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Analysis of OmnicareBy: Ashley Pait
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OVERVIEW OF OMNICARE
PEST ANALYSIS
INDUSTRY ANALYSIS
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SNAPSHOT OF OMNICARE
Established in 1981 in Covington, KY
Part of the drugs wholesale industry and pharmaceutical industry
Provides pharmaceutical care for seniors
Serves more than 1.4 million residents of… Skilled nursing Assisted living Other healthcare facilities
Omnicare serves Canada, the District of Columbia, and 47 states in the U.S.
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SNAPSHOT OF OMNICARE CONTINUED
13,700 employees
January 2011- Mr. John G. Figueroa was named the new CEO of Omnicare
February 17, 2011- Omnicare declared a quarterly cash dividend of 3.25 cents per share
Omnicare is a Fortune 500 company
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OMNICARE’S PRODUCTS & SERVICES
Clinical services Drug therapy Pharmaceutical consultation
Medicare part B services
Distribution services for niche disease markets
Respiratory equipment and
supplies
Distribution of drugs• Infusion, inject able
and compound medications
Infusion therapy Clinical trials management
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OMNICARE’S PEST ANALYSIS Factor Trend Evaluation Impact
(1=Low 5=High)
Rank in Terms of
Importance
Political Expired patent drugs entering the generic market
Changes in health care policy, especially Medicare Part D
Opportunity
Opportunity
4
4
2
Economic The U.S. Census Bureau estimate by 2040, the number of senior citizens age 65 and over will double to 80 million
Economic recession
Opportunity
Threat
2
3
3
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OMNICARE’S PEST ANALYSISFactor Trend Evaluation Impact Importance
Social Past unhealthy lifestyles for many years
Americans are becoming more health conscious
Patient awareness/ changing expectations
Opportunity
Threat
Threat
1
1
4
4
Technological Computerized medical record-keeping and third-party billing for residents now used
The pharmaceutical industry is increasingly shifting towardsBiotechnology
New info and communications technologies (social media)
Opportunity
Opportunity
Threat
5
5
3
1
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WHO ARE OMNICARE’S…
•Primarily skilled nursing facilities
•Assisted living facilities
•Retirement centers
•Independent living communities
•Hospitals
•Hospice
Buyers•Biotec
Services International Limited
•Unilabs York Bioanalytical Solutions
•GxPi•Phar
maCore
Suppliers
•Privately held companies:•Cove
nant Care Inc.
•Option Care Inc.
•Main competitor:•Phar
Merica Corporation (PMC)
Competitors
•Participating in sports
•Participating in exercise/yoga
•Using alternative medicine
Substitutes
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INDUSTRY ANALYSIS/PORTER’S FIVE FORCES
Factor Evaluation
1. Threat of new entrants Low
2. Threat of substitutes Low (With Patents)Medium (After Patent Expires)
3. Supplier power Low
4. Buyer power Low
5. Intensity of rivalry High
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NATURE OF THREAT OF NEW ENTRANTS
Nature of Barrier Extent of Barrier
1. Supply-side economies of scale High
2. Demand-side benefits of scale High
3. Capital requirements High
4. Incumbency advantages independent of size High
5. Customer-switching costs Low
6. Unequal access to distribution channels Low
7. Restrictive government policy High
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NATURE OF THREAT OF SUBSTITUTES
Nature of Threat Extent of Threat
1. Quality of substitute Low
2. Buyers’ willingness to substitute Low
3. Relative performance of substitutes Low
4. Costs of switching to substitutes High
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NATURE OF SUPPLIER POWER
Nature of Power Extent of Power
1. Differentiation of supplier’s products/services Low
2. Profitability of suppliers from the industry High
3. Suppliers threat to integrate forward into the industry Low
4. Switching costs High
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NATURE OF BUYER POWERNature of Power Extent of
Power
1. Quantity of buyers High
2. Differentiation High
3. Purchases in volumes compared to size of single vendor
Low
4. Threat of backward and forward integration into the industry
Low
5. Customer-switching costs Low
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NATURE OF INTENSITY OF RIVALRY
