Galenica corporate strategy analysis

Galenica corporate strategy analysis

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  Nathan Berchier, NinaCaluori, Anastasiia Kocherga, Elodie Bucciol, Michel de Marsano, Antoine Costa Corporate Strategy 2014 Xavier Castañer GALENICA GROUP 28.05.2014
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  Strategy and context Whereis the value coming from? Strategic resources & competences Synergies Recommendations Corporate strategy Team working experience Agenda
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  Strategy and Context SpecialtyPharma International Swiss HealthCare Services National Iron Deficiency Infectious Diseases/OTX Consumer Healthcare Retail Logistics Information “The Galenica strategy seeks to create long-term growth while distributing risk effectively…Galenica is active in many different complementary areas creating synergies for the benefit of all partners in the healthcare industry”. Stagnating Retail/Logistics market Price pressure due to new legislation Strong competition Very regulated market High risks associated to drug approval Growing demand in emerging markets Context Strategy
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  Our analysis showsthat Galenica group is over performing pure players by 37%! Sum of pure players Where does this value come from? Chop-shop analysis conclusions Enterprise Value 6’901’396 5’055’398 Enterprise Value + 37%
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  PHARMA LOGISTICS RETAILHEALTHCARE INFORMATION Vifor Pharma OM Pharma Renal Pharma Alloga Galexis UFD GaleniCare Winconcept Amavita Sun Store Coop vitality Medi Service HCI Solutions Documed E-mediat LEGAL SERVICES HUMAN RESOURCES R&D CORPORATE FINANCE PrimaryactivitiesSupportact. Galenica is active through the whole value chain! Marketing/ Transport Operations! Knowledge of the healthcare market and bargaining power 1.2 Economic synergies
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  3. Strategic acquisitions Panpaharma 1957 Hausmann 1983 Aspreva 2007 Sunstore 2009 100%acquisition that allows Galenica enter on the PHARMA market Majority in Sunstore allows Galenica to become a leader on the Swiss retail marketEnables the creation of Vifor Pharma in 2008 Acquisition of Hausmann laboratories will enable the development of Venofer
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  Financial risk diversification:entering businesses with imperfectly correlated cash-flows to stabilize the firm’s cash-flow 0.0 200.0 400.0 600.0 800.0 1,000.0 1,200.0 1,400.0 1,600.0 1,800.0 2,000.0 2009 2010 2011 2012 2013 HEALTHCARE INFORMATION LOGISTICS Correlation analysis shows strong positive correlation among all the sectors except Healthcare Information! PHARMA RETAIL Are the revenues negatively/poorly correlated? Not really! Revenues evolution among Galenica’s business sectors 1.2 Financial synergies
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  Internal Capital Market:capital allocation method within a group that disperses money through business of the company Market Growth Market Share Logistics Retail Pharma Healthcare Information The BCG Matrix: Not only capital, but also risk allocation in Galenica’s case Stable revenues from Logistics and Retail enable Galenica to take risks in highly profitable PHARMA business! 1.2 Financial synergies
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  Multimarket contact: meetingthe same competitors in multiple businesses or geo markets Possibility of mutual forbearance at two levels PHARMA Geographical contact Multi-business contact in Switzerland LOGISTICS & RETAIL Competitors Sector Competitors Sector 1.3 Mutual Forbearance
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  Interest alignment Variable compensationof the CEO: 52% of the salary CEO as a shareholder: 32% of bonus in shares of Galenica and holds 0.02% of the stock (1268) in 2012 Effective monitoring CEO David Ebsworth 27% 9% 3% 62% Alliance Boots Patinex Alecta Others Ownership Concentration (block-holders) Board Independence in 2012 Proportion of independent directors: 6/8 Etienne Jornod Fritz Hirsbrunner Ex-insiders 1.4 Corporate Governance
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  1.5 Analyst reports CORPORATEGOVERNANCE: Creation of distinct strategic and operational management function with Executive Chairman and a CEO reinforced collaboration. PHARMA: Limited control over launches of Velphoro and Injectafer in the US and limited visibility + necessity of global reach and scale to market the drug appropriately. LOGISTICS/RETAIL: The distribution business remains a heavily regulated business and we operating excellence is key to resist in this market which offers limited opportunity for margins expansion. HQ: pressure to optimize processes, leverage synergies and realize cost benefits at healthcare service providers (launch of COAXIAL). Bank Vontobel, March 2014 & GlovalData, February 2014 UBS, March 2014 & Marketline, April 2014 UBS, March 2014 & Bank Vontobel, April 2014 Bank Vontobel, March 2014 & GlovalData, February 2014
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  2.1 Resources andcompetences Strategic Resources & Competences Valuable Rare Difficult to imitate Difficult to substitute Bargaining Power ✔ ✔ ✔ ✔ Reputation ✔ ✔ ✔ Human Ressources ✔ ✔ Organizational structure ✔ ✔ ✔ ✔ Financial support ✔ Control of the value chain ✔ ✔ ✔ ✔ Iron Knowledge ✔ ✔ ✔ ✔ R&D ✔ ✔ Control of the Prewholesale & Wholesale ✔ ✔ ✔ Flexibility ✔ Brand Recognition ✔ ✔ Drug store management knowledge ✔ ✔ Network in Switzerland ✔ ✔ ✔ ✔ Database leadership ✔ ✔ ✔ ✔ Coaxial program (informatic) ✔ ✔ ✔ ✔ HQ PHARMA LOGISTICS RETAIL HCI What the strategic resources and competences of Galenica are?
