Proper allocation of resources is a vital factor for the survivability of any business entity, especially the one that possesses a diverse portfolio and has to maintain several different product lines at once. In this regard, the case of Vertex Pharmaceuticals is particularly relevant as the organization has four projects of drugs ready for implementation and subsequent distribution. However, under the conditions of limited capabilities of the company, especially in terms of time, workforce, and finances available, simultaneous research and manufacturing may put a considerable strain on its budget, which will result in the lowered efficiency of R&D activities as a whole. In turn, the quality of the end products and their value in the eyes of consumers will also be reduced, leading to lowered sales and inability to cover the development costs. Therefore, it is necessary to conduct a thorough review of the options Vertex Pharmaceuticals has in terms of implementation of its projects and identify the most feasible course of actions for the company.
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Selected Portfolio Options
According to the data presented in the regarded case, Vertex Pharmaceuticals is involved in the development of four new products aimed to treat psoriasis (VX-148), acute coronary syndrome (VX-702), rheumatoid arthritis (VX-765), and hepatitis C (VX-950). However, with the company’s budget not exceeding $600 million, it is possible to state that it will not be able to finance the manufacturing of all these projects at once, meaning that only two types of drugs are to become its focus in the near future (Pisano, Fleming, & Strick, 2006). Out of all presented options, VX-765 and VX-950 can be considered the most viable choices for advancement in the company’s development due to the reasons that will be described further.
The selection of VX-765 component of Vertex Pharmaceuticals portfolio can be justified in the following way. First of all, the potential consumer base for this product is the largest, with more than 21 million people suffering from rheumatoid arthritis only in the United States (Pisano et al., 2006). Therefore, the market for VX-765 can be quite considerable, which will contribute to its success in the long-term perspective. The convenient form of drug (a small pill that can be taken orally without the need for painful injection), as well as unique and distinctive formula that differentiates it from the products of competitors, also contributes to its high potential and thus to significant volumes of sales after launching (Pisano et al., 2006). Moreover, according to the assessments made by the company’s Senior Vice President on Commercial Operations, VX-765 has the potential to become the most profitable product of the company (Pisano et al., 2006). As a result, its inclusion into portfolio of Vertex Pharmaceuticals will provide the organization with additional financial resources that can be utilized either for the improvement of the existing medications or for advancement of other projects, including the ones that were not selected initially (Chernev, 2014). In turn, the product line of the enterprise will become more diverse, which will improve the competitiveness and profitability of Vertex Pharmaceuticals, providing it with new prospects. This fact makes it possible to justify relatively high manufacturing costs of VX-765 (Pisano et al., 2006) since the new drug has the potential to cover them relatively early.
On the other hand, the choice of VX-950 as a product for further development and distribution can also be justified. First of all, the potential consumer base will be quite large under such conditions as it was mentioned in the case, hepatitis C virus affects at least 2.7 million people only in the United States, with this figure being much higher at the global scale (around 185 million patients) (Pisano et al., 2006). Additionally, high mortality rate (up to 10,000 cases per year) also contributes to the demand for drugs that can help to manage the disorder and avoid life-threatening complications and comorbidities (Pisano et al., 2006). In other words, the inclusion of VX-950 in the company’s portfolio will have an effect that is similar to the one from VX-765, albeit not as pronounced. On the other hand, its potential as a multi-billion drug may change its impact on the well-being of organization in the long-term perspective (Pisano et al., 2006), making it one of the leaders of the national or even global pharmaceutical market. Therefore, one can assume that finding markets suitable for distribution of VX-950 will not be a problem for Vertex Pharmaceuticals, especially against the background of the use of specialty sales force, which will allow reducing the company’s expenditures associated with such activity. This outcome becomes particularly important due to the company’s current condition: according to the CEO, Vertex Pharmaceuticals is on a low orbit (Pisano et al., 2006), meaning that cost optimization is vital for the survival of the enterprise.
Moreover, the overall attitude of the company’s personnel toward VX-950 can be described as positive, with the employees referring to the product of their work as a right concept that has low biological risks (Pisano et al., 2006). In turn, it will be possible to expect further advancements in the field of development of drugs for the treatment of hepatitis C, namely in the form of improvement of VX-950 formula. Finally, the high costs associated with this process will be somewhat balanced by the inclusion of the previously described VX-765, which is expected to have the highest financial return out of all presented options (Pisano et al., 2006). Therefore, the strain on the company’s budget will be quite significant only at the initial stage of the implementation of its chosen projects.
