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Theglobalpharmaceuticalindustry
THEGLOBALPHARMACEUTICALINDUSTRY

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INTRODUCTION
AccordingtoHunters.Thomas"youcanturnyourbackonperson,butneverturnyourbackonadrug,especiallywhenit's wavingarazorsharphunting."Theglobalpharmaceuticalindustryhaddonetremendouscontributiontomankind,butnow pharmaceuticalcompaniesarefacingtoughtimeinadecade.Thecaseisbrokenintodifferentpartswhichisemphasized onhowinternalandexternalfactorsaffectingtheindustryfirstly,themainenvironmentalforcescurrentlyaffectingthe industrythroughPESTanalysis.Secondly,theimplicationsofthechangesinbusinessenvironmentthatisinternalfactors throughporter'sfiveforcetheory.Finally,theuseandlimitationsofthetoolsappliedtosolvecasearediscussed.

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ORIGINANDEVOLUTION
Thepresentpharmaceuticalindustriesarenonassembledandmoreofcompetitivebutithademergedinearly19thcentury intheRhinevalleynearBaselSwitzerlandwheredyestuffswerefoundtohaveantisepticproperties.Companieslike Hoffmanlarochy,Sandoz,NovartisareallstartedasRhinebasedfamilydyestuffandchemicalcompanies,whicharestill doingtremendousbusinesseventoday.Slowlythesechemicalcompaniesstartedmakingpharmaceuticalsandsynthetic chemicalsandevolvedasglobalplayers.Inearly1940'stheindustryshoweddrasticchangessuchasintroductionof penicillinandotherdrugs.In1960'sindustrygrowingrapidlywiththesettingupofR&Dnotonlythiseconomiesprosperedby thespendingonhealthcareinsameperiod.In1970'sindustryshowedmajordevelopmentbutastrongregulatorycontrols alsocameintoexistencewiththisdevelopment,andthisregulatorycontrolshadremovedtheruleofpermanentpatentto somefixedperiodwhichresultedinbirthofbrandedgenerics.

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ENVIRONMENTALFORCESEFFECTINGPHARMACEUTICALINDUSTRY
Thescanofexternalmacroenvironmentinwhichthefirmoperatescanbeexpressedinterms PPOLITICAL EECONOMICAL SSOCIAL Findouthowtoavoidgettingripped offbyotheressaywriting companies... Readmore TTECHNOLOGY

POLITICALFACTORSAFFECTINGTHESECTOR
Politicalfactorsincludesgovernmentregulationsandlegalissuesdefinesbothformalandinformalrulesunderwhichfirm operatessomeexampleliketaxpolicy,traderestrictionsandtariffs,politicalstability.Politicalarenahashugeinfluenceup ontheregulationsofbusinessandthespendingpowerofconsumersandotherbusiness.Overmanyyearsthe pharmaceuticalsindustryhasincreasedpoliticalattentionsbecauseofincreaseinrecognitionsoftheeconomicimportantof healthcareasacomponentofsocialwelfare.Ittakes1015yearsonaveragetoexperimentdrugtotravelfromlabto patientconsumption,aspatentprotectionisfixedthatisonly20yearsbutcompanieshastospend15yearsonexperiments bythetimeitreachestothemarketthepatentwillbealmostcomestoexpiredandwhichwillresultinbirthofgeneric medicineswhichhasexactlysameingredientsasofbrandeddrugsbutshowshugedifferenceinprice,becausethegeneric branddoesnotspendonclinicaltrialssotheentryofgenericarethemajorimpactonpharmacyindustrybecauseofthe

legalpolicysetbypoliticalforcesexampleinus84%ofsaleshadbeendroppedin12weeksbyAllegrahayfevertreatment becauseofexpiryofpatentin2006.Anothermajorproblemaffectingtheindustryinmanycountriesaremonophonywhich meansonlyonepowerfulpurchaserwhoaregovernment.Since1980governmentaroundtheworldattracting pharmaceuticalsasapoliticallyeasytargetintheirefforttocontrollinincreasinghealthcareexpenditurelikepriceand reimbursementcontrolsandalsotheindustryloosedbothpublicandpoliticalsupporttoresistthischange.In1990theeffect ofeconomicrecessionhadleadtofallintaxrevenue,thegovernmentforeverchangingcostcontainmentplanshadbecome operationsofthecompanyunstableinEuropeanmarketwhichishighlyfragmented,moreovertheexpansionofEUhad providedmanyopportunitiesbutitalsoraisednewchallengesfromgenericsandlowpricedimports.