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  2.2 Synergies Are theseresources shared among businesses to generate synergies? Strategic resources & competences Pharma Logistic Retail Healthcare HQ Bargaining Power ✔ ✔ ✔ To be reinforced ✔ Reputation ✔ ✔ ✔ ✔ ✔ Organizational structure ✔ Control of the value chain ✔ ✔ To be reinforced ✔ Iron Knowledge ✔ Network in Switzerland ✔ ✔ ✔ Database leadership ✔ ✔ Coaxial program (informatic) ✔ ✔ ✔
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  Fit 1: Relatedness- Good Support of the “Pharma” sector by the stability of the “Logistic” & “Retail” of the Swiss Market FIT 3 2.4 Synergies Vertical structure allows exploitation of synergies Corporate center provides support for different businesses Incentives related to long- term performance objectives Etienne Jornod is responsible for corporate culture acros divisions Fit 2: Organizational structure – Strong Active only in the health industry (similarity) Active on the every step of the value chain (complementarity) Fit 3: Sustainability – Good Risk of cultural instability if Etienne Jornod retires
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  PHARMA Remain put: Continueto expand the activity internationally as for Injectofer in the US market. LOGISTICS Remain put: Maintain actual position in Switzerland. Expand internationally in order to control more of the value chain in foreign countries (US especially). RETAIL Remain put: Continue pharmacy acquisition in Switzerland to reinforce position. Reinforce to other distribution channels (Supermarket for OTC) in Switzerland. HEALTHCARE INFORMATION Remain put: Strengthen national position and increase awareness of the services. 3. Recommendations
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  3.1 International Strategy Galenicais doing well with this strategy and should continue expanding logistics! Galenica is already conducting a transnational strategy in PHARMA: International markets represent the greatest potential for development Need for global efficiency Need for local adaptation Galenica PHAMA 83% 10% 5% 2% Switzerland Europe USA Others Strong relationship with HQ No geographical divisions Highly regulated market Different specifications for drug licensing HighLow Low High Revenues The market is stagnating and the pressure on prices is high
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  3.2 Corporate developmentmode Best corporate development mode for Galenica’s international expansion? Criteria for international expansion Galenica Goal Global commercial expansion and profitability Speed/Time to achieve objective Related to patent exclusivity and competitors Galenica value time and reflection for growth development Control Prefers full ownership for controlling the whole value chain Risks Imitation/replication of internal strategic resource Risk diversification on sector fluctuation Market knowledge/control Costs Cannot invest high amount in “one shot”
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  Acquisition We recommend Galenicato develop through alliance and later through acquisition 3.3 Corporate development mode Partnerships through alliances Implementation is faster and easier Lower start-up cost even on a large scale Shared risk Positive experience with Alliance Boots and Luitpold Pharmaceuticals But doesn’t have enough global scope Advantages Disadvantages Local player can deal with regulation authorities for new drug applications Established network Competition in this industry is already high Requires a big investment Risk of winner’s curse Risk of cultural misalignment Risk of bad acquisition/ talent loss Alliance Advantages Disadvantages Less control Risk of partner opportunism Low partner firm availability
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  4. Corporate governancerecommendations Remark: Lately voted «Ordinance against excessive compensation in listed companies» will ultimately increase shareholders’ power and strengthen the corporate governance The actual corporate governance is good and does not need major changes Recommendations Keep the stability inside the top management to assure the long-term orientation Etienne Jornod impersonalizes the culture of the group and is responsible for strategy and relationships with investors: for the long-term perspective, he should coach a successor for this strategic role.
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  5. Group experience Difficultto propose something as the strategy is already very good Difficult to detect which concrete resources are shared across the business to generate synergies. We are not experts of pharmaceutical market New positioning relative to annual reports Interesting to analyze a completely new industry for us Playing “synergies detectives” Development of the group abilities Effectiveness of brainstorming Difficulties Benefits +_