remotely.
Concerns about air traffic control regarding privacy and safety do not apply to this
business model, as the drone will only fly over private farmland and at a maximum
altitude of 500 meters.
3.4.3 Big data gap
The processing and analysis of big data is a key component of the business model,
hence the logical approach to this gap would be to acquire big data management
capabilities directly. However, this business area is highly specific and too far from
AstraZeneca's core domain. There are big data consulting companies that can play a
role, such as Dotmatics (with whom AstraZeneca already partners) or Ag Informatics
that specializes in agricultural informatics.
The establishment of a joint venture with an existing big data company is the
solution for this gap, as it will be a way to share technologies and skills (drug
development and big data processing) that complement each other in the blue
ocean, as well as sharing the investment and risk, hence prompting a reliable
commitment from both parties to the venture.
Additionally, all parties will agree that data gathered by the drones will remain
strictly the property of AstraZeneca and will not be accessed by 3D Robotics or
shared by the clients.
Test consistency
and accuracy of
drones in farms
Development of
customised drone
by D-cubed
Discounted trials
for some farmers
across Europe
Full product
launch across
Europe
Product
launch in
Australasia
Beta-testing
Year 1
Year 2
Product launch
in Africa
Product Launch
Year 3
Year 4
Year 5
Year 6 onwards
Research
Figure 4: Timeline for key development steps to product launch
The initial phase of the project is to conduct further research. This will be an ongoing
process, during which market research is carried out in countries that have high
proportions of land dedicated to agriculture such as Africa and Australasia,
particularly in China and India. Alongside this research, AstraZeneca will learn best
practices from the newly acquired company (Nufarm) in order to produce its own
agrochemicals in the future. The acquisition process should take no more than 3
months (AstraZeneca, 2013).
In the second phase, drones customized for AstraZeneca will be developed by 3D
Robotics. This should be completed within 18 months. It includes testing the drones
in different environments with respect to how they withstand various weather
conditions and their flight-length consistency. Special attention will be paid to the
drones accuracy in plant disease detection and dipping down to affected plants to
administer agrochemicals. Beta-testing must also be carried out and a selection of
farmers from various countries across Europe will be offered discounted trials for a
period of 6 months to try out the full service. This approach increases market
awareness of D-cubed, and allows farmers using the service in the early stage of
development to provide feedback prior to launch across Europe.
Lastly, the product launch phase, as the name suggests, involves the full launch of Dcubed. As the number of drone-users rises, the amount of data will increase, feeding
into the research phase and improved product development. Launch to international
markets will follow. As of year 4, market presence will be established in Australasia.
In the long term AstraZeneca will target the agriculture markets in Africa.
The rationale behind the choice of regions is based on the ease of market
penetration as well as the location of key agricultural economies. At first glance, Asia
and the Pacific region is an attractive region for investment, as they account for
almost 90% of the worlds small farms (Thapa and Gaiha, 2011). In particular, Chinas
agriculture output of US$599billion is the highest globally (The Economist, 2012).
However, upon conducting a PESTEL review (Appendix A), some potential problems
of starting a business in China is highlighted. Turkey is the highest contributor of
agricultural output in Europe, where AstraZeneca already operates, and has an
agricultural industry worth US$62billion (The Economist, 2012), therefore the
decision to enter the European markets first.
The business model presented has corporate social responsibility (CSR) built into its
foundation in so far that identifying and treating plants, crops and farms which have
diseases benefits the environment and the wider societies that depend on them. The
surveying capabilities could also serve government bodies to monitor lands such as
rainforests and national parks and charities focusing on various environmental
challenges.
Current overuse of fertilizers by small and large farms regularly damages local water
tables and ecosystems around farmland. The targeted nature of the drone delivery
system counteracts this overuse and protects the planet these ecosystems from
unnecessary harm.
Finally, current CSR operations include inviting high school students access to
laboratories across the world and this can be integrated seamlessly with the new
agrochemical R&D sub-departments. The first-hand experience of work being carried
out to improve the environment, aims to promote further education as well as
inspire an environmentally-conscious generation.
in a blue ocean, free of aggressive competitors, allowing for the capture of value and
development of innovation.
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Appendix
Appendix A
Turkey
China
Political
Economic
Socio-cultural
Technological
Legal
Stable situation
Appendix B
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Total
1,000,000
2,500,000,000
2,501,000,000
1,000,000
1,500,000,000
1,501,000,000
800,000
1,500,000,000
1,500,800,000
800,000
1,500,000,000
1,500,800,000
800,000
800,000
800,000
800,000
5,200,000
7,000,000,000
7,005,200,000
850
150
127,500
780
15,000
11,700,000
720
600,000
432,000,000
650
820,000
533,000,000
550
850,000
467,500,000
2,285,000
1,444,327,500
1,520,000
32,000,000
33,520,000
1,950,000
34,000,000
35,950,000
2,560,000
36,000,000
38,560,000
3,280,000
38,000,000
41,280,000
3,610,000
40,000,000
43,610,000
12,920,000
180,000,000
192,920,000
1,000,000
1,000,000
2,050,000
2,100,000
69,670,000
2,300,000
6,500,000
78,750,000
2,800,000
9,500,000
86,860,000
3,100,000
8,700,000
91,080,000
3,500,000
10,600,000
97,710,000
14,750,000
35,300,000
425,070,000
2,502,000,000
1,604,317,500
1,627,200,000
2,058,220,000
666,160,000
609,620,000
9,067,517,500
800
20,000
16,000,000
-
1,900
850,000
1,615,000,000
-
2,400
1,600,000
3,840,000,000
16,000,000
800,000
2,800
2,400,000
6,720,000,000
18,000,000
1,500,000
7,900
4,870,000
4,870,000
12,191,000,000
34,000,000
Total revenue
16,000,000
1,615,000,000
3,856,800,000
6,739,500,000
12,227,300,000
-2,502,000,000
-1,604,317,500
-1,611,200,000
-443,220,000
3,190,640,000
6,129,880,000
3,159,782,500
Partnerships / Acquisitions
3D Robotics
Big Data company
Plant company
Total cost of partnerships
Drones
Cost of drone+ remote / unit
Number of drones
Total cost of drones
Drugs
Total cost of production
R&D
Total cost of drugs
Other Operating Expenses
Market research
Advertisement
Total operating expenses
Total costs
Net Profit