Pharmaceutical Industry Analysis

This assignment delves into various facets of the global pharmaceutical industry. It examines current trends in pharmaceutical innovation, including drug discovery processes and challenges faced by the industry. The analysis also explores the influence of globalization and regulatory frameworks on the pharmaceutical sector. Furthermore, it discusses the ethical implications surrounding intellectual property rights and the impact of public research on industrial innovation. The assignment encourages a comprehensive understanding of the complexities and future directions within the pharmaceutical industry.

Running head: GLOBAL PHARMACEUTICAL INDUSTRY
Global Pharmaceutical Industry
Name of the Student
Name of the University
Author Note

1
GLOBAL PHARMACEUTICAL INDUSTRY
Part One
PESTEL Analysis
Political
Global pharmaceutical industries are situated in developed countries and contribute to
more than 80% of the global market sales. The government of the development countries try
to expand these industries in order to earn more revenues for their political benefits.
Opportunity: Expansion of the pharmaceutical industries, within in the country and
also outside the country for earning more revenues in order to support political interest
(Holland 2016).
Threats: The developing countries with more manpower can produce their own
medicines and leading to a huge loss the foreign countries that have open up their business in
developing countries like India.
Economic
The growth of the pharmaceutical market is inherently linked with the GDP growth of
the country.
Opportunity: Technology development in the pharmaceutical domain can revamp the
economic growth of the country. It signifies that increase in professional demand reduces the
rate of unemployment.
Threat: If the economic growth of the country goes down then the growth of the
pharmaceutical industry may go down too, as they are inter-related. This is because; funds are
important for the R&D of new drugs and thus decrease in funding affects the research,
hampering the market of pharmaceutical industry (Holland 2016).

2
GLOBAL PHARMACEUTICAL INDUSTRY
Social
The social factors include cultural change, population growth and these social factors
affect the demand of the industry in the market. The major social factor influence behind the
global pharmaceutical company is the increase in the ageing population.
Opportunity: With the advancement in the field of healthcare and medicines, the
average life expectancy of the population in the world is also increasing. This has lead to the
increase in the number of the aging population. Aging population consumes more medicines
in order t stay. It is estimated that they consume 4 times more medicines than the younger
population. This increase in consumption of medicines increases the demand of medicines in
the market (Holland 2016).
Threat: As per the government rules, every company are compelled to provide drug
care to the employees and the pharmaceutical companies are also enrolled under this rules.
This increases the companies cost to health with a decrease in the company’s business.
Moreover, insurance funding system offers less innovation while sharing benefit of the
increasing population (Holland 2016).
Technological
Biotechnology is gradually becoming mainstream of innovation behind the drug
development. With better technology more advanced medicine can be produced with hiher
quality of effectiveness.
Opportunity: more-innovation, more drug discovery with lesser time and more
financial gain of the global pharmaceutical company.
Threats: Advanced biotech techniques, including 3D modelling of the drugs and
concept like personalised medicines increase the cost of the R&D. So the new product

3
GLOBAL PHARMACEUTICAL INDUSTRY
launched, becomes too costly to afford by the majority of the patients (Holland 2016). The
pharmaceutical companies marketing such high-end biotech drugs thus experience financial
loss in the market.
Environment
The environmental association with the pharmaceutical industry comes in term of
pollution, green house gas and biological waste.
Opportunity: With increase in the bar of the pollution, people are getting more ill
now-a-days and this is creating an opportunity for the pharmaceutical industries.
Threats: The environmental health risk decreases the life expectancy of the people,
generating a challenge to the pharmaceutical companies to come up with new innovative drug
design (Holland 2016).
Legal
Pharmaceutical industry is subjected to several rules and regulations and these fall under the
legal consideration of the industry.
Opportunity: the regulations imposed by the government increases the level of
consumer confidence (Holland 2016). The data of the legal trials ensure the safety and the
efficacy of the medicines and thereby increasing their acceptance among the mass.
Threats: There is a huge competition in obtaining patents or the Intellectual Property
Rights (IPR) among the pharmaceutical industries (Holland 2016).
Key problems recently affecting the leading drugs companies like Sanofi aventis
In the field of pharmaceutical business, the organizations are moving slowly and not
in an innovative manner (Holland 2016). The pharmaceutical industry has a complex

