The document summarizes the global pharmaceutical industry, its history and competitive environment. It describes how the industry has evolved from the 1950s with new drug development and increased regulation. Barriers to entry into the industry are high and increasing due to lengthy development times and large R&D costs. The future of the industry is analyzed as facing continued pressure from generics, healthcare cost controls and industry consolidation into fewer large global companies focused on specific drug franchises.

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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