Executive Summary
Herbal is a small business that has recently had a major breakthrough in the form of using a plant-derived painkiller to treat cancer. Currently, the company’s CEO is looking for investors to fund further research on human subjects and to start the process of production. The uniqueness of the opportunity to invest in Herbal is associated with the fact that the company is small and does not rely on umbrella corporations. Also, the modern pharmaceuticals industry is on the lookout for new and innovative medications to address the needs of patients, governments, and health-care professionals when it comes to successful cancer treatment.
Introduction
This business plan will focus on developing a list of the activities that a young pharmaceutical company based in Abu Dhabi will take to capture a position in the market and generate revenue. Opportunities are currently vast due to the company’s recent research breakthrough, which has significant potential to attract new partners and investors to support future R&D efforts.
Business Description
General Description
Herbal is a unique company; it started out as a family-owned business that was passed down from father to son. In a recent breakthrough in research, the new painkiller “Herbal” managed to shrink one type of cancer in a lab rat by 75%, presenting a massive opportunity for the company to extend the capacity and the coverage of clinical studies and try “Herbal” on human subjects. Possibilities for “Herbal” are vast, particularly given the demand for medications that have a potential to cure cancer.
Industry Background
The modern pharmaceuticals industry currently consists of biotech companies, medicine manufacturers, and wholesale companies that manage and handle the products circulating the market. The industry is now focused on the manufacturing of medicine-related products (e.g., vitamins; diagnostic substances; health supplements; prescription, generic, and over-the-counter drugs; etc.). Compared to other industries that produce items for consumption, the pharmaceuticals industry has an unusually high percentage of financial support that goes toward research and development (R&D) efforts as well as the training of skilled personnel (scientists and employers). It is noteworthy that the leading companies operating within the industry generate over 50% of the sales, suggesting that barriers to entry are high. Industry leaders include such companies as Pfizer, Abbott Laboratories, Johnson & Johnson, Bayer, GlaxoSmithKline, Novartis, and Sanofi (“Pharmaceuticals: Background”).
A promising future is expected for the pharmaceuticals industry despite the challenges it faces. With a growing aging population and an increase in the consumption of both prescription and over-the-counter drugs, demand will rise worldwide. The key industry objective is to create sustainable supply chains and establish trusting relationships with patients. Also, new technologies should be developed to address the pressure from governments and health-care providers to develop preventative medicines for managing such challenges as cancer, tuberculosis, and AIDS.
Goals and Potential of the Plan
Key goals of Herbal’s business plan include communicating the opportunities for the product, explaining the need for the product on the market, estimating the subsequent processes to develop and market the product, and finding a target audience of investors who will provide financial support. In short, Herbal is a product that has an extensive potential if introduced to the market: It offers the possibility to address the health-care challenges of cancer research and management. Because the medication has been shown to be effective in shrinking one type of cancer in lab rats by 75%, the company has a massive potential to extend its clinical trials and start conducting tests with human subjects, which is expected to bring the company not only profit but also popularity in the industry.
Uniqueness of Opportunity
These outstanding properties of Herbal were an unexpected discovery since the initial purpose of the medication was to reduce pain. Overall, herbal substances are hard to control because their properties can influence organisms differently. The opportunity to extend the research regarding Herbal’s effect on humans is unique because the company is small and independent and thus does not require the same amount of financial incentive as large corporations. In addition, the fact that the drug is herbal-based and will need fewer chemicals for production offers a breakthrough in research targeted at cancer treatment.
Statement of Resilience
KPIs
Herbal will track the following key performance indicators: financial (cost, profit, cost of goods sold), customer ( lifetime value and retention), process (percentage of product defects and efficiency measures), and people (employee turnover and satisfaction) metrics.
Market Analysis
Indirectly and directly, the pharmaceuticals market currently supports over 3.4 million jobs in the United States alone. Furthermore, it was reported that in 2014, the industry added an estimated $790 billion to the country’s economy (International Trade Administration). The industry is heavily focused on R&D and invests over $50 billion in R&D efforts every year (International Trade Administration).
