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Executive Summary

The pharmaceutical sector is a high-technology and knowledge-intensive industry. The industry

has a two-tier structure. The largest firms account for the majority of the R&D investment in the
industry and hold the majority of patents. A large number of smaller firms manufacture off-
patent products or under license to a patent-holder. The pharmaceutical industry is heavily
regulated. Few aspects of the industry are unaffected by regulatory controls.

The pharmaceutical sector produces and distributes chemicals with therapeutic value.
Pharmaceuticals are an important input into health services more generally. Pharmaceutical
policies must be closely integrated into wider health policies to avoid inefficient substitution
towards or away from pharmaceuticals relative to other health inputs, to the detriment of health
cost and quality outcomes.

In this report we did an industry analysis on pharmaceuticals industry and for the analysis we
cover -
Industrys dominant economic traits,
Nature of competition and strength of competitive forces,
Drivers of Industry Change
Competitive position of Rivals
Strategic moves of rivals
Key Success Factors and
Industry Attractiveness

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1. Industrys Dominant Economic Traits

Market Size and Growth Rate:

In the domestic market, Pharmaceuticals industry, has growing presence in 45 countries across
Africa, Latin America, Asia, Middle East and Central America. Besides major retail outlets,
Pharmaceuticals industry Pharma's products are being supplied to renowned hospitals and
institutions like Raffles Hospital, Healthway Medical Group

The company has taken aggressive expansion program to cater to the growing demand from
domestic as well as overseas markets. It has made significant investment in building capabilities,
both infrastructure and human resources, to capitalize on the generic drug opportunities in the
developed markets like US. Generic drug capabilities, competitive cost advantages, and the
manufacturing platform, benchmarked to global standards, have rendered the company ideally
positioned to eye into the highly promising contract manufacturing markets for affordable
generics. Currently, the company has contract manufacturing agreement with GlaxoSmithKline
for producing Metered Dose Inhaler products.

Growth Rate
7.90%
ACI Limited
8.00%13.60%
39.20%
13.90% Acme Laboratories

31.70% 22.00% Aristropharma

27.30% Square Pharmaceuticals

31.00%
28.50%
Beximco
Pharmaceuticals

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Scope of Competitive Rivalry: Pharmaceuticals industry continues to invest in expanding
capacities to capitalize on the opportunities in global generic markets. Industrys ability to
maintain sustained growth in challenging environment is consistent with the goal of becoming a
global generic industry. In recent times, pharmaceuticals industrys has taken up projects to
introduce several exciting drug delivery systems to enrich its product portfolio.

Besides, the industry is always keen to improve on its capabilities in formulation development
and to further strengthen the capabilities to become more competitive in global marketplace

Number of Competitors and their Relative Sizes:

Name of Competitors in Market Share

Pharmaceuticals Industry
Square Pharmaceuticals 19.5%
Incepta Pharmaceuticals 8.2%
Pharmaceuticals industry Pharmaceuticals 7.7%
Opsonin Pharmaceuticals 4.8%
Eskayef Pharmaceuticals 4.6%
Acme Laboratories 4.8%
Reneta Limited 4.5%
ACI Limited 4.5%
Aristropharma 4.1%
Drug International 3.9%
Sanofi-Aventis 3.0%
GlaxoSmithKline 2.2%
Novo Nordisk 1.6%
Sandoz 1.7%
Novratis 1.0%

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Prevalence of backward/forward integration: A manufacturer may find it competitively
advantageous to integrate forward into wholesaling and/or retailing in order to have outlets fully
committed to representing its products. A manufacturer can profit if it is able to realize higher
rates of capacity utilization or build a stronger brand image. There are also occasions when
integrating forward can product important cost savings and permit lower selling prices by
eliminating many of the costs of using wholesale-retail channels. the suppliers to an industry are
a weak or strong competitive force, depends on market conditions in the supplier industry and
the significance of the item they supply. Supplier-related competitive pressures tend to be
minimal whenever the items supplied are standard commodities available on the open market
from a large number of suppliers with ample capability.