ECONOMICFACTORSAFFECTINGTHESECTOR
Economicfactorsaffectthepurchasingpowerofpotentialcustomersandthefirmscostofcapitalexampleslikeeconomic growth,interestratesandexchangerates.Thegovernmentpricecontrolisamajorchallengetotheindustryintheformof paralleltrade.ParalleltradeisnothingbutfreemovementoftheproductacrosstheEuropewithoutanytradebarrierswhich willaffectthelocalmanufacturebecausethedistributorwillbuydrugsinlowpricemarketsandexportthemtohighprice marketsexamplebuyingtheproductfrommanufactureinPolandandexportingthemtoIreland.Theexchangeratesand currencyproblemisalsooneofthemajorissueforexampleCanadahasinflexiblepricingandreimbursementcriteria,where USAdoesnothavepricecontrolsasaresultsthepricedruginAmericaishighcomparetoCanadawhichleadstodamage ofbrandimageinconsumersmindforexamplepriceofLipitoris3.20/pillinUSAwhereinCanadawhichis1.89/pillfor samedrug.Notonlythis,thegrowthofpharmaceuticalmarketisalignedwithGDPgrowth.AsR&Dproductivityisdeclined anddevelopmenttimeswerelengthened,asclinicaltrialsarebecomingmorecomplexandcostlytherewassharprisein R&Dexpenditure.

SOCIALCULTURALFACTORSAFFECTINGTHESECTOR
Socialfactorsincludesthedemographicandculturalaspectsoftheexternalmacroenvironmentthesefactorseffects customersneedsandthesizeofpotentialmarkets,somesocialfactorsincludehealthconsciousness,populationgrowthrate, agedistribution,emphasisonsafetyandcarrierattitudes.ageingpopulationsarecreatingpressureonhealthcarefunding systemsasover65consumesfourtimesmorethanthatofbelow65whichleadstomoreexpensivetechnologysolutions andincreaseinpatientexpectationshadcreatedanunsustainablesituationtotheindustry.Somecountriescannotenjoy universalcoveragesystemandlatesttreatmentsbecausetheyarenotfundedbytheinsurancecompanieslikeUSAwhich canaffordlatesttechnologybutcannotsharethebenefitsbecauseofincreasingpopulationsindifferentpartsoftheworld.In developedcountriesconsumerarebenefitedbytheinsuranceandcanaffordethicaldrugsbutthecountrieswhocannot affordtoethicaldrugsareswitchingtogenerictosavecoastwhichpressuringpharmaciststosubstitutegenericdrugasthe firstchoice,patenteddrugsareonlyusedifgenericdrugfails.TheOTC(overthecounter)compriseof20%ofmarketwhich maypurchasewithoutprescriptionspeciallyOTCismoreindevelopingcountriesandalsoforthesethepatenteddrug companieshasintroducediseasemanagementinitiativestoattackthechallengesfromgeneric.Someconsumerdoesnot wanttousebiopharmaceuticalsbecausetheygeneticallydone.

TECHNOLOGICALFACTORSAFFECTINGTHEINDUSTRY
Technologicalfactorscanlowerbarrierstoentry,reduceminimumefficientproductionlevelsandinfluenceoutsourcing decisions.SomeofthetechnologicalfactorsincludesR&Dactivity,technologyincentiviseandrateoftechnologychange.the technologyisancompetitiveadvantagetothecompaniesandsuccessofR&Dlaysinteamworking,knowledge managementandcloserelationwithexternalflexibleandsomeindicatesleanandflexibleoperationsandoutsourcingisa gatewayofsuccessnotonlythesetherearemanyquestionsraisedthattheinvestmentonR&Discouldnotsustainfor examplein2005therearenearly650cancersdrugsindevelopment.Theutilizationoftechnologyisveryexpensivebecause itincludeslatestinstrumentswhichispossibleonlyfordevelopedcountriestousetechnologybecausetheyarefundedby insurancecompaniesandproductdevelopedbythistechnologycannotaffordindevelopingcountriesbecauseofitshuge investment.