The domestic market (UAE) is one of the most accommodating to the development of new products. Key strengths of the market include the following factors:
- The overall improvement of drug regulatory proceedings;
- Manufacturing of specialized medicine that is funded from abroad;
- Rising medical expenditures and overall market growth.
Marketing
Target Market
Both the global and the domestic pharmaceutical markets have witnessed an increase in demand for new cancer treatments to target more than twenty types of different tumors. In 2015, global spending on therapy and supportive medications in the area of oncology increased by 11.5% (Constantino). Current trends of the target oncology market in the US include the development of integrated systems of delivery, higher expenses for patients (“out-of-pocket”), and the rising costs of cancer treatment (Constantino).
Market Size
It is anticipated that the annual growth of the oncology market will be between 7.5% and 10.5% and will reach $150 billion by 2020 (Constantino). A greater use of new products, particularly therapies targeted at immunization, will increase the market size. In 2015, the global market for cancer medication was valued at over $112.9 billion (Zion Market Research).
Competitive Analysis
Both domestic and global companies present competition for Herbal. Among the top pharmaceutical companies (by market share) that produce the most popular oncology drugs are Roche (28.2%), Celgene (10.8%), Johnson & Johnson and Pfizer (5.35%), Novartis (10%), and Bristol-Myers Squibb (7.4%) (Statista). Key strengths of these companies include market experience, substantial R&D funding, and popularity in the media, as well as customer recognition. Their weaknesses include difficulties in maintaining public relations and justifying new research without a return on investments.
Estimated Market Share
The estimated global market share of Herbal will be 1.77%, taking into consideration expected sales of $2 billion and total sales for the oncology industry of $112.9 billion. As Herbal invests in R&D as well as marketing efforts, the market share will grow from public recognition and increased sales.
Operations
Location
Abu-Dhabi is expected to be the most appropriate location for Herbal because the UAE is the second largest market in the region, having a total market value estimated at $3 billion and expected to rise to $6 billion by 2020 (Propharma). While the majority of high-profile drugs are imported to the UAE from India and Europe, the local government has focused its efforts on promoting the production of UAE-native pharmaceuticals to boost the industry and generate revenue.
Advantages of Location
Advantages of locating the business in Abu Dhabi include proximity to business hubs (meaning more potential partners), the possibility of creating jobs for locals, and getting more attention from the media. Abu Dhabi is a region where the diseases reflect the lifestyle; the cost of living is increasing along with people’s ability to spend more money on their medicine; therefore, the potential for Herbal is large. The economic growth of Abu Dhabi has been linked to the population having adopted characteristics of a Western lifestyle, resulting in more Western diseases.
Zoning Issues
Abu Dhabi is a global business hub that has experienced a dramatic influx of foreign companies that capitalize on the incentives provided by the region. Zoning issues with respect to locating Herbal in Abu Dhabi may include intensifying competition among pharmaceutical companies, uncertainties with regard to new laws, and questions associated with setting up an office because of high prices.
Tax Implications
The key implication regarding taxes for Herbal will be associated with price fluctuations; if the government decides to increase taxes for local drug manufacturers, it is likely that the company will be forced to boost its prices. Also, taxation can influence bonus schemes, distribution of sample drugs among health-care providers, and returns.
Transportation and Logistics Analysis
Key transportation and logistics procedures will be linked to demand forecasting, management of inventory, negotiations with logistics companies to distribute Herbal among retailers, processing of orders, warehousing, and selection of plant sites, as well as handling of materials. Materials management will allow the supply to be delivered to the stage of operations, while physical distribution will provide the product to customers.
Legislation/Compliance
When establishing a pharmaceutical business in the UAE, it is essential to conform to a number of federal health-care laws. For example, Herbal must comply with Federal Law No. 5 of 1984 (“regulating the licensing of […] pharmacists […]”), Federal Law No. 7 of 1975 and Federal Law No. 2 of 1996 (“defining the specific requirements for establishment and licensing of public and private medical laboratories”), and Federal Law No. 4 of 1983 (“governing pharmaceutical professions and establishments and the import, manufacture and distribution of pharmaceutical products”) (Latham & Watkins).