Suppliers also tend to have less leverage to bargain over price and other terms of sale when the
industry they are supplying is a major customer. In such cases, the well-being of suppliers is
closely tied to the well-being of their major customers.

On the other hand, when the item accounts for a sizable fraction of the costs of an industrys
product, is crucial to the industrys production process, and/or significantly affects the quality of
the industrys product, suppliers have great influence on the competitive process.

Suppliers are also more powerful when they can supply a component more cheaply than industry
members can make it themselves. In such situations, the bargaining position of suppliers is
strong until the volume of parts a user needs becomes large enough for the user to justify
backward integration into self-manufacture of the component.

There are a couple of other instances in which the relationship between industry members and
suppliers is a competitive force. One is when suppliers, for one reason or another, cannot provide
items of high or consistent quality. A second is when one or more industry members form close
working relationships with key suppliers in an attempt to secure lower prices, better quality or
more innovative components, just-in-time deliveries, and reduced inventory and logistics costs;

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such benefits can translate into competitive advantage for industry members who do the best job
of managing their relationships with key suppliers.

Vertical integration extends a firms competitive scope within the same industry. It involves
expanding the firms range of activities backward into sources of supply and/or forward toward
end users of the final product.Vertical integration strategies can aim at full integration
(participating in all stages of the industry value chain) or partial integration (building positions in
just some stages of the industrys total value chain).

Nature and peace of Technology Changes:

Pharmaceuticals industries has always been a pioneer in adopting innovative technologies that
introduced both sophistication and scale in the business processes. The industrys focus on
technology is intended to take the company to a standard which would match with other top
global generic industries. Pharmaceuticals industries of Bangladesh in introducing technology
driven (specialty) products in local and international markets. Such specialty products include:

Inhalation aerosols, including Ozone-benign HFA MDIs

Suppositories

Nasal sprays

Pharmaceuticals industry has shown its capability in the past by installing state-of-the-art MDI
plant and IV fluid plant in collaboration with Pamasol, Switzerland and Pharmaplan, Germany, a
sister concern of Fresenius AG, Germany.

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Entry/ Exit Barriers:

Political Forces

The pharmaceutical industry is significantly influenced by the political condition of a country.

Factors such as the regulations imposed by the government, the approval of drug testing, barriers
to creation of monopolistic competition and other forms of government intervention shape the
pharmaceutical industry. Political uncertainty also matters for pharmaceutical industry.
Government stress on industry is increasing with passage of time which is increasing threat for
companies. Stricken regulations for pharmaceutical industry are also considered as threat for
instance keeping medicine price forward so peoples could buy them. Likewise, the development
of a new drug needs to comply with the government policies outlined for the pharmaceutical
industry (DunlapHinkler, Kotabe & Mudambi, 2010). The innovation of new medicine can
therefore be either facilitated or curtailed by the political forces. The government can also use its
dominating position to create monophony in the local or global pharmaceutical industry.

Economic Forces

The economic conditions are also a notableBecause of the current economic downturn.
Governments are putting GPs under pressure to cut costs factor manipulating the pharmaceutical
industry. It is observed that United States, Canada , Europe, Brazil, Japan, China and ten other
countries are the largest consumers of drugs and healthcare products. These states contribute
85% of the sales and large pharmaceutical companies also focus on these markets to derive their
required revenues. The slow economic condition, free trade in E.U, and low insurance covers in
U.S market has raised concerns in terms of economic conditions of the market. The global
volume of the industry is reported as $750bn and 85% of the revenue is generated from sales of
ethical drugs. The ethical drugs are denoted as prescription-only drugs. Economic crisis are also
affecting international markets of pharmaceutical. Consumer buying behaviour is also affected

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due to these economic crises. The economic situation is very much frustrated therefore many
pharmaceutical companies are emerging to prevent from loss.

