Analysis of global pharmaceutical industry over the years.

1. GLOBAL PHARMACEUTICAL INDUSTRY
Submitted by
-Chandan Kumar Singh 11DCP-071
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2. CASE BACKGROUND
 The case describes how the prescription pharmaceutical
industry has changed since its modern beginnings in the
early 1950s.
 The various forces affecting the competitive environment
of the industry are discussed in terms of
origins, immediate past and immediate future (2004
onwards).
 Provides insights into the evolution of barriers to enter
and exit the industry for prescription pharmaceuticals
 Detailed industry note on the “ethical” pharmaceutical
industry which provides an opportunity to analyse key
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success factors of major players.

3. CASE BACKGROUND
 Descriptive overview of the predominant issues in the
three major Triad market areas: the US, Europe and
Japan .
 Covers the overall industry environment with indepth
discussion of the driving forces in the industry such as
globalisation (in particular global regulatory
issues, changing world demographics and worldwide
pricing disparities).
 Development of new technology; the importance of time
to market; and amalgamations.
 The case also examines issues around corporate social
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responsibility

4. BRIEF HISTORY
 Post WWII, the pharmaceutical industry operated within a
quite stable & highly profitable environment as compared
to other industries
 The industry saw the development of many new drugs
during the 1960s due to technological success.
 However as legislation was introduced in the 70s the
number of „generics‟ increased & consequentially time to
market of drugs also increased
 Emergence of biotechnology firms, limited buying ability of
consumers leading to reliance on blockbuster drugs for
income resulted in the instability in the industry
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5. Patents introduced
BRIEF HISTORY 60
50
40
o Simple infections that were easy 30 Patents
drug targets had been addressed 20 introduce
10 d
0
o Advances over existing treatments
1999
1980
2001
2002
& research for therapy of
previously untreated diseases
started proving expensive & risky
R&D Expenditure
60
o Consumers started demanding 50
value for money products as their 40
buying power became increasingly 30 R&D
Expendit
limited 20
10 ure
0 5
In Billion $
1981 2000

6. ENVIRONMENT ANALYSIS
External Internal
Scenario
Environment Environment
Favorable, moderate
PESTEL Five forces Model
and unfavorable
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7. PESTEL ANALYSIS
Political Factors
• Highly fragmented industry in 80‟s. Mergers
led to concentration of jobs in select
countries
• More control thereby exercised by
Governments
• Easy Targets – To control rising healthcare
costs when medicines amount to 15% of
healthcare expenditure
• Multi country pricing due to Govt regulations.
• Patent on drugs – India patents the process
while US and EU patent the drug 7

8. PESTEL ANALYSIS
Economic Factors
• Demand side
• Doctors tend to favor branded drugs which are high
margin.
• Globalization has made it possible for big
companies to mass market the drugs.
• Supply side
• Global supply is fragmented. Pfizer has largest
market share of 11%
• Regional players and the generic drugs which are
relatively cheaper are popular in developing world
• Need for blockbuster products as R&D investments 8
do not justify the number of new drugs

9. PESTEL ANALYSIS
Social Factors –
• Advancement in medicine has raised the life
expectancy to 75 and aged population increases
the consumption. This adds strain on insurance
companies and govts
• Socially aware and demanding consumers
Technological and Environmental
factors
• Human Genome and genetics are new ways to
discover drugs
• Rising aged population in west and middle class in
developing countries makes the long term 9
prospective good.