Nature of Intensity Extent of Intensity
1. Quantity of Competitors Medium
2. Product differentiation High
3. Switching costs High
4. Strategic objectives High
5. Exit barriers High
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SUGGESTIONS TO ADDRESS KEY FORCES
Key Force= High Intensity of Rivalry
The pharmaceutical industry is a tough and competitive industry due to…
Technological advancements
Tighter regulations
Investor confidence
Drug patents
The industry needs to continue to differentiate and create technological advancements to be a very strong industry
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POSSIBILITY OF A BLUE OCEAN STRATEGY
Blue Ocean Strategy
Omnicare’s Current Strategy
Uncontested market place X
The competition is irrelevant X X
Goal is to capture new demand X X
Break the value/cost trade-off X
Align the whole system of a company’s activities in pursuit of differentiation and lower cost
X X
Omnicare has 3 out of 5 of the major Blue Ocean Strategy ComponentsOmnicare could easily use a true Blue Ocean Strategy in the pharmaceutical industry
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OMNICARE’S CURRENT STRATEGY
Omnicare currently has the following characteristics, which are found in a Blue Ocean Strategy:
• Largest provider in the nation of clinical and financial software to long-term care facilities
• Largest U.S. professional pharmacy provider
The competition is irrelevant
• Goal is to ensure the health of seniors in a cost-effective manner
Align the whole system of a company’s activities in pursuit of differentiation and lower cost
• The pharmaceutical industry is increasingly shifting towards Biotechnology (Technological Opportunity in PEST analysis)• Specialty distribution for Omnicare will play an increasing role as newer
biotechnology drugs, typically requiring refrigeration and special administration, come to market
Goal is to capture new demand
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CONCLUSIONS OF PEST AND INDUSTRY ANALYSIS
Technological opportunities and threats are most important for Omnicare
The drug wholesale industry has a… Low…
Threat of new entrants Threat of substitutes Supplier power Buyer power
High… Intensity of rivalry
Omnicare could easily use a true Blue Ocean Strategy in the pharmaceutical industry
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COMPETITOR ANALYSIS
MARKET ANALYSIS
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IDENTIFICATION OF KEY COMPETITORS
PharMerica Covenant Care Option Care
Company’s Focus
To redefine the way institutional care settings manage pharmacy services
Provide long term care to those who need it in the mid-western and western U.S.
Provides specialty services that can be treated at home, at its local ambulatory infusion centers, or in a physician’s office in the U.S.Option Care is a wholly-owned subsidiary of drug store giant Walgreen Co
City of Headquarters
Kentucky California Illinois
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Omnicare PharMerica
Net Sales (Quarter ending Dec. 31,2010)
$1.558 Million $1.841 Million
Distribution of Sales (Quarter ending Dec. 31, 2010)
Pharmacy Services: $1,532 Million
Contract Research Business:$25 Million
Pharmacy Services:$9,897 Other:
$1.831 Million
Growth Rates (Year ending 2010)
-2.3% 0.3%
Net Income (Year ending 2010)
$-85.79 Million $19.20 Million
Generic Strategy Cost Leadership and Differentiation (Hybrid)
Cost Leadership
Market Share 80% 15%
Market Rank 1st 2nd
EVALUATION OF COMPETITORS
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Omnicare Covenant Care
Option Care
Net Sales (Quarter ending Dec. 31,2010)
$1.558 Million N/A $5.3 Million
Net Income (Year ending 2010)
$-85.79 Million N/A $18.9 Million
Generic Strategy Cost Leadership and Differentiation
(Hybrid)
Differentiation Differentiation
Market Rank 1st 4th 3rd
EVALUATION OF COMPETITORS
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STRATEGY BUSINESS GROUPS IN THE DRUG WHOLESALE INDUSTRY
Increase scale of the drug wholesale industry into other countries
• Omnicare moved into China in 2001
Diversify business activities into lower risk activities
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EVALUATION OF COMPETITORS
Omnicare PharMerica Covenant Care
Option Care
Geographic Scope
47 States in the U.S., District of
Columbia,& Canada
43 States in the U.S.
Mid-Western and Western
U.S.
