Pharmaceutical Industry Sample Essay

“In 1897. Felix Hoffmann created a new industry. He found a manner of adding a bunch of two excess C and five excess H atoms to a substance extracted from willow bark. The consequence is known to chemists as acetylsalicylic acid. To everyone else it is known as acetylsalicylic acid. It turned Bayer. the dye-maker Hoffmann worked for. into the world’s foremost modern drug company. ” Geoffrey Carr. The Alchemists. The Economist – Feb 19th 1998

Today’s Pharmaceutical Industry is characterized by several of import factors that influence the concern environment in which each company operates:

·Severe competition from capitally strong rivals

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·Strict authorities ordinances

·Long blessing delay clip

·Technology as an of import factor

·Lower degrees of selling and client dealingss in comparing to other markets

– Gross saless portion of the world’s top 75 prescription medical specialties 2002

Beginning

IMS

Industry Environment Analysis

In 1997. the $ 65 billion industry was composed of three strategic groups: patented prescription drugs. generic prescription drugs and nonprescription drugs. Firms such as Merck. SmithKline. Eli Lilly and others produced assorted types of trade name name drugs. Pharmaceutical companies spent immense sums of money on development. The merchandises produced by companies are really advanced. Many companies market up to ten ( 10 ) “blockbuster” drugs each twelvemonth. These drugs have a patent life of 17 ( 17 ) old ages. However. since it takes on mean 12 ( 12 ) old ages to acquire the drug to market. industries have merely five ( 5 ) old ages in the market to reimburse their heavy research and development costs. After the patent expires we move to our following strategic group ; the generic prescription drug shapers.

Research and Development in UK Business ( ONS )

UK Pharmaceutical R & A ; D Expenditure. CMR International

Annual Census of Production ( ONS )

Generic drug industries are normally foremost developed by the patented prescription drug shapers ( or they can even be developed by the nonprescription industries ) . They have small to no research and development costs. They have small to no marketing budgets and much lower overall costs. As a consequence. generic drug makers can sell their merchandises at lower monetary values.

The 3rd strategic group within the pharmaceutical industry is the nonprescription drug maker. These merchandises have a really wide scope. They include points such as cold medical specialty for a common cold. acetylsalicylic acid for a concern. and antacid alleviation for the tummy.

The three above-named groups prosecute different schemes and operate in different environments. Porter’s five-force theoretical account can be applied to exemplify the differences between the groups. Below is a sum-up of each force and the corresponding strategic group:

Competition

Prescription: High. patents protect each company when a drug is first developed. However. production costs are high ( over $ 6 million ) and merely 20 % recoup their costs.

Generic: High. there is the generic trade name versus the name trade name. Why should we pay more for the same exact merchandise? Many prescription drug programs have a higher deductible for name trade name drugs than generic drugs. Keeping costs lower than your competition is cardinal.

Over-the-counter: High. there is the shop trade name versus the name trade name. Why should we pay more for the same exact merchandise? Product distinction is the key here.

Overall. menace of competition is high. The pharmaceutical industry is extremely competitory. Companies are rushing to establish new merchandises before other companies release similar 1s. In order for a company to reimburse their R & A ; D disbursals they must patent their merchandises to guarantee hard currency flow. Besides. generic companies are rivals. Generic companies do non bear R & A ; D costs and. accordingly. they can offer the merchandises at really lower monetary values. The industry is in the adulthood phase with comparatively small growing. Suppliers wishing to increase market portion must take it off from person else. Switch overing costs are comparatively low. Customers will shop around based on monetary value. even in little communities. True. client trueness tends to be higher in smaller communities but this trueness is shriveling as another factor. amalgamations and acquisitions. addition. There is small relevant difference in merchandises and the diverseness among rivals is low.

Barriers TO ENTRY

Prescription: High. a company can non fabricate a drug that has a patent on it. It must wait boulder clay after the patent expires to fabricate it.

Generic: Low. one time the patent is expired. everyone will desire to fabricate the drug ( particularly if it was a large money shaper for the inventing company ) .

Over-the-counter: Medium. depending on the new entrant’s resources. Store trade names will ever be available. However. for little companies a name trade name is a immense selling disbursal. This will do it a barrier for them to come in this market.