10. PESTEL ANALYSIS
Legal factors
• Varied patent laws in different countries
• Many best selling drugs are replicated
as generic medicine in developing
countries with full government backing.
• Clinical trials have become more
rigorous thereby testing more than
20,000 people in the complete run of
10-14 years
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11. ENVIRONMENT ANALYSIS
External Internal
Scenario
Environment Environment
Favorable, moderate
PESTEL Five forces Model
and unfavorable
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12. Factors Past Future
Threat of • The industry has already high entry • Firms specializing in moving
potential barriers which are increasing. specific molecules along the value
entrants • lead times for new drugs to be chain could be tomorrow's main
marketed increasing from 3 to competitors.
5years in the 1960s to 12 years by • Emphasis on high-priced niche
the mid-1990s. drugs for high unmet need diseases
• Need for global return on costly R&D likely to support market entry by bio
favors large firms only techs.
Power • Governments (EU) and managed • Controls on pricing , reimbursement
of buyers health organizations (US)imposing and market access continue to
systems to control tighten(„value for money‟ is atop
prices/reimbursement and demand . concern on both sides of the
• Growth of parallel trade. Atlantic).
• Harmonization of regulatory approval • Growth of managed care continues
systems. Rising patient expectations. deteriorating the profitability of big
pharmaceuticals regardless of the
outcome of regulation.
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13. Factors Past Future
Power of • Cheap generics. • Biological generics appear.
substitutes • Reduced lead times for „me-too‟ • Diversification into generics
drugs from 6to 7 years to 18months; protects volume share (but not the
• Consumer suspicion of drugs leads profit) of big pharmaceutical
to increasing use of alternative companies.
remedies • Functional foods preferred as
safer alternative to drugs
Power of • Global sourcing leads to further • Emergence of China and India as
suppliers reductions in the costs of raw key out-sourcing locations.
materials. • Cost of licensing deals drives
• Major pharma companies come companies towards more
increasingly to rely on in-licensing for acquisitions
new products, raising prices on such
deals
Competitie • Profitable, cash-rich industry but • Continued industry consolidation in
rivalry margins declining. static market results in fewer larger
• Mergers and acquisitions are global companies, focused on
expected to continue as they could specific franchises , with intense
lead to economies of scale, global rivalry within therapeutic franchises.
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sales and marketing and more
efficient R&D efforts.
• Intense rivalry within product

14. ENVIRONMENT ANALYSIS
External Internal
Scenario
Environment Environment
Favorable, moderate
PESTEL Five forces Model
and unfavorable
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15. INDUSTRY TRENDS
o The pharmaceutical industry is facing a rapidly changing
environment.
o The need for global presence to achieve adequate return on
escalating marketing and R&D costs
o A strong focus on health care cost containment, such that new
treatments must be justified on cost–benefit grounds, adding to
development costs
o To command price premiums, new products must offer unique
benefits, yet information leakage means that most products are
imitated rapidly
o IT developments provide greater access to detailed health care
information for both providers and patients, also pushing
forward cost-effective treatments
o Educated consumers demanding advances in therapy
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o There are opportunities to change organizational models but
no-one has yet found a feasible alternative

16. Scenario 1: Favorable
 Increased opportunities for pharmaceutical sales
developing in emerging markets.
 Little substitution from biotech products
 No entry of new participants and a decrease in mergers
and acquisition activity
 Time to market remains critical but genomics helps to fine-
tune NCE selection and reduce time in clinical trials.
 Organisational changes result in a number of very
promising “blockbuster drugs” advancing through the
pipeline
 There will be greater harmonisation amongst international
markets.
•
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17. Scenario 2: Moderate
 Substitution from biotech products, some advances to
reduce R&D expenditure.
 Outsourcing (i.e. licensing of products) continues to
develop but without challenging established players.
 Entry of new participants and/or consumers opting for
some forms of alternative medicine
 Slow but consistent steps towards greater industry
concentration continue.
 There will be increasing sales opportunities in emerging
and recently industrialised countries.
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18. Scenario 3: Unfavorable
 Most income generation is associated to licensing agreements
and profits will thereby get squeezed.
 There is a recruitment crisis as a whole generation of new
scientists is lost to mid-sized players and biotechs.
 Results in dying of blockbuster drugs.
 All investments in genomics prove futile at present as it will be
one or two more generations before any practical result is
evident.
 Emergence of new alternative forms of non-drug-based
therapeutic treatments and widespread adoption of alternative
medicine practices.
 Entry of new global participants such as Japanese, Korean or
Indian laboratories will intensify the competition.
 Increased mergers and acquisition activity puts substantial
short-term pressure on profit margins. 18

19. ETHICAL CONSIDERATION
 There are thus key issues around the
ethical stance of pharmaceuticals, their
stakeholders and society at large including:
 Property rights
 R&D, budget constrains and the pursuit of
ailments in emerging markets
 Being in the public eye (as a consumer goods
manufacturer and a provider of health products)
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20. BUSINESS IMPLICATIONS-GOING FORWARD
 Innovation will be the most important thing, more
important than the size of the organization.
 The main reason behind this is that there has to be
points of difference with every new product so as to
charge a premium price to it.
 With more of information leakage, most of the products
are copied quickly.
 With more of R&D costs, it becomes extremely
necessary to achieve adequate returns on the pipeline
as this will pave the way for the success of
manufacturers.
 New drugs need to be developed with respect to
diseases which are ignored.
 A firm has to be more consistent in its approach with
having constant innovation of new drugs. 20

21. THANKS FOR YOUR TIME AND
CONSIDERATION
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