Social Forces

The industry has contributed graciously in increasing life expectancy of the people up to 20 years
in 20th century. On the contrary the industry is facing increasing pressure from communities and
governments to socially respond to the consumers and patients of drugs. The social challenges of
high priced drugs as well as lack of innovation are mostly resulting from the high cost of
research and development for producing while a minimal cost of reproducing or generic drugs.
The companies i.e. Eli Lilly, Merck etc are fined for non-conformance in corporate social
responsibility. Health conscious peoples are considered as opportunity for pharmaceutical
industry. Mostly women are conscious about their increasing weights so this is also opportunity
for companies to research on this opportunity. Increasing expectations from the patient end is
also threat for pharmaceutical industry. Animal testing is also considered as threat for industry
because peoples dont like it when pharmaceutical companies test their new products on the
animals.

Technological Forces

The corporations in pharmaceutical industries are focusing on adopting technological resources

for a number of drug related functions. The automation of chemistry for drugs is placing a high
level of expertise. The use of technology especially by Glaxo, SKB, and other notable
organizations has not only facilitated their efforts for marketing their products in shorter time as
well as improving the reliability of their products. However there is still an extensive
requirement for to introduce high level technological resources to facilitate innovation and
shorter market lead time for products . By using advance technology industry can minimise the

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effects of legislation. For instance is company start using new technology for testing its products
then legislation it will not be affected by legislation law.

Environmental Forces

The environmental factors influencing global pharmaceutical companies can be explained in

terms of local, international, and offshore impacts. The companies operating globally encounter
different business, legal, environmental, and patient care aspects. The research and development
activities of the organizations includes on clinic and off clinic trails. These trials are permitted
under strict laws and the companies should ensure that a vigilant system is in place to resist
environmental effects. China is considered as a relatively advanced country providing clinical
trials and complexity chemistry. China is preferred market place for chemistry based research by
numerous MNCs Before testing new products following environmental regulation is threat for
industry. Peoples want Green environment therefore they want to decrease the use of chemicals
which come from pharmaceutical industry. It is opportunity for companies to start corporate
social responsibility programmes. In this programme companies can directly communicate with
public and realize them its working for peoples.

Legal Forces

The legal and regulatory implications applicable for global pharmaceutical industry are explicitly
high. The legal variability in numerous countries require manufacturing of drugs within the
country in order to safe guard the legal obligations of patient healthcare safety of their citizens.
The research and development of pharmaceutical products particularly clinical and laboratory
Tests are strictly regulated under the legal system of the territory. It is also legally imposed by
the governments to regulate the prices of drugs to reduce parallel import of counterfeit and pirate
pharmaceutical products. Legislation culture is growing rapidly which is threat for

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pharmaceutical industry. Products liability laws and price polices are major threat for this
industry. Strive for new rules of copy right is opportunity for industry to achieve its targets

Pharmaceuticals industry Pharmaceuticals Ltd. showed stable performance over the years.
However, in recent times its movement of price and turnover became little bit flat. In 2013, the
firms performance dampened down as a result of adverse foreign exchange movement which
increased the cost of imported raw material.

Scale economies and experience curve effects Economies of scale and scope in R&D are an
important determinant of the economic performance of the pharmaceutical industry. The
presence and magnitude of these effects have significant implications for returns to R&D as well
as for the evolution of industry structure and its impact on welfare, but they are poorly
understood. Though much of the literature has focused on economies of scale and scope in
manufacturing and production, R&D activities have been identified as a particularly important
source of advantages accruing to size and diversity.

A range of theoretical arguments revolving around problems in the market for knowledge
suggest that research or the production of new knowledge should be subject to considerable
economies of scope. in the pharmaceutical industry is that firms are attempting to realize
advantages conferred by size in the conduct of R&D. The source of these advantages is difficult
to establish, however, without going within the firm. Here we use data disaggregated to the
project level to explore the determinants of research performance in drug development.

The focus is on acquiring new business rather than stealing competitors business as competitive
fierceness is likely to decrease in a growing market where there is more business to share around
Growth can be achieved through acquiring new customers or finding new segments. The most
obvious way of putting such a strategy to practice is the exploration of new therapeutic
indications for a drug. Often new niche markets are less informed about products and price and
may be prepared to pay a higher price. Market development by the pharmaceutical company also
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signals to customers that the company is actively investing in the product and thus creates
goodwill.