U.S.
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HOW COMPETITORS COMPETE
Focus on low cost
• Choose and distribute products that are produced under the highest manufacturing standards
• Ensure that products they are distributing are in line with appropriate guidelines
Experienced companies with loyal customers
Trust from customers
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OMNICARE’S COMPETITIVE POSITIONING
Omnicare uses a differentiation strategy to compete Omnicare has many diverse services
Omnicare is the only provider of any kind to offer a full range of systems to operate a long-term care facility
Omnicare has specialty pharmacy and compounding operations, enabling Omnicare to distribute drugs that require special handling
Omnicare also uses a cost leadership strategy to compete Omnicare provides its clients with opportunities to improve the
quality of care for the residents they serve while reducing overall healthcare costs
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OMNICARE’S COMPETITIVE POSITIONING
Largest U.S. professional pharmacy provider
Largest provider in the nation of clinical and financial
software to long-term care facilities
Respiratory Care Resources, an Omnicare company, is the largest provider of respiratory
equipment, supplies, and clinical services to the long-
term care industry
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PHARMERICA’S GROWTH• April 7,2011- they announced the
acquisition of an institutional pharmacy based in Greenville, South Carolina
• January 3, 2010- they announced the acquisition of Integrity Pharmacy Services.Acquisitions
• Use of a program called EZ-MAR• By centralizing information for drug and
treatment delivery and medication ordering, EZ-MAR ensures patient safety.
Improved Technology
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MARKET GROWTH OPPORTUNITY
Growth opportunity: Specialty distribution will play
an increasing role as newer biotechnology drugs, typically requiring refrigeration and special administration, come to market
RxCrossroads, an Omnicare company, provides solutions enhancing pharmaceutical and biotechnology manufacturers' product success.
Other, 19%
ConventionalDrugs, 72%
Pharmaceutical market share by drug type
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SIZE OF DRUG WHOLESALE MARKET
37%
20%10%
2%
10%
21% United States
Eurpean UnionJapanCanadaRest of EuropeRest of the World
In 2010 the United States’ drug wholesale industry totaled $602 billion, which was up 7% from the previous year
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KEY TRENDS IN DRUG WHOLESALE MARKET
Structural changes The majority of companies generate high returns Excess cash for further rapid growth is available and used
for mergers and acquisitions
Emphasis on research and development
Future growth
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FUTURE GROWTH IN DRUG WHOLESALE MARKET
The baby boomers will soon reach age 65 which will increase the number of people who need long term care services.
Number of individuals needing long term care
Year
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PRODUCT & SERVICE TYPES IN DRUG WHOLESALE MARKET
Medications and drug distribution services
Infusion therapy
Pharmaceutical care guidelines
Pharmaceutical consulting
Clinical programs
Clinical trials management
Data analysis and submission
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WHO IS THE TARGET MARKET IN THE DRUG WHOLESALE INDUSTRY?
Drug Wholesale Industry
Senior citizens both male and
female with medical needs
Patients with chronic
diseases
Long term health care providers
Doctor’s offices
Hospitals
“Anything with a
heartbeat”
Drug wholesale industry
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MARKET SEGMENTATION APPROACHES
Market Segmentation Approaches
Industry segmentation by
products
Brand-name products
Generic products
Industry segmentation by
distribution
Pharmaceuticals used in outpatient settings (75%
of the drug wholesale industry sales)
Pharmaceuticals used in the assisted living
community (25% of the drug wholesale industry
sales)
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How can companies improve their services by listening to online blogs? If you have an insight about what your customers want through the blog,
companies can serve the customers.
