Analysis of Pharmaceutical Industry - Case Study Example

?Analysis of Pharmaceutical Industry Table of Contents Table of Contents 2 Introduction: Pharmaceutical Industry 3 Marketing Environment Analysis 4 Political Factors 4 Economic 4 Socio Cultural Factors 5 Technological 5 Environmental 5 Legal 6 Porter’s Five Forces Model 6 Industry Life Cycle 8 Conclusion 10 SWOT Analysis 10 References 12 Introduction: Pharmaceutical Industry The pharmaceutical industry is regarded as one of the most profitable sectors of the world. The pharmaceutical industry is one of the few industries which are highly concentrated and only a handful of companies are performing well. The European pharmaceutical market is highly fragmented and is influenced by the legal laws to a large extent. In the year 2008 the UK market contributed to 32 percent of the global sales. The key market players of the pharmaceutical industry are the companies originating from USA, Japan, Europe, China, and Brazil. The medicines manufactured by the leading pharmaceutical companies are prevalent across the globe. USA is regarded as the world’s largest market of pharmaceutical and is the also the world leader in the Bio pharmaceutical research. 80 Percent of the research and development in pharmaceuticals is conducted in the laboratories of USA (Select USA, 2013). However, USA is largely dependent on the import of generic drugs and 40 percent of the pharmaceutical is consumed in USA (Select USA, 2013). It is believed that the present market situation of Biologic, over the counter (OTC), and generic drugs reflect the potential of the pharmaceutical market (U.S. Bureau of Labor Statistics, 2011). As per the reports of House of Commons, UK around 650 million prescriptions are prescribed by the general practitioners of United Kingdom (UK) itself (House of Commons, 2005). The National Health Service which is one of the leading medical organizations of UK sells medicines worth ?7 billion every year and 80 percent of these medicines are manufactured by branded companies (House of Commons, 2005). In the UK the pharmaceuticals industry is regarded to be the most profitable sector after Finance and Tourism. Majority of the pharmaceutical company’s revenue is generated from the USA because it is the world’s largest free pricing market for pharmaceuticals. Marketing Environment Analysis The marketing environment analysis will help us in indentifying the factors that affect the company directly and indirectly. The macro environmental factors affect the activities of the company directly and the micro environmental factors affect the activities of the company indirectly. The micro environmental factors constitute of environmental factors like suppliers, distributors, competitors etc. The macro environmental factors constitute of demographic, economic, socio cultural, political, physical and legal factors. The PEST analysis will be instrumental in determining the external threats and opportunities faced by the pharmaceutical industry in the USA. Political Factors Department of Health The US department of health is a government body which regularly monitors the activities of the pharmaceutical companies. The main task of this government body is to scrutinize the license, clinical trials etc of the pharmaceutical companies. Economic The medicines manufactured and sold by the pharmaceutical companies are expensive because these companies incur huge amount of research and development costs. Post recession majority of the established pharmaceutical companies have closed down their research sites because the cost of research and development is too high and the profit earned by these companies is minuscule (The Guardian, 2013). It is observed that the most of the pharmaceutical companies are incurring losses due to the current economic slowdown (Gallagher, 2012). Socio Cultural Factors The sales of the medicines in the USA are largely influenced by the ageing population and the increasing obesity among the youth. Although, post recession the purchasing power of the common people has reduced the demand of the medicines and drugs has not reduced to a large extent. This because the common people of USA are health conscious and indulge in health products which are required for their betterment. Technological The pharmaceutical companies in the USA are highly dependent on technology especially the research and development department. The advanced technologies help in developing medicine, vaccines and health care products with the help of high end technologies. Machineries like Granulators and Strip Packing help in tablet production and packaging (Pharmaceutical Machinery, 2013). Environmental Most of the pharmaceutical companies undertake environment protection measures for enhancing their brand image as well as to address the immediate environmental concerns. Environment protection measures form an essential part of the corporate policies of the pharmaceutical companies. Legal As per the food and drug administration amendments act 2007 (Clinical Trials, 2012) it is mandatory in the USA that each and every clinical trial needs to be monitored and approved by the Institutional Review Broad (IRB) (Criterium, 2013). The main task of this board is to ensure that the clinical trial is conducted under an adequate number of physicians and community advocates who ensure that the trial is conducted ethically. Leading pharmaceutical companies like Pfizer, Johnson &Johnson, Merck &Co perform the clinical trials on their new medicines at reputed hospitals. Porter’s Five Forces Model Before developing an effecting business strategy the company needs to assess the factors which affect the profitability of the industry. Figure 1: Porter's Five Forces Model The threat of new entrants: If a particular industry is witnessing profitability then it would attract new entrants. However, it is observed that the present financial situation of the established pharmaceutical companies is not good and the pharmaceutical industry all over the world is recovering from an economic slowdown. Hence, the threat of new entrants is very low at the present moment. Bargaining power of buyers: The medicinal products and