There are many barriers that can be created to forestall new entrants or to decelerate down their reaching.

In the pharmaceutical industry. a new entrant may be faced with assorted hurdlings erected by established concerns. such as:

·economies of scale – fabrication. R & A ; D. selling. gross revenues.

·distribution merchandise distinction – established merchandises. trade names and relationships

·capital demands and fiscal resources

·access to distribution channels: preferable agreements

·regulatory policy: patents. regulative criterions

·switching costs – employee retraining. new equipment. proficient aid

In the pharmaceutical industry. the barriers to entry are high. Companies have important fabrication capablenesss that are difficult to retroflex ; they have patents to protect their merchandises and they constantly have large selling budgets designed to protect their trade names.

Substitutes

Prescription: Medium. However. the grade of their effectivity surely does vary.

Generic: Medium. a generic drug normally copies a patented drug after it expires. If a new merchandise is introduced and patented. a generic can non vie.

Over-the-counter: High. many different types of medical specialty are available.

A replacement is a healthy life manner and exercising. a manner of forestalling the demand for medical specialty! Generic trade names are replacements for original merchandises and there are devices that can replace for pharmacological interventions. like stents in thrombo-embolic disease.

Nowadays alternate medical specialty. like homeopathic methods. can be regarded as a replacement to already admit methods. Modern biological finds. peculiarly in the country of genetic sciences. assure immensely more information on how drugs operate. and how new 1s might be created. New engineerings with names such as combinative chemical science. high-throughput showing and laboratories-on-a-chip offer better ways to turn that cognition into molecules for proving.

Suppliers

Prescription: Low. providers are normally the drug makers.

Generic: Medium. sometimes the drug industries make both the prescription and generic drugs in the same installation and merely label them otherwise. You either agree with the pricing policy of the maker. or invest in your ain works. belongings and equipment to fabricate it yourself.

Over-the-counter: Low. there are adequate providers out at that place. This is non a job.

First. we have to see who the providers to the pharmaceutical industry are.

They could be the suppliers of the natural stuffs and intermediates. the fabrication and production workss. the abroad caput offices who supply finished merchandise. the local co-marketing spouses who supply merchandise and/or 3rd party providers anyplace along the supply concatenation. Each company will hold different providers depending on whether they are OTC. ethical. or generic concerns. It is of import to retrieve that labor should be viewed as a provider to industry.

There are non many purchasers and the provider has small room for dialogue with single purchasers so the company itself has high dickering power towards its provider. The nature of their concern does non coerce them. unlike other industries. to trust on providers. Scientific tools. stuffs. computing machines. and proving equipment are extremely specialized. With the sum of cardinal ingredients being fringy it is the providers who are dickering for concern with major drug companies.

Buyers

Prescription: Low. physician prescribes the medicine and the insurance company or patient wages for it.

Generic: High. there are many options.

Over-the-counter: Medium. once more there are a figure of options. But drug shops will desire to transport their ain trade name every bit good as taking name trade names.

In the pharmaceutical industry. the purchasers are the patients. the household members. the PBAC. the PBPA. the finance sections. the infirmary boards. the stamp boards. the main druggist along with a scope of other purchasers. depending on the specific concern.

Their influence demands to be considered. In assorted ways. purchasers can impact a concern by seeking monetary value decreases. – demanding higher quality and demanding better service.

A purchaser is powerful in the undermentioned state of affairss:

1. when they purchase big volumes.

2. when they buy your merchandises from other providers because they are
standardised

3. when they are knowing and do demands based on this cognition.

In short. purchasers can exert power by seeking monetary value decreases and endangering to travel to other providers to acquire their merchandises. Powerful purchasers demand dearly-won service. The authorities requires an in-depth analysis that costs money. and consumers require up-to-date and relevant medical information – another dearly-won service.

An analysis of the pharmaceutical industry proves that providers do hold some impact – but non a batch. Company’s by and large own their fabrication workss so providers don’t dictate monetary values and are improbable to endanger to take concern elsewhere.

