Auxilium Pharmaceutical Corporation - Research Paper Example

 There are lots of important business industries that influence the lives of people. One of those industries is the pharmaceutical industry. Americans depend of the drugs manufactured by the pharmaceutical industry for their medical needs. Drugs have become the new gold of the 21st century as prices of prescribed drugs have skyrocketed in the US and abroad. Due to FDA regulations pharmacies can only prescribed drugs that are FDA approved. The majority of FDA approved products are US based products. A company that has successfully penetrated the pharmaceutical industry in the United States is Auxilium Pharmaceutical. Company Profile: Auxilium Pharmaceutical Auxilium Pharmaceutical is a firm that has been in business since 1999. The firm’s common stocks are traded publicly in NASDAQ under the symbol AUXL. The mission statement of the company is: “To improve the lives of patients throughout the world by rapidly and efficiently identifying, developing and commercializing innovative specialty biopharmaceutical products” (Auxilium, 2011). The firm’s products target the following healthcare markets: hand and plastic surgeons, endocrinologist, rheumatologists, urologists, and primary care physicians. The two top selling brands the company has are Testim and Xiaflex. The values of the company include integrity, quality, innovation, teamwork, and result oriented. In fiscal year 2010 Auxilium Pharmaceutical generated $211 million in revenues (Annual Report: Auxilium, 2010). The organization has 565 employees. External environmental factors The pharmaceutical industry is one of the largest and most powerful industries in the world with 2010 global sales of $875 billion (Plunkett Research, 2011). The United States has the most expensive healthcare system in the world. One of the challenges that U.S. healthcare companies face when trying to develop a new drug is that it takes a lot of time and money to bring a new drug to market. During the last five years the costs of bringing a new drug to market have gone up from $800 million to $1.3 billion (Evaluatepharma, 2003). One of the primary reasons companies receive lengthy patent protection is to allow companies sufficient time to recover its investment and make a reasonable profit. All the costs across the entire healthcare system in the United States are on the rise. The medical spending per capita in the United States is twice as high as other developed countries such as the members of the European Union. In 2009 the United States spend $7,410 in healthcare spending per capita, while Europe in the same period spend only spend $3,615 (Plunkett Research, 2011). Quality is not the main issue that’s driving the costs up since the Europeans receive equal if not better healthcare than American citizens. The cost of education may be a factor that is affecting the salary scales for doctors in the United States. Most medical students borrow over $250,000 in student loans to finance their education. Once they start practicing doctors are seeking higher salaries than ever before. Drugs are becoming more expensive due to higher development costs and medical plans are charging astronomical yearly fees in comparison with the past. In 2009 the average cost of family healthcare plan was $13,375 (Usatoday, 2009). Medical insurance plan inflation increased 5% in comparison with 2008. Due to the rising cost of medical insurance the amount of Americans that are uninsured has increased to over 50 million. This hurts the sales of pharmaceutical companies because uninsured citizens typically cannot afford to pay for their prescription drugs in cash payments. Internal Strengths and Weaknesses Auxilium Pharmaceutical has multiple strengths that are helping the company stay competitive. The firm has build up a nice brand value during its 13 years operating in the industry. During 2010 the company had very solid sales results of $211.4 million which represent an increase of 29% in comparison with the previous year. The firm operates in a niche market within the biotech pharmaceutical segment of the industry by targeting drugs to treat rare medical specialties including urologists, endocrinologists, hand surgeons, and orthopedics. By focusing on specific specialties the firm minimizes the overall level of competition it faces. The two products that the company has successfully launched are Xiaflex and Testim. Xiaflex is a proprietary, injectable collagenase enzyme for the treatment of Dupuytren’s contracture, while Testim testosterone gel is used one a day for the treatment of hypogonadism (Annual Report: Auxilium, 2010). Both drugs have proven to be very effective at treating its targeted diseases. The operation Auxilium is running has many weaknesses. The company has a poor product variety. The organization has focused too much on its two successful products. The company is developing variants of its same brands to treat different diseases. These Phase II products must be brought to market as soon as possible. The firm has endured horrific financial results during the past three years. The graph below shows the net income (loss) for the company for the last three years. The firm has been able to sustain these massive losses due to its retained earnings and accumulation of current assets. The cash account of the company decreased to $128 million at the end of 2010 which represents a decrease of 29.56% in comparison with the previous year. The company still has the ability to pay off its short term debt and long term debt, but the firm must get back to profitability as one more year of losses could jeopardize the ability of the company to maintain its operations open. Company’s competitive position and possibilities The company has targeted its niche market well evidenced by its outstanding sales growth in 2010. The problem lies in the company ability to control its cost of goods sold and operating expenses. The firm has to look for cheaper places to source their materials in order to reduce costs. A potential solution is for the company to open up a subsidiary outside the United States. This could help the company reduce costs including labor costs. The average manufacturing costs in emerging economics such as China are a fraction of the manufacturing labor costs in the United States. Another strategy that should be implemented by the company is to expand its customer base by launching both its primary products outside the United States with Europe been the primary original target. Testim is already a multinational product and the firm now has to achieve foreign penetration for its Xiaflex product. The long term goal of the company should be to achieve international penetration for both products in all 210 countries in the world. Conclusion Auxilium Pharmaceutical is a company that has created two winning drug formulas to treat diseases. Due to the competitive nature of the industry the company must continue to invest in research and development to find its third FDA approved product. The company has done a good job of raising sufficient capital to whether the bad economic times the firm has endured. Most firms in the United States cannot survive one year of losses. Auxilium has endured combined losses of over $150 million during the last three years. There is room for optimism since the company has been increasing its market share in the niche market it participates. Further penetration of the Xiaflex and Testim products will help the company increase its reach. The expenses of the company have to be controlled in order to achieve breakeven sales. The goal of the firm should be to achieve breakeven in the next quarter and to subsequently obtain profitability in the following three quarters. The sound social responsibility principles of the company along with its high ethical standards are attributes that are going to help the company achieve its mission and vision in a profitable manner in the near future. References Annual Report: Auxilium (2010). Retrieved October 22, 2011 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9OTE0NTB8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 Auxilium.com (2011). Our Mission. Retrieved October 22, 2011 from http://www.auxilium.com/AboutAuxilium/OurMission.aspx Evaluatepharma.com (2011). Cost of New Drug Development Remains High. Retrieved October 22, 2011 from http://www.evaluatepharma.com/Universal/View.aspx?type=Story&id=239606&isEPVantage=yes Plunkett Research (2011). Biotech Industry Overview. Retrieved October 22, 2011 from Plunkett Research database. Plunkett Research (2011). Global Health Statistics. Retrieved October 22, 2011 from Plunkett Research database. Usatoday.com (2009). Average family health insurance policy: $13,375, up 5%. USA Today. Retrieved October 22, 2011 from http://www.usatoday.com/money/industries/health/2009-09-15-insurance-costs_N.htm Read More