It is also necessary to note that the combination of the described benefits (scientific breakthrough and high profits) will allow improving the company’s situation considerably. The increased profitability will provide Vertex Pharmaceuticals with more opportunities in terms of development of new projects, expansion, additional scientific research with assistance of additional partners and distributors, and so on (Hutt & Speh, 2013). Furthermore, the introduction of a drug that can meet numerous medical needs in the field of treatment of hepatitis C, especially against the background of high mortality rate associated with this disorder, will contribute to the credibility of Vertex Pharmaceuticals in the eyes of its stakeholders (Hutt & Speh, 2013). In turn, the organization will be able to establish agreements with other business entities, thus easily organizing the process of compound research and development of new products, such as those similar to VX-950.
The remaining projects of Vertex Pharmaceuticals (psoriasis and acute coronary syndrome medications) must not be ignored, especially considering the fact that the company has already invested its time and human and financial resources in their development. However, due to the limited budget, it would be better to deal with their development later, with the option of either licensing the products out or using them as a part of a backup plan. By taking into account the fact that their potential has been already assessed by the managerial staff of Vertex Pharmaceuticals, with numerous specialists expressing high hopes for these products (Pisano et al., 2006), it is possible to state that the latter course of actions is more feasible.
First of all, it is necessary to pay specific attention to VX-148 product (a psoriasis drug). Despite the fact that it is described as the one that lacks novelty (Pisano et al., 2006), especially against the background of a wide array of similar goods, it has several advantages that make it a perfect candidate for a backup plan. First of all, Vertex Pharmaceuticals has already organized formulation and manufacturing processes for VX-148 (Pisano et al., 2006), meaning that in case of a crisis, the company will be able to switch to this project with relative ease. Moreover, given the fact that the potency of the new medication was identified as the one exceeding that of the competing products (Pisano et al., 2006), it is possible to assume that it will gain popularity quickly, contributing to the financial well-being of the enterprise. At the same time, the lack of novelty mentioned before prevents the process of recommending it as a spearhead product of Vertex Pharmaceuticals. Under such conditions, it will not make the organization stand out as much as in case of introduction of VX-950, meaning that situation will not be improved significantly. Therefore, VX-148 must be relied upon during crisis, in case other options prove to be inefficient.
On the other hand, VX-702 (an acute coronary syndrome medication) should be launched as a part of the backup plan only after VX-148. The primary reason for it is the high level of uncertainty associated with the launch of this drug, specifically the one related to the healthcare reform. The case mentions that currently, oral drugs are mostly uncovered by Medicare, with this fact potentially reducing their volume of sales. The situation may change after adoption of new legislation, namely the prescription drug benefit bill (Pisano et al., 2006). Moreover, the toxicity issues of VX-702 make it quite risky to launch the product immediately, especially against the background of other pharmaceutical companies being unable to address this problem (Pisano et al., 2006). In other words, VX-702 is a potentially dangerous product, and focusing on it may affect the reputation of the company in a negative way, reducing its credibility in the eyes of both consumers and stakeholders (Rollins & Perri, 2014). In this regard, the launch of VX-148 will provide the company with additional time necessary for addressing the toxicity issue of the new drug and ensuring its safety for consumers. It is also possible to expect that during this period, the prescription drug benefit bill will be enacted, thus creating new opportunities for Vertex Pharmaceuticals.
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At the same time, due to its focus on inflammatory responses of the human body, the versatile nature of VX-702 means that it can be used for treatment of a wide array of conditions, and considerable market size implies that it can become quite successful and profitable once legal and toxicity issues are resolved (Pisano et al., 2006). Thus, licensing it out will be unfeasible as Vertex Pharmaceuticals is likely to lose a major share of profits from the sales of a promising medication (Rollins & Perri, 2014). Moreover, with VX-702 being the cheapest and easiest to produce out of all presented drugs (Pisano et al., 2006), it is possible to state that it can be a reliable product in case of crisis, when cost optimization plays a major role in the activities of the enterprise.
The choices presented above were made solely on the basis of information contained in the case of Vertex Pharmaceuticals, namely the properties of the proposed products, costs associated with their development, potential consumer base, and overall attitude of the employees toward each of the reviewed medications. In general, these facts alone can be sufficient to make a decision regarding the feasibility of focusing on a particular option while discarding others in its favor (Lee & Carter, 2012). However, in order to ensure success of new projects in the long-term perspective, as well as to avoid the dispersion of limited resources of the company, the decision must be supplemented with additional data that will be reviewed further.
