Wednesday, October 30, 2013

Change in Porter's 5 forces, forces Vertex to lay off 370 employees

Vertex laying off 370 workers

Due to the less than expected sales of Incivek – a hepatitis C drug – Vertex will be laying off 370 of their workers worldwide, which accounts for 17% of the company’s total Salesforce.  This nature of the layoffs, 175 of which are in Massachusetts, are interesting as Vertex now has to return $4.4 million in tax incentives it received from the state of Massachusetts for creating those jobs. 

I believe this case is interesting for this (and last) week’s readings because it is an example of how companies have to change their strategies in accordance with changes in one of Porter’s 5 forces: buyers, suppliers, new entrants, substitutes and competitors; and is a good example of how biotech companies are in an unpredictable industry that they cannot change the environment of. 

Although Incivek was a successful drug, treating over 100,000 patients and generating over $2B in revenue, the sales of the drug have recently decreased due to a new substitute product being introduced to the market.  Incivek has to be taken in conjunction with another compound that is injected into the patient; however, a new compound has been introduced that can be taken orally alone.  The use advantages of this substitute has pushed the buyers of Incivek, doctors and patients, to hold off from purchasing the injection based Incivek until they have tried the oral medication first. 

These layoffs are a direct result of a new substitute product being introduced to the Hep C market, as current sales for Incivek do not justify as large a Salesforce as they had hired.  Instead, Vertex plans on shifting their focus from Incivek to Kalydeco, a treatment for cystic fibrosis.  Although Kalydeco only works in about 4% of the 75,000 patients worldwide suffering from cystic fibrosis, they are working on combination drugs they hope will be able to treat 90% of the patient population.

Questions for discussion:
Which of the 4 strategy types, Classical, Adaptive, Shaping and Visionary is Vertex following as being part of the pharmaceutical industry?  Is this example out of the norm for that strategic style, or does it fall within the industry standards for predictability and malleability?


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