4
GLOBAL PHARMACEUTICAL INDUSTRY
business module that is characterized by lengthy research and development process, risky
research strategies, profound competition for the IPR (intellectual property rights), stringent
government regulation and pressure from the powerful purchaser.
The tenure of the discovery of a new medicine to marketing of the drugs takes almost
12 years (Bennani 2012) as the process of product development is lengthy (Khanna 2012).
During all the phases of the product development, "attrition" occurs as the prospective
medicine under trail fails to overcome a particular hurdle and hence the majority of the R&D
projects never come up with a completed drug that is ready for the market use (Bennani
2012). Moreover, the late stage failure of the drugs, cause huge financial loss to the
pharmaceutical companies. For example, failure of biopertin (schizophrenia) and
onartuzumab (cancer) occurred (Bugarski-Kirola et al. 2014; Spigel et al. 2013). Not only the
government, but also the pharmaceutical industries face a huge financial loss because, 80% of
the companies failed to recoup their marketed products. This uncertainty in the drug
discovery, complexities in the ethical trials cause an establishment of fierce competition
among the pharmaceutical company for the IPR. Moreover, even after the FDA (Food and
Drug Administration, USA) have thoroughly examined all the data related to the efficacy,
safety, stability, purity and tolerability of the drugs, obtaining market approval is not smooth.
The pharmaceutical companies need to overcome hurdles like establishment of the market
price of the medicines depending on the justification of the importance of medicines and
reimbursement to cost-conscious payers.

5
GLOBAL PHARMACEUTICAL INDUSTRY
Figure 2: Methods used to control pharmaceutical spending
(Source: Holland 2016)
For the pharmaceutical companies situated in the countries with supply-side controls,
negotiating the price for the products or reimbursement can take years. On contrary, country
with demand-side controls, market penetration in indefinitely delayed while negotiating with
several governmental bodies like National Institute of clinical Excellence (NICE), UK.
Another problem is, payers give value over the 'real-world evidence' this signifies, how drugs
perform over real populations rather than the artificial populations selected in the controlled
trials. In 2012, tainted steroids, caused casualty of 11 people residing near Boston and has
caused sickness in another 100 patients (Smith et al. 2015). Moreover, the drug
manufacturers and the distributors are compelled to invest in several other measures like

6
GLOBAL PHARMACEUTICAL INDUSTRY
authentication technologies and counter measures. The government control over price also
creates challenge for the pharmaceutical industry in the form of parallel trade. The parallel
trade is the principle of free movement of goods. Here the distributors are free to source
drugs; lower than the market price and on return ship them at higher market price, enjoying
the profit (Bennato and Valletti 2014). Other notable problems, suffered by the drug
companies like Sanofi aventies is, frequent departure of the predecessor which leads to the
drop in the share price in the market leading to a tumbling condition, loss of patent
protection. For example, Sanofi faced huge loss of patent protection on Lantus. It is the
world's largest selling drugs (Holland 2016).

7
GLOBAL PHARMACEUTICAL INDUSTRY
Part Two
Main sectors and Key competitors making up the global pharmaceutical industry
The ethical drugs or the prescription-only drugs comprise the principle portion of the
pharmaceutical industry, nearly 85%. The ethical products contribute for the conventional
pharmaceuticals and other complex biopharmaceutical agents along with vaccines. The
remaining 15 percent of the industry is captured by the counter (OTC) medicines. The OTC
medicines are those drugs that can be purchased without any prescription. The global market
of OTC is estimated to be 120 billion dollars in the year of 2014 (Holland 2016). The brand
loyalty of the consumers acts as a defence against the generic competition and extends the
life cycle of the drugs and this outperforms the performance of the ethical drugs. Both the
prescription and non-prescription drugs can be patented or generic. Another important
category of medicine is vaccines, which now constitute a significant portion of the global
pharmaceutical industry. Vaccines have high rate of developmental success and lower risk
than that of conventional medicines. With the advent of new vaccines in the treatment of
deadly diseases like typhoid, it is gradually acquiring an important portion of the market
share. Prophylactic vaccines deliver life-long protection against some if the serious diseases
prevalent among the mankind. It prevents at least 3 million deaths per year, throughout the
world (Holland 2016). The marketing of vaccines is also lucrative as it earns 7 to 20 dollars
more than any other ethical medicines. The global sale of the vaccines tripled during the year
of 2005 to 2013 with the advent of the vaccines against human papilloma virus (HPV) that
causes cervical cancer and genital warts.
The main competitors in the global pharmaceutical industry are Novartis, Sanofi,
AstraZeneca, GlaxoSmithKline and Pfizer. Of them Pfizer has acquired Pharmacia, Warner-
Lambert and Wyeth.