Capacity utilization and resource requirements: Business segment decomposition for non-US
pharmaceutical companies is very similar to that of major US-based pharmaceutical companies.
The pharmaceutical segment of almost all of these companies is the largest one; the only
exception is Bayer pharmaceutical sales of which was just about 14.7% of total sales in 2004.
AstraZeneca and Sanofi-Aventis, both of which underwent recent merger processes, almost
totally concentrate their resources on pharmaceutical industry. On the other hand, during recent
years several companies sold some of their businesses with lower profit margins to concentrate
their resources on their core business. For example, in 2003 Merck sold its Medco Health,
business that provides pharmacy benefits services in the United States.

This transaction lead to a reduction in sales and total assets by 56.6% and 14.7% respectively,
but on the other hand, as it will be shown below, allowed it to significantly improve its profit
margin. According to recent restructuring efforts of Japanese Takeda the company has a similar
strategy of concentrating on almost exclusively the pharmaceutical segment: during the last few
years Takeda sold a number of its non-pharmaceutical businesses (agricultural chemicals
business, latex business, food business, numerous chemicals business) that increased its
pharmaceutical segment share in total sales.

Moreover, the company during last years significantly increased its level of These moves allow
Takeda to concentrate all its resources on the most profitable part of its business and are intended
to increase the market share of the company on the world pharmaceutical market. Other
examples of spin-off were Oncology Therapeutics Network by BMS in 2004, core hospital
products business by Abbott in 2003, and others.

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Industry Profitability:
Pharmaceuticals industry maintain strong sales growth and meet profitability expectations of
their shareholders were actively selling low-profitability or non-core businesses. For example, in
2003 Merck sold its low-profitability Medco Health Solutions that helped to increase its
profitability margin. Massive sales of non-pharmaceutical businesses by Takeda also were
compatible with its strategy to concentrate its financial resources on its core pharmaceutical
business. Drug portfolio management is one of the most important determinants of long-term
prosperity of research-oriented pharmaceutical companies.

First, it takes an extremely long time to develop a new drug, and only a very small portion of all
projects is successful. Projects that the company starts today will determine its financial
performance 10-15 years later. Therefore, careful planning of R&D projects is very important for
the long-term stability of the company.

Second, insofar as patents keep exclusivity of drugs only during a limited time, and soon after
the expiration of the patent the sales of the drug sharply go down, the company has to carefully
monitor its patent expiration dates, and insure that new products become available by that date.
Otherwise, we are reminded of the case of Shering-Plough, when after expiration of its major
drug patent the company did not have a new product of similar value and the company
experienced losses.

Definitely, planning errors or rapidly changing demand in the industry can be corrected by
acquisition of smaller research companies or patents from competitors, but in any of these cases
the company will have to pay a premium price, thus reducing its profitability.

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Nature of Competition and Strength of Competitive Forces

Due to the essential nature of pharmaceuticals markets which are innovation markets and also
threat of excessive pricing due to abuse of dominance as a result of market concentration, there is
a need to assess such mergers and takeovers in light of their impact on affordability and
accessibility of drugs. It is apprehended that mergers would lead to increased prices of drugs.
Similar concerns were raised by the health ministry that acquisition of pharmaceutical industries
by multinationals could orient them away from the Indian market, thus reducing the domestic
availability of drugs produced by them. The ministry argued the trend of takeovers may result in
cartelization and concentration of market shares by few and a clutch of companies dictating
prices of drugs critical for addressing public health concerns.

Competition depends on smooth and free flow of information. One of the major factors causing
distortions in the pharmaceuticals markets is with regard to information asymmetry among
consumers. While there is range of choice open to consumers, the exercise of choice is
determined by several factors but the critical factor is on the availability of information. The
price control in the form of formulations only ensures more specific pricing control of the
required medicine which is in the interest of the consumer from the point of view of the actual
prescription by the Doctor. This aspect is more important for a country like India where there is

Strength of Competitive Forces

The Strength of competitive forces of the industry reveals the position of the Bangladesh
pharmaceutical industry:.

1. Growth of Middle Class: The growth of middle class in the country has resulted in fast
changing lifestyles in urban and to some extent rural centers. This opens a huge market for
lifestyle drugs, which has a very low contribution in the Bangladesh market.