What are the risks associated with using social media in the drug wholesale industry? The industry has to figure out what tools actually work for certain kinds of
communications. We have to decide whether to passively or actively monitor social-media
activity.
Omnicare introduced “Omniview” in 2001 A web-based customer site that provides access to
pharmacy information extensive array of on-line resources
As of 2010 there were 9 drug wholesale companies with blogs
SOCIAL MEDIA IN DRUG WHOLESALE MARKET
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CONCLUSIONS OF COMPETITOR AND MARKET ANALYSIS
Omnicare’s main competitors PharMerica (Publicly Traded) Option Care (Privately Held) Covenant Care (Privately Held)
Competitors compete with... Trust Experienced companies with loyal customers Focus on low cost
Key trends for the drug wholesale market Structural changes Future growth Emphasis on research and development
Market segmentation includes… Industry segmentation by products Industry segmentation by distribution
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INTERNAL ANALYSIS
SWOT ANALYSIS
GENERIC STRATEGY
GRAND STRATEGY
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OMNICARE’S CURRENT BUSINESS MODEL
Omnicare currently operates as a service-driven company
Omnicare provides infusion therapy services, respiratory therapy services, and many other services.
Omnicare is known for their exceptional services, which adds value to the company
Omnicare dispenses the pharmaceuticals to facilities
Omnicare repackages the drugs using an unit-of-use distribution system (dispensed in individual doses.)
Omnicare purchases both prescription and non-prescription drugs
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OMNICARE’S FUTURE BUSINESS MODEL
Reallocate resources
Align employee interests Reshape the organization to bring it closer to the customer
Focus on corporate culture
Instill collaborative environment and encourage employee innovation Organization-wide focus on the customer
Make management team changes
Appointment of John Figueroa as CEO• Strong operations background and motivating leader
Omnicare wants to transition as a operations-driven company by taking the following steps:
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OMNICARE’S PERFORMANCE OVER PAST 5 YEARS
2005 2006 2007 2008 2009
Sales $5,201,362
$6,366,548
$6,100,394 $6,205,715 $6,166,209
Profit N/A N/A $1,492,950 $1,552,011 $1,495,003
Numbers in thousands
2005-2006: 22.4% increase in sales
Sales peaked in 2006
2006-2007: 4.12% decease in sales
2007-2008: 1.73% increase in sales
2008-2009: 0.64% decrease in sales
There was a 0.14% overall increase in profit from 2007 to 2009
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LITTLE CHANGE IN DISTRIBUTION OF SALES
4th Quarter of 2009
4th Quarter of 2010
Net Sales $1,539.7 million $1,558.4 million
Pharmacy Service Business Sales
$1,505.4 million $1,532.7 million
Contract Research Business (CRO) Sales
$34.3 million $25.7 million
97.77%
2.23%
2009 Sales
98.35%
1.65%
2010 Sales
Pharmacy Services
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OMNICARE’S KEY ASSETS
Cash
Accounts receivable
Unbilled receivables
Inventories
Goodwill
Properties and equipment
Identifiable intangible assets
Rabbi trust assets for settlement of pension obligations
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OMNICARE’S SWOT ANALYSISStrengths Weaknesses
Increasing scale into other countries
Aggressive acquisition strategy
Diversified service offerings
Low costs for customers
Weakness in prescription volumes drives
down sales
Highly leveraged (more debt than equity)
Opportunities Threats
Aging baby boomers
The industry is increasingly shifting towards
biotechnology
Computerized medical record-keeping and
third-party billing for residents now used
Past unhealthy lifestyles for many years
More and more generic drugs being used
New info and communications technologies
(social media)
Patient awareness/ changing expectations
Economic recession
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BCG MATRIX
Stars Question Marks
DogsCash Cows
RELATIVE MARKET SHARE
HIGH LOW
MARKET GROWTH RATE
HIGH
LOW
HIGH MARKET SHARE:Omnicare holds 80% of the market share
LOW MARKET GROWTH:There is little opportunity for growth in the market in the U.S.