First of all, the managers of Vertex Pharmaceuticals will have to analyze the markets targeted by them in order to forecast the potential demand for their new products. Specifically, the case does not provide any in-depth data on the number of buyers of the company’s drugs, only containing information on the share of people affected by a particular disorder at the national and global scales. By taking into account the fact that numerous conditions they suffer from are of chronic nature (arthritis, cardiovascular disorders, and so on), it is possible to state that such patients already purchase medications to halt the progression of their disorders and ensure proper disorder management (Rollins & Perri, 2014). In turn, one cannot guarantee that they will shift to new, unfamiliar products offered by Vertex Pharmaceuticals, meaning that their sales will be quite low (Rollins & Perri, 2014). Given the fact that R&D activities of the company are associated with considerable expenditures, especially for VX-950, which is considered to be the most costly drug to be developed, it is safe to assume that the products it offers must sell well. In case the demand for a particular medication is low, its inclusion in the company’s portfolio may result in its lowered profitability (Rollins & Perri, 2014). Thus, the analysis of this variable is necessary for justification of the choice of VX-950.
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In order to obtain the necessary data, the managers of Vertex Pharmaceuticals have to implement the following measures. First, the company has to define the target audience for each of the chosen products. Having performed market research, the entrepreneur must collect information about potential clients people that will be interested in the offered product. Data on such factors as age, sex, level of education, income, and the intended location of the outlets used to distribute medications are particularly important for the assessment of demand (Mickey, 2014). Additionally, it is important to conduct an analysis of the internal environment of Vertex Pharmaceuticals (manufacturing capacity, available resources, and so on) in order to correlate the ambitions of the organization with its actual capabilities. Finally, it is necessary to obtain data on consumers preferences in a particular market, namely by conducting survey among the customers. As a result of this activity, the management would receive first-hand information on the needs and purchasing power of population (Rollins & Perri, 2014). Once the priorities of the target audience are determined and the first consignment of goods is purchased or produced, it is possible to obtain even more data by conducting a test run for the released medications. Specifically, the products will enter the stores in small quantities (Rollins & Perri, 2014). In case they are not in great demand, the enterprise must take the reactive measures namely, changing the pricing mechanism or narrowing sales market to ensure that its medications are attractive for the consumers.
The information obtained in the course of the described measures must be complemented by data on the competing products. In this case, the primary objects of analysis are to include goods and services offered by the competitors, average market prices, and approximate losses and profits calculations. Such generalized analysis will allow determining whether business ideas are already embodied in other projects, the way in which they work, and whether there is the need to copy them (Mickey, 2014). Based on the results of marketing analysis, it will be possible to make a conclusion about the prospects of the business. Additionally, it is necessary to analyze similar products offered by other pharmaceutical companies, specifically medications designed to treat rheumatoid arthritis and hepatitis C. In case new drugs of Vertex Pharmaceuticals have no close analogs or substitutes in the market, the company will be less restricted in terms of its pricing policy (Mickey, 2014), making it possible to cover the expenditures associated with R&D relatively quickly.
The described information will help the managerial staff of Vertex Pharmaceuticals make the decision that is best suitable for the current condition of the enterprise. For example, in case expenditures associated with the development of VX-950 will be too high to manage efficiently due to the low demand for the drug, it can be swapped with the more manageable project namely, VX-148, which can be implemented with relative ease. In other words, the reliance upon the results of environmental analysis and marketing research will improve the efficiency and profitability of the company as a whole, thus contributing to its competitiveness and survivability.
The analysis of the case of Vertex Pharmaceuticals has made it possible to state that all of new products developed by the enterprise have a considerable potential and may contribute to its financial well-being. However, the finite nature of resources possessed by the organization (around $600 million) has resulted in the need for choosing only two projects to focus on. Review of the presented options has allowed identifying VX-765 and VX-950 as the drugs that must be developed and launched first. In the case of the former, the highest return is the major factor that has facilitated the decision, while the latter drug has been chosen due to its revolutionary nature and consequent positive effect it will have on the company’s reputation. The remaining projects should be put on hold as a part of a backup plan that is supposed to be implemented in case the sales of VX-765 and VX-950 are low. In this regard, VX-148 product is the priority due to the presence of formulation and manufacturing plans, as well as high consumer qualities that make it possible to launch and sell the product quickly, thus generating profits in the short-term perspective.
At the same time, it is necessary to point out that the presented decision must be supplemented by additional information that can be obtained as a result of marketing research and environmental analysis. Specifically, the managerial staff of Vertex Pharmaceuticals will have to consider the features of its potential clients (age, education level, income, and so on), consumer qualities of the competing products, and capabilities of the enterprise, including its manufacturing capacity. Under such conditions, new products launched by Vertex Pharmaceuticals will remain successful in the long-term perspective and will contribute to the profitability and credibility of the company.