2. Scalable Labor Force: Bangladesh pharmaceutical manufacturers are one of the lowest
cost producers of drugs in the world. With a scalable labor force, Bangladesh manufacturers can
produce drugs at 40% to 50% of the cost to the rest of the world. In some cases, this

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cost is as low as 90%.

3. Companies have own premises: Most of the companies have own premises, so most
companies can save their expenses; most pharmaceutical companies have a large size of factory.

4. Excellent transport-link: Excellent transport links the ease of access to / from the
company.

5. Excellent Workforce Some companies have a good reputation in the market. Some
companies have strong brand reputation in the market, these industries have well known brand in
the market. Bangladeshi pharmaceutical industry posses excellent chemistry, skilled workforce
And process reengineering skills. This adds to the competitive advantage of the Bangladeshi
companies. The strength in chemistry skill helps Bangladeshi companies to develop processes,
which are cost effective.

Drivers of Industry Change

The most dominant forces are called driving forces because they have the biggest influence on
what kinds of changes will take place in the industrys structure and environment. Driving forces
analysis has two steps: identifying what the driving forces are and assessing the impact they will
have on the industry

The change required in pharmaceutical industry can be segregated in two major categories
namely business and pharmaceutical innovation. The pharmaceuticals industry requires
developing a unique set of capabilities to advance their efforts for products innovation and the
business growth. Government stress on the pharmaceutical industry is threat which should be
decreased to enhance efficiency of industry. Industry should focus on manufacturing new
products for health conscious peoples like high weight women. After availing this opportunity it
can open new ways by working on peoples health. Industry should change its methodology

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regarding testing. It can invent new technology for testing of the product. Product liability laws
are very effective in this industry so industry should take initiative to change the laws and
regulations.

Business Innovation:
The lead time for product introduction in market is largely a factor in influencing industry and
organizational growth. The industry requires implementing a strategy to reduce the lead time &
launch advanced products in the market with short and accurate timings.

The business ethics should also be improved to earn a nodal image within the global business
sphere. The costs for research and development are also a factor influencing slow growth as it is
highly costly to introduce a new product and at the same time the cost of reproducing a generic
version is highly inexpensive.

Product Innovation:
The changing requirements for drug enhancements and cure for newly researched diseases
should be facilitated through rapid clinical trials. Use of technology is also one of the major
factors in shortening market lead time. The chemistry research and trials can also affect
innovation within the industry. The biopharmaceutical segment of the industry can reap the
benefits of latest legal amendments to facilitate product innovation through implementation of
increased price competition. The business can earn a noble and globally recognized image by
spending on the research and innovation of pharmaceutical products

The dominant strategy shaping industry and competitive conditions revolve around what stage in
the life cycle the industry is in (emerging, rapid growth, mature, declining), the industrys
structure (fragmented versus concentrated), the relative strength of the five competitive forces,
the impact of industry driving forces, and the scope of competitive rivalry (particularly whether
the companys market is globally competitive). In markets characterized by rapid-fire
technological change, short product lifecycles entry of important new rivals, frequent launches of

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new competitive moves by rivals, and rapidly evolving customer requirements and expectations
all at once.

While many forces of change may be a work in a given industry, no more than three or four are
likely to qualify as driving forces in the sense that they will act as the major determinants of why
and how the industry is changing. Thus, strategic analysts must resist the temptation to label
everything they see changing as driving forces; the analytical task is to evaluate the forces of
industry and competitive change carefully enough to separate major factors from minor ones.

Competitive Position of Rivals

Strategic alliances can help industry in globally competitive industries strengthen their
competitive positions while still preserving their independence. Strategic alliances are more
effective in combating competitive disadvantage than in gaining competitive advantage. The
pharmaceutical industry currently represents a highly competitive environment

The large MNCs and global pharmaceutical players invest an increased amount of resources to
stay competitive in developing new products. The overall industry outlook is extremely
competitive. The Competitive rivalry within the industry is high however price is not a
considerable factor in creating the rivalry. On the other hand doctors referrals and advertising is
considered to be one of the major factors instigating the revelry A large number of
pharmaceutical corporations are based in multiple locations thus an organization well placed in
one market can pose increased threat to the rivals within the local as well as international
markets at the same time.