THEIMPLICATIONSOFTHECHANGINGBUSINESSENVIRONMENTOFTHE PHARMACEUTICALINDUSTRY
Porter'sfiveforcemodel

"Theporter'smodelisanoutsideinbusinessunitstrategytoolusedtoknowvalueofindustrialstructure.Thecompetitive forceanalysisismadebytheidentificationoffivefundamentalcompetitiveforces."(12MANAGE:2009)

POTENTIALENTRANCE
Thethreatofnewentryislowinthissectorbecausecompanieshastospendhugeamounttoproduceaproduct,so investmentforthecapitalisveryhugeanditsastofollowmanyrulesandregulationssetupbythegovernmentandto maintainthestandardwhichwheresetisverydifficultfornewcompanieswhichwanttoenterintomarket.Moreoveritis veryriskybusinessbecauseittakes1015yearsfornewmarkettocomeintomarketandnobodyissureaboutthesuccessof theproductsandpatenttimeisalsolimited.

POTENTIALSUPPLIER
Bargainingpowerofsupplierislowbecausethereareonlyfewsuppliersbecausethesuppliersinthisindustryaredifferent fromotherindustriesasingredientsusedtomakedrugsarechemicalssothesuppliersarechemicalindustries.Itisvery difficultforthesupplierstosustaininthemarketbecauseiftheyincreasetheirpricethecompanymaychangesupplierwho supplyrawmaterialscomparativelylowpricecomparetoexistingoneandindustryisnotkeycustomergrouptothesupplier. Brandimage,roleofquality,serviceofsupplierisnotconsideredbytheindustry.

POTENTIALBUYERS
Bargainingpowerofbuyerishighbecausemainbuyersaregenerallygovernmentandthecompaniesthatismonophonyand companiescannotgoagainstthemandtheycanonlyselltheproducttogovernmenttheothersideofthebuyerare consumerswho'sbuyingpowerisalsohighbecauseofsubstituteavailableinmarketsandbrandloyaltyislowinconsumers.

POTENTIALSUBSTITUTES
Threatofsubstitutesishighinthisindustries,therearemanysubstituteproductsinmarketlikegenerics,brandedgenerics, biopharmaceuticalsastheyareverycheapcomparetothebrandeddrugsasdiscussedearlierthatbrandeddrugswill consideronlywhengenericdrugsfails.AndimportofdrugsfromchinaandIndiawhichareproduceverycheaplycompareto localproducers.

COMPETITIVERIVALRY
Competitiverivalryishighinthissectorbecauseadvantagegainedbythefirstmoveradvantages(patent).Asmarketis gettingsaturatingcompaniesaregoingglobalwhichmeansworldwidelaunches,globalbrandingandheavyinvestmentin promotionasshorterproductlifecycleandtogaincompetitiveadvantage.Inspiteoftakingcareduringlaunchingthe industryisstillfacestoughtimefromgenericdrugsandnotonlythismergesandacquisitionsasoneofthemajorcausefor competitiverivalry.

SWOTANALYSISOFPHARMACEUTICALS
"Swotanalysisprovideinformationthatishelpfulinmatchingfirmresourcesandcapabilitiestothecompetitiveenvironment inwhichitoperates."(QUICKMBA:2007) SSTRENGTH WWEAKNESS OOPPORTUNITIES TTHREATS Theenvironmentalfactorsinternalarestrengthandweaknessandexternalarethreatsandopportunities.

