The Global Pharmaceutical Industry Case Study Scenario Planning.

Step 1. Key trends the pharmaceutical industry facing a rapidly changing environment, which offers both opportunities (such as harmonisation of regulatory requirements) but also threats (more discriminating purchasers) the need for global presence to achieve adequate return on escalating marketing capabilities and R & D costs: a strong focus on healthcare cost containment, such that new treatments must be ustified on cost!benefit grounds, adding to development costs" to command price premiums, new products must offer unique benefits, yet information leakage means that most products are imitated rapidly" #$ developments provide greater access to detailed healthcare information for both providers and patients, also pushing forward cost!effective treatments: %ducated consumers demanding advances in therapy" $here are opportunities to change organisational models but no!one has yet found a feasible alternative" &ontinued industry consolidation' Step2 Identify and list forces likely to ha e a high impact on the industries future de elopment. a) b) c) d) e) f) g) h) i) ) k) l) #ncreasing concentration of buyers #ncreasing power of distributors (parallel trade) (eneric substitutes )cientific advances leading to new drug discovery processes and greater targeting of treatments (overnment pressure on costs and intervention *armonisation of healthcare practice (lobalisation, greater harmonisation and entry into +apanese markets by %uropean and ,orth -merican firms (rowth of pharmaceutical sales in developing markets &ontinued mergers and acquisitions leading to more rapid concentration in the industry or vertical integration $ransformation of traditional distribution or business models by D$& marketing and the #nternet $hreat to intellectual property resulting from the *#./-#D) crisis in -frica 0ore informed consumers

Step ! $he scale below is one possible view on the industry based on what we may believe are certain or uncertain forces: Certain a"b"c"e"f"g #ncertain d"h"i"$"k"l" Step % #t1s the factors with high impact and greatest uncertainty that should be used to develop scenarios, namely )cientific advances leading to new drug discovery processes and greater targeting of treatments &ontinued mergers and acquisitions leading to more rapid concentration in the industry or vertical integration $ransformation of traditional distribution or business models (including greater use of the #nternet for D$& marketing) $hreat to intellectual property resulting from combination of generic competition and the *#./-#D) crisis in -frica 0ore informed consumers *o Change (2) 'ig *egati e Change (!) $ime to 0arket remains key 2atent protection shrinks as dimension clinical trials become ever more cumbersome and costly %merging markets remain R&D priorities radically the main areas antibiotics change and generics 0ergers and acquisition 3ig 2harmaceuticals become a activity stops and/or poor holding company of drug performance of vertical discovery outfits' integration' ,ew marketing channel #ntellectual property rights are retained and strengthened across the world, with e5ceptions being made only in cases of true emergency such as %mergence companies of .irtual

Step & 'ig Positi e Change (1) #mproved diagnosis and more efficient clinical testing (enomics provides cost effective ways to detect disease and develop new drugs %nhanced R&D and marketing capabilities pay off by bringing more blockbuster drugs faster to market #nternal biotech1s become the solution to organisational problems *armonisation of approval processes within the %4 (ie single submission) and between the %4 and the 4)

$he world1s most populous developing markets are opened up to cheap copy products from countries such as #ndia, and effectively lost as markets for ma or 2harmas

0ore and better quality information creates better informed and educated consumers' 0edical practitioners welcome and support the empowering of final consumers

-#D) Direct to consumer communication continues to be outlawed in most countries outside the 4) and informed consumers continue to use the internet

-ngry consumers force governments to permit direct to consumer (D$&) communication so that they are not 6kept in the dark7 about new drug developments' D$& is then politicised in election campaigns

Step + , Three possible future scenariosScenario one 'enign Change in the .n ironment #ncreased opportunities for pharmaceutical sales developing in emerging markets, with little substitution from biotech products, no entry of new participants and a decrease in mergers and acquisition activity' $ime to market remains critical but genomics helps to fine!tune ,&% selection and reduce time in clinical trials' 8rgaianisational changes result in a number of very promising 6blockbuster drugs7 advancing through the pipeline' $here is greater harmonisation amongst %4 regulators and between the %4 and the 4)' Scenario t/o 0oderate change in the .n ironment Relatively little substitution from biotech products, some advances to reduce R & D e5penditure (moderate improvements in basic drug discovery research) or some improvement to make e5penditure in clinical trials more effective' 8utsourcing (ie licensing of products) continues to develop but without challenging established players' %ntry of new participants and/or consumers opting for some forms of alternative medicine (ie non!drug based such as herbolaria)' )low but consistent steps towards greater industry concentration continue' *owever, there are increasing sales opportunities in emerging and recently industrialised countries' Scenario three- 1ostile 2uture .n ironment Death of blockbusters in the pipeline as most promising drugs fail the clinical trial stage' 0ost income generation is associated to licensing agreements and profitability thus plummets' $here is a recruitment crisis as a whole generation of new scientists is lost to mid!si9ed players and biotech' -ll investments in genomics prove futile at present as it will be one or two more generations before any practical result is evident' )ignificant substitution from biotech and generic products fulminates patent protection while courts are an ineffective way to mount a challenge' %mergence of new alternative e forms of non!drug!based therapeutic treatments and widespread adoption of alternative medicine practices' %ntry of new global participants such as +apanese, :orean or #ndian laboratories' 3iotechnology!based firms enter %uropean and ,orth -merican markets enmasse1' #ncreased mergers and acquisition activity puts substantial short!term pressure on profit margins' ,o significant opportunities in emerging and recently industrialised countries are evident'

,ote: $hese three resulting scenarios are the e5tremes of possible futures' 2roviding the strategies we develop are robust in all of them then we will have managed the uncertainty in the future environment as well as possible;