It is important to note that global market leaders dominate the majority of companies in the UAE pharmaceutical market; therefore, the abovementioned federal laws are predominantly aimed at such companies. Another point related to compliance with the legislation is associated with UAE Cabinet Resolution No. 7 of 2007 that does not allow companies to advertise medical products without the Ministry’s permission. Herbal will have to obtain such a license to implement its marketing strategies.
Management
Profiles of Key Management
Mr. Majid will fill the role of Herbal’s CEO, responsible for business strategy development, leading his subordinates, and overseeing operations to ensure that the established objectives are met. Herbal will hire a marketing manager to guide the marketing processes within the organization, a chief financial officer to seek investors, and a production manager to ensure a high quality of products.
Legal Structure
Herbal will take legal actions to become a corporation with an unlimited number of shareholders while protecting the role of the founder (owner). Such a legal structure will allow for better flexibility when it comes to involving many shareholders with limited liability.
Board of Directors, Advisors, Consultants
Herbal will create a board of directors to offer guidance and implement changes when necessary. This board will consist of the CEO, the vice president of marketing, the vice president of finance and administration, the vice president of R&D, and the vice president of production. Advisors and consultants will be recruited on a regular basis to assist in research (e.g., testing on human subjects) and make suggestions regarding Herbal’s future business strategy. Consultants and advisors will not offer guidance but will provide recommendations that the board of directors will analyze and introduce into practice.
Financials
Financial aspects of Herbal’s business plan will include marketing, operating, and R&D, as well as administrative expenses. The initial budget for additional trials, refinement, regulatory approvals, and marketing is expected to total $3 million. Additional trials and refinement will take the largest budget portion in the sum of $1 million. Administrative expenses such as hiring costs, employees’ pay and health insurance, inventory purchases, legal expenses, rent payments, and utilities are expected to take $500,000. Marketing expenses such as advertising and customer relations will need $400,000. Operating costs such as depreciation and amortization, interest expenses, income taxes, and other expenses will require $300,000. The budget for additional expenses comes to $800,000.
Critical Risk Analysis
Potential Problems and Mitigation Strategies
Pharmaceutical start-up companies can face a range of industry problems that should be addressed. Herbal is likely to encounter rising customer expectations, a lack of scientific productivity, and “cultural sclerosis” (PWC). With regard to rising customer expectations, patients expect new medications to be both more economical and better performance-wise than the existing alternatives, which puts pressure on such companies as Herbal. While innovation is welcome in the pharmaceuticals industry, the output of companies has been stable for several years, and this is a barrier that Herbal will have to surmount. According to PWC, “cultural sclerosis” is an idea that suggests that the pharmaceutical industry relies on the same strategies as a decade ago, even though other industries have already come up with new ways of doing business.
When considering other issues that directly affect the performance of companies, it is important to note that pharmaceutical businesses in 2017 are limited by persisted regulatory hurdles, the need to satisfy demanding stakeholders, and the slumping of R&D efforts by the value chain. These challenges can be addressed with the help of the following strategies:
- Establishing a value-driven program that will take into account such aspects as costs, risks, and revenue (Policy and Medicine);
- Developing targeted therapies that only cater to a specific drug program;
- Providing additional services for patients to enhance product value;
- Integrating a direct-to-pharmacy distribution model (Policy and Medicine).
Environmental Risks
According to Sean Milmo in his article for Pharmaceutical Technology, the pharmaceuticals industry exerts a negative influence on the environment (Milmo 1). Research on the concentration of harmful substances in wastewater, sewage, and surface water showed that there were 559 different pharmaceuticals and their derivatives in the environment. The dominant emission pathway is found in urban wastewater discharge; moreover, due to the lack of attention to instrumental analytics for analyzing pharmaceutical pollution, environmental risks remain high (Milmo 4)
Alternative Plans
An alternative plan for risk mitigation can include forecasting and control with the help of early warnings and data-gathering applications. These tools will provide management with relevant information on the likelihood and timing of possible risks.