8
GLOBAL PHARMACEUTICAL INDUSTRY
Figure 3: Leading Global Pharmaceutical Companies
(Source: Holland 2016)
One striking development, which has been visualized in the pharmaceutical industry,
is appearance of Gilead as the leader of the industry board. This sudden success of Gilead
proves that single blockbuster can manipulate the overall future of the company. The
competition in the pharmaceutical industry is arising out of the merger and acquisition
(M&A). The rationale of M&A is to expand the commercial reach, globally. For example, the
acquisition of Nycomed changed Takeda from a normal Japanese business with limited
geographic domain to a global name in the pharmaceutical business (Nezu, R., 2014).
Similarly, Sanofi acquired Genzyme, a notable name in the rare disease medicines. Not only
this, Sanofi acquired Medley, the third most large pharmaceutical company in Brazil in the
year 2009 and then simultaneously merged with Chinese company mane BMP Sunstone in
the year of 2011 (Holland et al. 2016). This increase in the trend of M & A promoted the hike
of competition in the pharmaceutical industry. Merger also proved to be financially beneficial
as it prevents the downfall of the revenue. The merger of Pfizer with Wyeth made it an
important competitor in the market of global pharmaceutical industry. This M&A helped

9
GLOBAL PHARMACEUTICAL INDUSTRY
them to become a market topper. They gradually increased the competition further via
reducing 35% of the R&D square footage with six different site closures. Actavis on the other
has further increased the bar of competition in a completely new level via building up first
critical mass as a generics player, followed by cost stripping and then slowly moving to
Ireland in the process.
Porter’s Five Force Model
Horizontal Competition
Threats of the substitute products or services
In the global pharmaceutical industry, the main threats come from the OTC medicines
or, over the counter medicines. People buy more OCT medicines because they can buy it
without any need of prescription, logic behind this is, via buying OTC medicine, they can
save the fees of the doctors. The consumer brand loyalty provides a defence against the
generic competition and thus increase the life cycle of the prescribed medicines. Under the
huge popularity of the OTC medicines, the business of the ethical medicines such as
antibiotics for fever gets hampered. However, the pharmaceutical companies can earn more
revenues via selling ethical or patented medicines and creating threats of substitute products
(Young, Glover and Havens 2012).
Threats of the established rivals
In the pharmaceutical industry there lies the existing barrier of the patents and the
intellectual property rights and this creates a barrier in the business progress (Roemer-Mahler
2013). Then there are differences in the product economies, brand equity and switching costs
or sunk costs of the medicines. This switch in price is brought about by the government
depending upon the economic growth, demand of the medicine, the insurance claims and via
evaluation of the importance of medicines (life saving medicines are distributed at lower cost