An industry is an also ran or declining competitive position has four basic strategic options:

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 Launch an offensive turnaround strategy keyed either to low cost or new differentiation
themes

Employ a fortify and defend strategy, using variations of its present strategy and fighting
hard to keep sales, market share, profitability, and competitive position at current levels.

Opt for an immediate abandonment strategy and get out of the business

Employ a harvest strategy, keeping reinvestment to a bare bones minimum and taking
actions to maximize short term cash flows in preparation for an orderly market exit.

This global competitive environment creates challenges and opportunities for the companies
with equal importance for the communities in which they reside. If size matters in the drug
industry then both domestic and foreign mergers, acquisitions, and strategic alliances will
continue to be critical. Such changes always have implication for location requiring communities
around the globe to think harder about their roles as globalization unfolds. Communities that
desire to maintain or build pharmaceutical clusters must be mindful that investment is always a
two-way street. Building strong and growing pharmaceutical clusters at home will entail both
inbound and outbound investment since whatever companies locate or stay in their areas they
will be compelled by global competition to own production facilities abroad.

But the truth of the drug industry is that competitiveness and growth will require many actions
on the parts of these firms and not all of them will seem to be in the best short-run interest of
the community. The largest and most attractive market for pharmaceutical companies is the
United States. Therefore, companies with head-quarters outside of the U.S. need to spend extra
resources in order to successfully compete with US-based companies on their territory. As the
result, consolidation of the pharmaceutical industry outside of the U.S. during the last few years
was even stronger than in the U.S. : three out of seven major non-US based pharmaceutical
companies,

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 The extent to which the firm is diversified (as measured by the proportion of total sales
and operating profits contributed by each business unit and by whether the diversification
base is broad or narrow).
Whether the firm is pursuing related or unrelated diversification, or a mixture of both.
Whether the scope of the industry operations is mostly domestic, increasingly
multinational, or global.
Any moves to add new businesses to the portfolio and build positions in new industries.
Any moves to divest weak or unattractive business units.
Recent moves to boost performance of key business units and/or strengthen existing
business positions.
Management efforts to capture strategic fit benefits and use value chain relationships
among its businesses to create competitive advantage.
The percentage of total capital expenditures allocated to each business unit in prior years
(a strong indicator of the companys resource allocation priorities).

For a diversified company to be a strong performer, a substantial portion of its revenues and
profits must come from business units judged to be in attractive industries those with relatively
high attractiveness scores. It is particularly important that the companys principal businesses be
in industries with a good outlook for growth and above average profitability. Business units in
the least attractive industries are potential candidates for divestiture, unless they are positioned
strongly enough to overcome the unattractive aspects of their industry environments or they are a
strategically important component of the portfolio.

To evaluate whether each business unit in the corporate portfolio is well positioned in its
industry and whether it already is or can become a strong market contender. Quantitative
measures of each business units competitive strengths and market position can be calculated
using a procedure similar to that for measuring industry attractiveness. Assessing the competitive
strength of a diversified companys business subsidiaries.

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Strategic Moves of Rivals:

The pharmaceutical industry is currently undergoing a period of very significant transformation.

The majority of pharmaceuticals companies generate high returns, thus providing them with
excess cash for further rapid growth whether organic, or through mergers and acquisitions.
Although size of the industry on its own does not guarantee success, it gives a significant
advantage, especially in pharmaceutical industry. Besides economies of scale in manufacturing,
clinical trials and marketing, industries can allow investments in more research and development
(R&D) projects that diversify their future drugs portfolio and make them much more stable in the
long term. As the result, top-companies in the industry were active participants of mergers and
acquisitions (M&A), new joint ventures and spin-offs of non-core businesses.

In pharmaceuticals industry there are some strategic moves of rivals by which the rivals of the
pharmaceuticals industry concentrate all its resources on the most profitable part of its business
and are intended to increase the market share of the company on the world pharmaceutical
market. Roche and Novartis follow another strategy that assumes diversification of highly risky
pharmaceutical business by other segments of Health Care industry: Novartis has about one third
of its sales from the Consumer Health segment, and Roche has about one quarter of its sales from
Medical Devices and Diagnostics business.

