Salix Pharmaceuticals to Expand Multi-symptom Product Line

Case Type: business competition, competitive response.
Consulting Firm: Navigant Consulting first round full time job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.

Case Interview Question #00881: Our client Salix Pharmaceuticals, Inc. is a specialist American pharmaceutical company headquartered in Raleigh, North Carolina, United States. As of March 2015 it is the largest independent gastrointestinal specialty pharmaceutical company in the world. The company develops drugs that mainly treat various gastrointestinal disorders.

As the leading manufacturer of over-the-counter (OTC) stomach medicine, a $2.5 billion market, Salix Pharmaceuticals has traditionally enjoyed great success as a major brand in their market, holding steady at 15% of market share. However, they have recently faced competition from a private brand, which has gained 20% market share over the last few years and is continuously gaining 2 share points per year. Your consulting team has been brought in to assess the competitive landscape.

First, calculate how much Salix would lost if they did nothing next year. Next, what do you recommend as next steps for Salix?

Possible Answer:

Part 1: If the client Salix Pharmaceuticals does nothing, how much will they lose in revenue (in dollars) to this private label next year?

Calculations:

Salix’s current dollar share in the market is $2.5 billion * 15% = $375 million.

The private brand will gain a total of $2.5 billion * 2% = $50 million of new business next year.

The private brand’s gain will come from the 80% of the market share that it doesn’t own currently. Salix’s share in this “new to private brand sector” is 15% / 80% = 18.75%. So, Salix’s corresponding loss next year will be $50 million * 18.75% = $9.4 million, if Salix does nothing.

Part 2: What do you recommend as next steps for Salix Pharmaceuticals?

Possible Answer:

Note to Interviewer: Let the candidate drive the case. The candidate should, at this time, draw out a framework.

Suggested Framework:

The candidate should draw out a 3Cs framework considering factors similar to those outlined below:

Here is additional information that can be provided to the candidate if asked.

Additional Information:

* Salix currently specializes in two main product lines. One is a simple, upset stomach remedy, while the other is a multiple symptom product.
* Each product line comprises 50% of Salix’s production.
* Currently there are no private labels competitors for the multi-symptom product, only for the simple, upset stomach product.

A good candidate will probe more on the profitability of the simple product line versus the multi-symptom product where we don’t face a threat from private brands.

Interviewer: If asked about the pricing differences, tell the candidate that the multi-symptom product is priced higher than the one-symptom product.

If probed about the cost structure differences, ask the candidate what he/she thinks the differences might be.

Other than marketing expense, which you can say are currently equal for both brands, a good candidate should conclude that given the nature of the drugs industry, the marginal costs of production are very low and essentially the same for both product lines. Thus, given the higher prices of the multi-symptom product, Salix earns higher margins on that product line, and given the lack of private brand competition, Salix should focus efforts on the multi-symptom product line.

Recommendations:

Interviewer: What would be your suggestions to Salix for expansion of the multi-symptom line?

A possible response:

Consider expansion into regional areas that Salix does not currently have a presence in. Also, Salix can look to expand multi-symptom product line into a similar product for children, if one doesn’t currently exist. Salix can also look to increase marketing efforts through additional advertising of multi-symptom product and extend deeper into specific channels such as doctors and hospitals.

Additional Considerations:

Interviewer: What are some of the potential risks?

Some possibilities include:

* Private brand introduces a multi-symptom product line.
* Threats from other brand name competitors.
* New breakthroughs in upset stomach medications after investments in marketing and expansion have already been made.