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OVERVIEW OF OMNICARE’S…
Generic strategy Overall cost leadership
Grand strategy Organic development
Strategic clock Low cost High perceived service benefits
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OMNICARE’S GENERIC STRATEGY
Competitive Advantage
Low Cost Higher Cost
Differentiation
Differentiation Focus
Overall Cost Leadership
Cost Focus
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LOW COST COMPETITIVE ADVANTAGE:Omnicare competes by reducing client’s overall healthcare costs.
BROAD COMPETITIVE SCOPE:Omnicare focuses on a broad spectrum of services in the drug wholesale industry.
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OMNICARE’S GRAND STRATEGY
Transition to an operations-driven company A focus on organic development
Enhance the customer experience Align customer retention with incentive programs Reposition leading technology offering Invest in new technologies closer to the customer
Improve selling effectiveness Re-engage sales consulting group Improve coordination of selling process Revamped incentive programs
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OMNICARE’S STRATEGY CLOCK
No Frills
Low Price
Differentiation
Hybrid
Strategies Destined for Failure
Focused Differentiation
LowHigh
High
Price
Perceived Service Benefits
LOW PRICE:Omnicare focuses on low cost overall and differentiation
HIGH PERCIEVED SERVICE BENEFITS:Omnicare does have competitors but their service benefits stand out to competitors with 80% of the market share!
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OMNICARE IN INTERNATIONAL MARKETS
Omnicare Clinical Research (OCR) A division of Omnicare A contract research organization specializing in Phase I to Phase IV trials for
bio-pharma and medical device companies
OCR opened two offices in China in 2001 Offices in Shanghai and Beijing
Why China? Phase I trials can be conducted in China for around 1/15th of the equivalent
cost in a Western country Phase II studies cost 1/20th of the price in the west
Omnicare also have other offices located in the Asia Pacific including… Australia India Japan
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ANSOFF GROWTH MATRIX Omnicare should focus on Market
Penetration Existing Products- continue to
focus on the same services offered in the U.S. globally
Existing Markets- focus on the already existing drug wholesale market globally.
The services Omnicare offer are needed globally, not only in the U.S.
Omnicare should consider using acquisitions in the global drug wholesale market. They have already mastered the
U.S. market and know what to do to succeed.
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PORTER’S VALUE CHAIN
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OMNICARE’S VALUE CHAIN
The service activities is where the value of Omnicare is created!
The value is created among the patients, physicians, payers, and
pharmaceutical manufacturers.
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OMNICARE’S POSSIBILITY OF ADDING VALUE
Generic drugs dispensed have increased from 62.5% of total scripts to 75.6% within the past 3 years
With more and more generic drugs, Omnicare may soon be capable of creating their own drug, resulting in cutting out the middle man (the drug manufacturing companies)
Generic Dispensing Rate% of generics of total scripts
Quarter
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CONCLUSIONS OF INTERNAL ANALYSIS, SWOT, & STRATEGIES
Omnicare’s business model Current: operate as a services driven company Future: Omnicare wants to transition to an operations-driven
company
Omnicare’s grand strategy Organic development
Enhance the customer experience Improve selling effectiveness
Omnicare’s strategic clock Low cost High perceived service benefits
Omnicare in international markets Currently has offices in…
Australia, India, Japan, Shanghai, Beijing
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SUGGESTIONS FOR OMNICARE
Omnicare should focus on market penetration in the global drug wholesale markets Omnicare already has 80% of the U.S. market share They should focus on the European Union since the EU makes up
the 2nd to largest percentage of the drug wholesale industry U.S. makes up 37% of industry European Union makes up 20% of industry
Omnicare should look into production of their own generic drugs Generic prescription sales have increased overall within the past
three years
Omnicare needs to focus on biotechnology since this is on an up rise in the industry
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CREATED: SPRING SEMESTER 2011
CREATED BY:ASHLEY PAIT
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