Emphasis on Process Innovations : Both GlaxoSmithKline and AstraZeneca that underwent

large-scale merger processes showed pretty stable financial performance during the last few
years that indirectly says something positive about successful completion of their restructuring
initiatives. Rivals can make innovations in their processes by establishing of new strategic
alliances and joint ventures. So far as the research and development process for each drug will
develop

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Increasing Sales to Present Customers: The pharmaceutical market currently there is no direct
price control for non-government drug sales. At the same time, it is expected that Medicare
Prescription Drug Improvement and Modernization Act will potentially increase downward price
pressure. The majority of European countries control drug prices, and this downward pressure on
prices has been increasing during last years. Japan has even stricter price controls than European
countries; all prices are controlled by the government, and they are subject to a periodic price
review. As the result of price control, prices of the same products can significantly differ in
different countries.

Emphasis on Research and Development: One of the distinctive characteristics of the

pharmaceuticals industries is a very high level of investments in research and development
because they emphasis on process innovation. According to industry statistics, only about one in
ten thousand chemical compounds discovered by pharmaceutical industry researchers proves to
be both medically effective and safe enough to become an approved medicine, and about half of
all new medicines fail in the late stages of clinical trials. Not surprisingly, according to
Research and Development in Industry: 2001 report of the National Science Foundation, in
2001 the pharmaceutical industry had one of the highest R&D expenditures as percentage of net
sales

Expanding Internationally: The market of pharmaceuticals industry in developing country is

expanding. Demographics and rising incomes in industrial and developing countries combine to
promise rapidly growing future sales. the share of pharmaceutical sales in developing countries
at this point of time is much lower, they show much faster growth rate than developed countries
do. For example, the China, 9th largest world market, showed a 26% sales increase in 2004,
followed by Thailand (16% growth) and Egypt (15%). Some Latin American countries, such as
Mexico, Brazil, Argentina and Venezuela also show much faster sales growth rate than average
worldwide. Therefore, developing countries contain a significant potential for further expansion
of pharmaceutical industry in the future.

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 Pharmaceutical Industry International Trade

Importer 2014 imports, Exporter

thousands
USA 31,739,624 79% from Europe; 13% from Asia; 7% from North America
EU15 28,351,731 52% from North American; 35% from Europe
Switzerland 9,718,628 88% from Europe; 10% from North American
Japan 6,193,127 69% from Europe; 23% from North America
Canada 6,064,628 49% from Europe; 48% from North America
China 1,705,632 65% from Europe;8% from North America

Building New or More Flexible Capabilities: Rivals can strategically move by building
flexible technological process Related diversification presents opportunities to transfer skills,
share expertise or facilities, and leverage a common brand name, thereby reducing overall costs,
strengthening the competitiveness of some of the companys products, or enhancing the
capabilities of particular business units.

As an industry matures is steering a middle course between low cost, differentiation, and
focusing. Such strategic compromises typically result in a firm ending up stuck in the middle.
Rivals of an industry do not want to stuck in the middle Rivals want to place top priority on
crafting and executing strategic moves that enhance the pharmaceuticals industrys competitive
position for the long term

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Key Success Factors

Market Position: Industrys competitive market position which could be determined using the
companys market size as well as its growth history and anticipated growth prospect going
forward .strong market position leads to stronger bargaining power to distributors, hospitals,
physicians, and retailers. The industry analysis considers any opportunities for having alliances
with other leading global pharmaceutical producers and additional licenses to grab potential new
market.

Product Mix and Development: Pharmaceuticals industry is identical with high variety types of
product that generates wide range of profits. The analysis considers the companys research and
development (R&D) capabilities, including cost allocation to its sales and policy related to new
products to be invented.

Marketing and Distribution Channel: The industrys strategy to distribute products and
examinations on other related factors that can ensure continuous product availability in the
market in an effort to support sales. The industrys ability to maintain good relationship with its
business network including with distributors and retailers.

