Analysis of OmnicareBy: Ashley Pait

OVERVIEW OF OMNICARE

PEST ANALYSIS

INDUSTRY ANALYSIS

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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)

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

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

INTERNAL ANALYSIS

SWOT ANALYSIS

GENERIC STRATEGY

GRAND STRATEGY

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

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:

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

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

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

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

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.

OVERVIEW OF OMNICARE’S…

Generic strategy Overall cost leadership

Grand strategy Organic development

Strategic clock Low cost High perceived service benefits

OMNICARE’S GENERIC STRATEGY

Competitive Advantage

Low Cost Higher Cost

Differentiation

Differentiation Focus

Overall Cost Leadership

Cost Focus

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Bro

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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.

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

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!

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

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.

PORTER’S VALUE CHAIN

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.

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

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

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

CREATED: SPRING SEMESTER 2011

CREATED BY:ASHLEY PAIT

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