Genexis and the Brazilian Pharmaceutical Industry

Hlcio Lima, vice-president of strategic business at Genexis (www.genexis.com) contemplates the beautiful sunset through the large window of his So Paulo, Brazil office.He had just come out of a meeting with the company's board of directors, in which hereceived the OK to execute a project that could potentially launch Genexis into the worldmarket, inanewareaandoneofsubstantialaddedvalueforitsclients.GenexiswasgoingtobecomeaVAN(value-addednetwork)provider.

Instead of offering clients intermediary trade services, or what is now called a "marketplace," suchasdirectandreverse auctionsandorderautomation,itwouldmeanoffering an information platform, management models, and business and telecommunication intelligence to its clientsdistributors, drug manufacturers, and industry suppliers.These customers could then be guaranteed that the decisions taken within the various"links"of their supply chains would follow a proper and cohesive logic, giving their supply chains the maximum performance possible, without losing sight of each member'smainbusiness.

This point of view contrasts distinctly with the traditional management model, in which each firm's purpose is to maximize its individual performance even if this means harming the performance of other supply chain members and the chain as a whole, resulting in long-term damage for all the supply chain participants.

Hlcio felt that this was the exact moment for Genexis to place itself as the leader in this development for the pharmaceutical sector that currently was undergoing substantial changes in Brazil due to the release of "generic" drugs by the Brazilian government. With the release of the generics, logistics management within the pharmaceutical sector's supply chains became essential. Generics were causing a substantial reduction in the profit margins of drugs with proprietary brands, which in turn created substantial pressure to manage costs and supply chain logistics components.

It also made the "presence at the point of sale" an important aspect for the competitiveness who prescribed them. Today, servicing drugstores held greater importance than ever before, since customers were provided information on both the branded drugs and the corresponding generics.

The market of pharmaceutical products in Brazil is very dispersed. There are approximately 55,000 drugstores in the country and 450 wholesalers/distributors, most of which are independent and non-exclusive, distributing drugs for approximately 80 to 90 medium- to large-sized laboratories.

TheOrigin ofGenexis

The company that later became Genexis appeared in Brazil in 1994 as an answer to the need of the pharmaceutical industry for "sale maps," or the sales reports that each industry requested through its distribution channels. This information is highly strategic, since the industry allocates on average 25 percent of their revenues to promotional activities and sales force costs, with the goal of generating prescriptions to the patients from physicians, and demand for the product at the end of the chain, the consumer.

Up until 1994, the industry did not have an efficient and effective mechanism to measure the result of that substantial expensewhether the right physician was being visited at the right time and was prescribing the right product. This occurred because the companies performing these services at that time used a sampling method, with results being shown to their clients only after some months, when a possible corrective measure might already be too late.

In 1994, ITX was getting prepared to start rendering services to the local state-owned electrical energy supplier, gathering and processing data on the consumption of electric power when, with the investiture of a recently elected Governor, it had its contract terminated. Trying to take advantage of the existing infrastructure and the company's technical capacity, its founder and president, Fernando Luiz Cabral, entered into informal talks with some people connected to the health area. By doing so, he identified the adaptability of the company's functions to gather, process, analyze and make available a large quantity of accurate pharmaceutical information in real-time via EDI.

Thus, in 1994, the first contract with the Bristol Myers-Squibb Laboratory was signed to develop a system to gather, format, and summarize drug sales information, and register the clients of all the Bristol Myers distributors, on a daily instead of a monthly basis. This allowed the laboratory to know the true demand per outlet throughout Brazil.

In 1995, with the experience gained by the development of the project for Bristol Myers-Squibb, the company, in consortium with Embratel (a Brazilian telecom company), won a public bid to apply the same methodology and technology to a much larger universe. In the beginning, there was the participation of 12 laboratories and approximately 100 wholesalers. By 1996, it offered services to 20 laboratories and 300 wholesalers. As a result of the growth both inside and outside the company, e-commerce activities were started and the first business management project for the Pfizer laboratory was developed.

In 1999, negotiations began between the company and the Pactual-Electro investment fund, which would culminate, the following year, with the creation of IBP (Internet Business Partners), resulting in the investment of approximately U.S. $15.5 million for technology purchases and the hiring of human resources. At the same time, IBP acquired a share in the Healthlink portal, a start-up company that had knowledge of the healthcare market, through the development of corporate applications for hospitals. Finally, the Genexis portal appeared, presently covering Genexis Farma and Genexis Healthcare.

Genexis Farma is an e-business portal for companies that make up the pharmaceutical segment (manufacturers, wholesalers, drugstores, hospitals, clinics), supplying real-time information on demand to support decisions and products that optimize critical management processes: demand, production, marketing, and sales.

Genexis Healthcare offers connectivity and services of added value for relationshipsbetweenhealthoperators,service companies,andprofessionals(authorization,authentication, and claims processing), possessing high synergy with the Farma group.Recently the company began its international expansion with the creation of GenexisPortugal.

Hlcio'sChallenges

Hlcio understood there were great opportunities for profits and cost reductions in the pharmaceutical supply chain; if coordinated, cohesive management was possible. He also understood that some of the services already rendered successfully by Genexis for the last 6 years had made it develop some competencies that surely would be the "core" in this new business and, therefore, difficult to develop or imitate by potential competitorsfor example, the daily gathering of information regarding the demand at the outlets.

The question now was how to best become technically and capably equipped to offer VAN services for the pharmaceutical sector and later for other industrial sectors. Which elements did Genexis already have, and which still needed to be developed or purchased? How could the supply chain participants (many with conflicting interests and histories) be approached and convinced of the advantages that would result from collaborative supply chain management? These were questions still with no answers, but Hlcio knew that he was looking at something that could alter completely the way companies would manage their supply chains in the future, and the idea of leading these changes (with the inherent difficulties) made him sure that the next months would be extremely exciting and challenging.

Discussion Questions

1. Put yourself in the position of the vice-president of Genexis and structure the debate on how to approach the primary issue he is facing, namely, how they are going to get cooperation from all the supply chain participants.

2. Analyze the general supply chain management issue: do you think Genexis could manage to launch successful initiatives to perform in other market segments, such as the confectionery industry, which have a similar structure? What kind of problems do you foresee with the broadening of their services in this way?

3. What major competencies should Genexis maintain and develop to grow in its current market? What strategic alliances, if any, should Genexis create to establish its VAN or service supply network?