STRENGTHS
PatentisoneofthemajorstrengthinthissectorofindustrywhichhasstrongbrandnamessuchasPfizer,GlaxoSmithKline, Merck,JohnsonandJohnson,Novartis. Theabovementionedcompanieshavegoodreputationsamongtheconsumers Thesectorhavecostadvantagesfromproprietyknowhow Thissectorcompanyhaveexclusiveaccesstohighgradenaturalrecourses Thesectorhasfavourableaccesstodistributionnetworks

WEAKNESS
Patentisconsiderasstrengthofthissectorbutduetolimitedtimeforpatenthadbecomeitsweakness. Theproductsfromthissectorhavesideeffects. Theproductstakelongtimeindevelopmentsuchasclinicaltrialswhichtakes1015years. ItinvolveshighcoststructuressuchasinvestmentonR&D,advertising. OneofthemajorweaknessesisregulatoryandlegalissuesbyFDA.

OPPORTUNIITIES
Humanneedsareunfulfilled,sothisunfulfilledneedsaretheopportunitiesfordevelopnewproducts. Thearrivalofnewtechnologyastechnologykeepsonchangingtimebytime. TheremovalofinternalbarrierlikefreemovementsofgoodswithinEUROPEANUNION. Duetopressurefrombigbrandedcompaniesasthissectorcontributesmajorsharetoeconomyduetotherepressure looseningofregulationsmaybehappeninfuture.

THREATS
Genericsarethemajorthreattothissector Theshiftincustomerstasteawayfromthefirm'sproducts,customerinthissectordoesnothaveparticularbrand. Availabilityofhugerangeofsubstitutesinmarkets Entrybarrierstosomecountries Paralleltradeisalsooneofthemajorthreattothisindustry.

USESANDLIMITATIONSOFTOOLS PESTUSE
Pestanalysislooksattheexternalenvironmentandgoodtooltounderstandbigpictureoftheenvironmentinwhichbusiness operates.Anditwillallowcompaniestotakeopportunitiesandreducesthreatofacompanywhichtheyarefacing.Pest analysisprovidefurtherplantoacompanytodevelopifstrategicplanisdonecorrectly.Withthepestanalysiscompanies canseelongerhorizontaltimeandabletodifferentiateopportunitiesandthreatsandalsohelpcompaniestolookoutside environmentandwhatarethepotentialforceswhichgoingtoaffect.Pestisamnemonicstandingforpolitical,economic, socialandtechnologywhichareusetobrainstormthecharacteristicsofaindustryandcandrawconclusionasthesignificant forcesofchangeoperatingwithinit.Moreoveritisusefultoavoidtakingactionswhichresultsinfailure,itisveryuseful especiallyinstartingnewproductsbecauseitwillavoidassumptionsandmaketoadoptquicklytherealityofthenew environment,itisstraightforwardandeasytoadopt,broadcategoriescoveringmajorenvironmentalfactorsandwillprovide moredataaboutinfluence.

LIMITATIONS
Itisnotasetofrigidcompartmenttostoreideasmoreoverpestanalysisdoesnotanalyseallthedetailsintheexternal environmentslikemarkets,shareholder,creditors,supranationalbodies,pressuregroupsandlabourmarkets.

PORTER'SFIVEFORCEUSE
Porter'sfiveforcestheoryisvaluablecontributiontostudycompetitionitgiveimportantinformationinthreeaspects.

STATICALANALYSIS:
Itdetermineindustrialattractivenessandgivesanoverviewofprofitability,thismodelhelpsinentryandexitquestioninga marketsegmentandusedtocompareinfluenceofcompetitorforcesandinfluenceofcompetitors.

DYNAMICALANALYSIS:
Ithelpstounderstandpotentialfutureattractivenessoftheindustry.

ANALYSISOFOPTIONS:
Theknowledgeandpoweroffiveforceshelpcompanytodevelopoptionstoimprovepositionofthecompanywhichresults innewstrategicdirectionlikenewdifferentiationforcompetitiveproductsofstrategicpartnerships.

Moreover,porter'sfiveforcemodelsgivessystematicandstructuredanalysisofmarketstructureandcompetitivesituation, thismodelisapplicableuniversalsuchasparticularcompany,marketsegmentandindustries.