Financial Flexibility: Pharmaceuticals industry analysis covers combined evaluation of all

financial measures above to arrive at an overall view of industrys financial health , other related
factors such as insurance coverage , loan or bond agreements, shareholders commitment and
support are also considered.

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Cash Flow Protection: Industrys cash flow generation and capability to meet its short-term and
long term financial obligations. The degree of its debt- servicing capability level is measured by
the industrys interest and debt coverage ratio. The degree of its liquidity in fulfilling its short
term liabilities relative to its sources of cash is also thoroughly accessed

Financial Policy: The industrys track record on fulfilling its previous financial obligations is
examined to determine the degree of its commitment. Pharmaceuticals industrys financial policy
is one of their major key success factors.

Industry Attractiveness:

The global pharmaceutical industry has been exposed to various forces evident in the external
environment. This report will present an overview of the factors in the industry that can move the
pharmaceutical industries in a certain direction to adapt changes. Furthermore, the nature of
pharmaceutical industry also determines its subsequent degree of attractiveness for the medicine
manufacturing organizations. The industry analysis is focus about the internal outlook of the
industry in terms of its value building activities, the financial performance and corporate norms.
In addition to this, the strengths and limitations of the global player.

Bargaining power of buyer is low: Buyers have substantial bargaining leverage in a number of
situations. The most obvious is when buyers are large and purchase much of the industrys
output. Typically, purchasing in large quantities gives a buyer enough leverage to obtain price
concessions and other favorable terms. Retailers often have negotiating leverage in purchasing
products because of manufacturers need for broad retain exposure and favorable shelf space.
Prestige buyers have a degree of clout in negotiating with sellers because a sellers reputation
is enhanced by having prestige buyers on its customer list.

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Threat of new entrants: Threats of new entrants are low due to the legal, regulatory, and market
competition. The resources required conducting research and development for large and effective
businesses is extremely high. Moreover the time require to conduct research and development as
well establish a market position are extensively demanding. The industries are also cutting their
spending due to an increased recession phase in economy. The new entrants can only establish
their presence by introducing rare and innovative products through effective research,
development, and deployment of resources. The companies offering generic products are posing
an increased threat to the settled players of the market as they are extremely profitable and low
capital intensive in their operations

Fewer substitutes: In Pharmaceuticals industry the availability of substitutes inevitably invites

customers to compare quality and performance as well as price. Another determinant of the
strength of competition from substitutes is how difficult or costly it is for the industrys
customers to switch to a substitute. As a rule, then, the lower the price of substitutes, the higher
their quality and performance, and the lower the users switching costs, the more intense the
competitive pressures posed by substitute products.

Global Generic Firms Posing Threats: To benchmark the industrys cost position against
rivals, costs for the same activities for each rival must be estimated an advanced art in
competitive intelligence. The payoff in exposing the costs of particular internal tasks and
functions and the companys cost competitiveness makes activity-based costing a valuable
strategic analysis tool.

The most important application of value chain analysis is to expose how a particular firms cost
position compares with its rivals. What is needed is competitor versus competitor cost estimates
for supplying a product or service to a well-defined customer group or market segment.

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References:

1. Thompson A.A Stickland A. J. (2003) Strategic Management: Concept and Cases (13th
Edition) McGraw- Hill Inc.

2. The Pharmaceutical industry in the Global Economy, Summer 2005, Larry

Davidson*and Gennadiy Greblov, Indiana University Kelley , School of Business,
Bloomington, Indiana

3 Pharmaceutical Research and Manufacturers of America (PHARMA). Pharmaceutical

Industry Profile 2004 (Washington, DC: PHARMA, 2004)

4. Global Disclosure of Economics and Business, Volume 2, No 2 (2013) , A Study on

SWOT Analysis of Pharmaceutical Industry: The Bangladesh Context

Websites:

http://www.cci.in/pdf/surveys_reports/study-pharmaceuticals-industry.pdf

http://www.expresspharmaonline.com/20110815/management01.shtml

http://articles.timesofindia.indiatimes.com/2011-10-12/india/30270484_1_price-control-
essential-medicines-national-pharmaceutical-pricing-authority

http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/staff_working_paper_part
1.pdf

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