10
GLOBAL PHARMACEUTICAL INDUSTRY
to the state run hospitals and to the rural areas) (Greene and Podolsky 2012). This regulation
of the price at any point of the year by government creates a major threat for the global
pharmaceutical industry.
Threats of the new entrant or competitive forces
Increased in the number of competitors in the global pharmaceutical industry is
creating a problem for the existing entities and thus generating a competition under the
domain of the survival of the fittest. These competitions are producing financial crunch not in
the sales values but also in the expenses of advertisement. In the pharmaceutical industry, the
prices are strictly regulated via government norms and hence there is no provision for
lucrative discounts as present in the other sectors of the industry (Toole 2012). So the
pharmaceutical giants expense more on the advertisement to attract the doctors and the
consumers.
Vertical competition
The power of bargaining by the customers
This factor is affected by the concentration of the buyer to the concentration of the firm ratio
and the degree of dependency upon the existing channels. Here the doctors at times become
loyal to certain brands of medicines over a period of time. This loyalty generates competitive
forces among the newly formed pharmaceutical companies (Gassmann, Reepmeyer and von
Zedtwitz 2013). This can be fought via merger and acquisition or via framing interactive
advertisements.
The bargaining power of the suppliers
This is affected when the suppliers are switching the costs relative to the firm
switching the costs. The competitive forces also get affected via the degree of differentiation

11
GLOBAL PHARMACEUTICAL INDUSTRY
of inputs along with the presence of the substitute inputs. Another important competitive
force in this domain is ratio of the concentration of the suppliers to the concentration of the
firms (Gassmann, Reepmeyer and von Zedtwitz 2013). Here the concentrations of the
suppliers are more than the firm and hence resulting in bargaining power of the suppliers.

12
GLOBAL PHARMACEUTICAL INDUSTRY
References
Bennani, Y.L., 2012. Drug discovery in the next decade: innovation needed ASAP. Drug
Discovery Today, 17, pp.S31-S44.
Bennato, A.R. and Valletti, T., 2014. Pharmaceutical innovation and parallel
trade. International Journal of Industrial Organization, 33, pp.83-92.
Bugarski-Kirola, D., Wang, A., Abi-Saab, D. and Blättler, T., 2014. A phase II/III trial of
bitopertin monotherapy compared with placebo in patients with an acute exacerbation of
schizophrenia–results from the CandleLyte study. European
Neuropsychopharmacology, 24(7), pp.1024-1036.
Gassmann, O., Reepmeyer, G. and von Zedtwitz, M., 2013. Leading pharmaceutical
innovation: Trends and drivers for growth in the pharmaceutical industry. Springer Science
& Business Media.
Greene, J.A. and Podolsky, S.H., 2012. Reform, regulation, and pharmaceuticals—the
Kefauver–Harris Amendments at 50. New England Journal of Medicine, 367(16), pp.1481-
1483.
Holland, S. and Bátiz-Lazo, B., 2016. The global pharmaceutical industry. General
Economics and Teaching, 405002, pp.1-24.
Khanna, I., 2012. Drug discovery in pharmaceutical industry: productivity challenges and
trends. Drug discovery today, 17(19), pp.1088-1102.
Nezu, R., 2014. From globalisation to a new corporate culture. Organisation for Economic
Cooperation and Development. The OECD Observer, p.19.

13
GLOBAL PHARMACEUTICAL INDUSTRY
Roemer-Mahler, A., 2013. Business conflict and global politics: the pharmaceutical industry
and the global protection of intellectual property rights. Review of International Political
Economy, 20(1), pp.121-152.
Smith, R.M., Derado, G., Wise, M., Harris, J.R., Chiller, T., Meltzer, M.I. and Park, B.J.,
2015. Estimated deaths and illnesses averted during fungal meningitis outbreak associated
with contaminated steroid injections, United States, 2012–2013. Emerging infectious
diseases, 21(6), p.933.
Spigel, D.R., Ervin, T.J., Ramlau, R.A., Daniel, D.B., Goldschmidt Jr, J.H., Blumenschein Jr,
G.R., Krzakowski, M.J., Robinet, G., Godbert, B., Barlesi, F. and Govindan, R., 2013.
Randomized phase II trial of onartuzumab in combination with erlotinib in patients with
advanced non–small-cell lung cancer. Journal of clinical oncology, 31(32), pp.4105-4114.
Toole, A.A., 2012. The impact of public basic research on industrial innovation: Evidence
from the pharmaceutical industry. Research Policy, 41(1), pp.1-12.
Young, A.M., Glover, N. and Havens, J.R., 2012. Nonmedical use of prescription
medications among adolescents in the United States: a systematic review. Journal of
Adolescent Health, 51(1), pp.6-17.