LIMITATIONS
Careshouldbetakenwhileusingthismodelsuchasneverunderestimatetheimportantofcurrentstrengthofthecompany. Themodeldesignforanalyzingindividualbusinessstrategiesanditwillnotsupporttheinterdependenceandsynergywith portfoliooflargercorporate.Ifwelookfromthetheoreticalsidethemodeldoesnotshowpossibilitythatanindustrycouldbe attractivebecausesomecompaniesinit.Moreoversometimesitmaybepossibletocreatecompletenewmarketsinstead ofselectingfromexistingoneandalsosomepeoplearguedthatenvironmentswhicharecharacterizedbyrapid,systemic andquickchangesrequiremoreflexible,dynamicapproachforstrategyformations.

SWOTANALYSISUSE
Thenameitselfsayitisusedtoidentifycompany'sstrengths,weakness,opportunitiesandthreats.Andusetoformulate strategiestheanalysisusefulnessofSWOTisnotlimitedtoprofitseekingorganizations.Itisusedindecisionmaking situationwhenadesiredendstatehasbeendefined,anditisusedinprecrisisplanningandpreventionandalsousedtoin creatingarecommendationduringaviabilitystudy

LIMITATIONS
Ithasabilitytooversimplifythesituationbydividingthefirmsenvironmentalfactorsintocategoriesinwhichtheymaynot fit.Theclassificationsofsomefactorsasstrengthorweakness,orasopportunitiesorthreatsissomewhatpeculiar

CONCLUSION
Thepharmaceuticalindustrymadetremendouscontributiontomankindbut,theindustryisfacingtoughtimeinthisdecade. Yetitistargetedbygovernment,mediainspiteofhugeinvestmentonR&Dandtheproductlifeisgettingshorter.Free trade,paralleltradeandexchangeratearemoreoverthebirthofgenerics,creatingmajorproblemstotheindustry.Niche areasgettingcrowdedcreatingpricepressure,butthepresenceofglobalexpertisefirmslikePfizer,Merckwillstandas globalopportunities.Theindustrymorethaneverneedstogetahandleontheslipperybusinessofscientificcreativityand provideditcriticswithindisputableevidenceofitsvalue.

BIBLIOGRAPHY
Johnsonet.al(2007).Exploringcorporatestrategy. 8thed.England:PearsonEducation.915 Quickmba.(2007).Swotanalysis. Available:http://www.quickmba.com/strategy/swot/.Lastaccessed30Oct2009. Answerscorporations. (2009). Swotanalysis. Available:http://www.answers.com/topic/swotanalysis.Lastaccessed30 Oct2009. 12manage. (2009). FiveCompetitiveForces. Available:http://www.12manage.com/methods_porter_five_forces.html.Last accessed30Oct2009. 12manage. (2009). FiveCompetitiveForces. Available:http://www.12manage.com/methods_porter_five_forces.html.Last accessed30Oct2009. OliviaHunt. (2008). Evaluationoffiveforcetheory. Available:http://www.articlesbase.com/educationarticles/evaluation ofthefiveforcestheory176854.html.Lastaccessed01Nov2009. OliviaHunt. (2007). StudyofPorter'sFiveForcesTheory. Available:http://www.articlealley.com/article_185592_15.html. Lastaccessed01Nov2009. Netmba. (2007). PESTANALYSIS. Available:http://www.netmba.com/strategy/pest/.Lastaccessed01Nov2009. Quickmba. (2007). PESTANALYSIS. Available:http://www.quickmba.com/strategy/pest/.Lastaccessed02Nov2009. Verbigena. (2008). Historyandanalysisofpharmaceuticalindustry. Available: www.verbigena.com/case_studies/history_analysis.pdf.Lastaccessed10Nov2009 Papers4u. (2009). whatispestanalysis. Available:http://www.coursework4you.co.uk/essaysanddissertations/pest analysis.php.Lastaccessed10Nov2009

G.A.Cole (2005). StrategicManagement. 2nded.London:person.506

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