medicines are usually high priced for the support of the research and development costs incurred by the pharmaceutical companies. These are necessary for the cure of diseases and ailments hence the patients do not have an alternative. The bargaining power of the buyers is very low. Bargaining power of suppliers: Timely supply of the medicines and medicinal products forma an integral part of the companies. The medicines need to be supplied to the pharmacists and the hospitals before it crosses the expiry date. High demand and high price of the medicines and the medicinal products have attracted the suppliers to this particular segment. The bargaining power of the suppliers is very high in this industry. Threat of substitutes: Natural remedies are extremely safe and preferable among the common people. The rigorous process required for the preparation of the medicine made out of natural remedies compels the common people to choose prescription medicines over natural remedies. Thus, the threat of substitutes is very low in this industry. Intensity of rivalry among the competitors: The pharmaceutical industry is highly fragmented and there are only a few established pharmaceutical companies that comprise the pharmaceutical industry. The established pharmaceutical companies like Ranbaxy, GlaxoSmithKline and AstraZeneca are facing intense competition from each other. The competition in the pharmaceutical industry is very high. Industry Life Cycle The life cycle will show us the various stages that a pharmaceutical industry goes through to enter a market. Development: In this stage there are few competitors and the pharmaceutical company enters into the market with very few purchasers. Growth: In this stage the pharmaceutical company starts creating a niche for itself in the pharmaceutical industry and witnesses an increase in the number of purchasers and competitors. Shakeout: The consumers have become selective in purchasing a product hence, the pharmaceutical company goes for “price skimming”. The company lowers the price of the product to attract consumers. Maturity: There has been a decline in the number of existing consumers and the company witnesses very few new consumers. The competition is very intense and the pharmaceutical companies are facing difficulties in maintaining market share. Decline: In this stage the pharmaceutical company fails to yield a substantial amount of profit. The company decides to exit from the market. Figure 2: Industry Life Cycle Conclusion SWOT Analysis The SWOT analysis will help us in determining the strength, weakness, opportunity and threats of the pharmaceutical industry at the present moment. Strength Most of the pharmaceutical companies earn their revenue from the health care segment which includes toothpaste, health drinks etc. This helps the pharmaceutical companies to diversify their risks even when they are incurring losses from the medicines and medical products. Weakness The established pharmaceutical companies have decided to keep the research on new medicines and medicinal products on hold. This is because innovation for new products would demand high cost which the pharmaceutical companies cannot afford at the present moment. Opportunities Although the pharmaceutical industry is recovering from the economic slowdown it is believed that the future of pharmaceutical industry would be positive. It is estimated that the pharmaceutical industry would grow by 1318 billion by the year 2020 (KPMG, 2011). Threats The pharmaceutical companies are incurring losses because most of medicines are losing their exclusivity which has led to a rise in the research and development costs incurred by the companies. The increase in the research and developments costs has reduced the innovation of new medicines and drugs by the pharmaceutical companies (Frankel Group, 2011). As per our observation from the PESTEL, Porter’s Five Forces Model & SWOT analysis we can observe that the future of the pharmaceutical industry is positive and by the end of 2020 it would become one of the most profitable sectors of the world. However, the pharmaceutical companies need to focus on continuous innovation of new medicines and drugs for the betterment of the society. References Clinical Trials, 2012. History, policies, and laws [Online] Available at: < http://clinicaltrials.gov/ct2/about-site/history > [Accessed 05 May 2013]. Criterium, 2013. Clinical research USA [Online] Available at: < http://www.criteriuminc.com/clinical_research_usa.php > [Accessed 05 May 2013]. Frankel Group, 2011. The current state of pharmaceutical industry research and development [pdf] Available at: < http://www.frankelgroup.com/FG%20Advisory%20Board%20Whitepaper%2012-29-11.pdf > [Accessed 05 May 2013]. Gallagher, J., 2012. Is AstraZeneca a sign of wider pharmaceutical woes? BBC News, [online] 02 February. Available at: < http://www.bbc.co.uk/news/health-16851703 > [Accessed 05 May 2013]. Hein, T., n.d. Product lifecycle management for the pharmaceutical industry [pdf] Available at: < http://www.oracle.com/us/products/applications/agile/lifecycle-mgmt-pharmaceutical-bwp-070014.pdf > [Accessed 05 May 2013]. House of Commons, 2005. The influence of the pharmaceutical industry [online] Available at: < http://www.publications.parliament.uk/pa/cm200405/cmselect/cmhealth/42/42.pdf > [Accessed 05 May 2013]. KPMG, 2011. Future pharma [PDF] Available at: < http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/future-pharma.pdf > [Accessed 05 May 2013]. Pharmaceutical Machinery, 2013. Tablet section [Online] Available at: < http://www.pharmaceuticalmachinery.in/ > [Accessed 05 May 2013]. Select USA, 2013. The U.S. pharmaceutical industry [pdf] Available at: < http://selectusa.commerce.gov/industry-snapshots/pharmaceutical-industry-united-states > [Accessed 05 May 2013]. The Guardian, 2013. AstraZeneca to cut 2,150 jobs in George Osborne's constituency. The Guardian, [online] 18 March. Available at: [Accessed 05 May 2013]. U.S. Bureau of Labor Statistics, 2011. The pharmaceutical industry: An overview of CPI, PPI, and IPP methodology [pdf] Available at: < http://www.bls.gov/ppi/pharmpricescomparison.pdf > [Accessed 05 May 2013]. Read More