Exit Strategy
Plans for Investors
When it comes to an exit strategy that will allow investors to exit the business within their timeframes, the most appropriate solution for Herbal is a private offering. The company can conduct a private offering of investors’ shares to other individuals interested in the project. Benefits of such offerings are as follows:
- They are less expensive;
- They take less time to complete;
- They do not have to be registered with the SEC;
- They can unite different entrepreneurs and investors who have similar goals (Drake).
Plans for Transferring Assets at Point of Exit
When exiting, Herbal should consider each category of assets: software, equipment, contracts, people, and intellectual property. Developing a contract to specify each category that will be transferred from one entity to another offers an effective strategy. A crucial point for consideration is the transfer of intellectual property due to the highly innovative nature of Herbal. Documentation should be developed to address the ownership of the IP and modify the license to allow a continued use of the property for further business operations (Kemp Little).
Continuity of Business Strategy
The continuity of Herbal’s business strategy will rely on five key components, including business levels, locations, staffing, infrastructure, and key suppliers. In the case of unpredicted circumstances, Herbal can transition to “emergency” or “no business” levels to restore its operations (Blunden). Alternative locations can include temporary offices or working from home; the critical functions that staff should perform include negotiations of distributions to ensure a steady flow of the medicine to retailers. All data will be backed up; in the case of the unavailability of phone landlines, the staff can use cell phones. Alternative suppliers will be negotiated in advance and only used in the case of emergency for ensuring business continuity.
Identification of Successors
Herbal’s successors will be assessed on the basis of attributes such as competence, dedication, availability, and capacity. The CEO of the company will evaluate the performance and potential of employees, partners, and stakeholders to determine whether any of them could be viable successors of Herbal. The company will also establish specific expectations and will invest in successor training to facilitate experience in the field.
Project Plan
Statement of Objectives
Herbal is planning to conduct a breakthrough in the sphere of oncology pharmaceutical development, providing patients all over the world with an effective product derived from nature. To reach its objectives, Herbal will find devoted investors who can contribute according to their financial incentives to fund R&D, manufacturing, and marketing.
Project Timing Plan
It is expected that the project will take a year to implement, with production and distribution of Herbal starting at the end of 2018. The most important procedures, such as project management administration, meetings, quality assurance, training, and documentation development, will take place first. Internal meetings, emergencies, interruptions, and unanticipated events will be managed as needed.
Deadline and Milestones
Finding investors to fund Herbal: December 2017;
Research and development of Herbal: January 2018 – March 2018;
Testing herbal on human subjects: March 2018 – August 2018;
Summarizing research findings: August 2018 – October 2018;
Production and distribution of Herbal: October 2018 – December 2018.
Works Cited
Blunden, Tony. “Business Continuity Management: Strategy and Planning.” Chasecooper, 2014, Web.
Constantino, Tor. “IMS Health Study: Global Market for Cancer Treatments Growths to $107 Billion in 2015, Fueled by Recorded Level of Innovation.” IMS Health, 2017, Web.
Drake, David. “6 Startup Exit Strategies for Investors.” Huffington Post, 2016.
International Trade Administration. “2016 Top Markets Report Pharmaceuticals.” Trade, 2016, Web.
Kemp Little. “Exit Management: How to Stop the Door Slamming Shut.” Kemplittle, 2014, Web.
Latham & Watkins. “2013 Update: Healthcare Regulation in the United Arab Emirates.” LW, 2013, Web.
Milmo, Sean. “Regulating the Environmental Impact of Pharmaceuticals.” Pharmaceutical Technology, vol. 38, no. 6, 2014, pp. 1-4.
“Pharmaceuticals: Background.” GlobalEdge, 2017.
Policy and Medicine. “Critical Issues Affecting the Pharmaceutical Industry in 2012.” Policymed. 2012.
Propharma. “UAE Pharmaceutical Industry & Companies.” Propharma, 2016.
PWC. “Industry Challenges.” PWC, 2017.
Statista. “Top 10 Pharmaceutical Companies Based on Global Oncology Market Share in 2016 and 2022.” Statista, 2016, Web.
Zion Market Research. “Global Cancer Drugs Market Set for Rapid Growth, to Reach around $161.30 Billion by 2021.” Zion Market Research. 2016.