Buyers nevertheless can significantly act upon the market. peculiarly as the authorities and wellness governments systematically seek monetary value decreases.

Substitutes have some impact. but non a batch.

There is much competition because companies have a limited sum of clip to do adequate money to cover their costs. before another company steps in with a replacement or better merchandise.

New entrants are non common. mostly because of the high barriers to entry. particularly R & A ; D and fabrication and selling costs.

So overall. the competitory force that exerts the most force per unit area in the pharmaceutical industry is the purchaser and there should be a focal point on the competitory schemes associated with this group.

However the competitory forces are different for each company and non all of the five will be every bit of import.

BCG Matrix

The pharmaceutical concern is most likely in the hard currency cow class in general. Successful stars become hard currency cattles finally. However. investings are still usually required to keep growing and to support the leading place. Stars are often merely marginally profitable but as they reach a more mature position in their life rhythm and growing slows. returns become more attractive. The strategic options that the stars include are: Integration: frontward backward and horizontal. market incursion. market development. merchandise development and joint ventures. When taking single merchandises into consideration they will be in different classs in the matrix.

Plague Analysis

In order to better understand tendencies in the pharmaceutical industry. four sections of the macro-environment will be analysed: 1 ) political/legal ; 2 ) economic sciences ; 3 ) socio-cultural ; 4 ) technological.

The current demographics of the universe consist of an aging population. which consumes three times as many drugs than younger populations. An aging population leads to favorable conditions for pharmaceutical houses in which higher demand will increase net incomes. Besides. in general the world’s population is turning at an tremendous rate. which merely means more people will necessitate more drugs.

Population Pyramid Summary

Political

A new combating tendency in the industry arises under the political and legal kingdom of the environment. Harmonizing to Pharmaceutical Research & A ; Manufacturers of America ( PhRMA ) the mean steadfast invests 12 to 15 old ages in developing a new drug. The FDA and other regulative bureaus slow down the procedure by drawn-out and dearly-won reappraisals. All companies involved in drug development are combating to cut down this clip outgo. Firms are now taking a proactive stance to pass on early on with bureaus for thoughts on how to plan drug development. Those houses. which successfully plan with bureaus. will hold a quicker development clip and be able to present their drug to markets faster. giving them a competitory border. Better planning besides reduces uneconomical disbursement on irrelevant procedures. therefore increasing public presentation.

Economic

Economic conditions such as involvement rates and rising prices have small impact on the profitableness of the industry. The pharmaceutical industry appears to be immune to external economic conditions.

Social

Social and cultural tendencies include the heavy trust on twenty-first century drugs and medical specialties by society worldwide. With modern accent on increasing life anticipation physicians will go on to order drugs to patients and the populace will go more and more accepting of drugs. Again this raises demand for pharmaceuticals. which leads to increased competition. which in bend may take down single firm’s public presentation. An emerging cultural tendency within the industry seems to be consolidations and amalgamations to offer broader scopes of merchandises. capital to spread out and portion of the costs of R & A ; D. Such amalgamations can take to competitory advantages over smaller capital based houses.

Technological

Technological tendencies seem to be an expensive 1. With the dislocation of human DNA. houses are concentrating on more complex diseases. To analyze and name these complex diseases complicated engineerings are needed and frequently require complete technological makeovers. The uninterrupted tendency to keep province of the art engineering continues to drive competition in the pharmaceutical industry. Passing expensive equipment may decelerate public presentation at first. but will function to bring forth an overall addition in long tally production. An of import planetary tendency in the industry is the turning demand to develop and market pharmaceuticals in developing states. Abroad markets provide a huge. eternal supply of costumiers who are in despairing demand of medical specialties. There are a great trade of tendencies emerging in the pharmaceutical industry that will impact competition and public presentation within the industry. It will be those houses that catch on early who will hold the greatest opportunity of survival inside the industry.

Opportunities:

Equally long as the human species remains imperfect. there will ever be a demand for medical specialties and wellness attention. Many chances exist within the pharmaceutical industry that can bring forth impossible net incomes. The aging population will go on to be a turning market for pharmaceutical houses throughout the industry. With the mean life anticipation on the rise and turning population in general. there will ever be a geriatric market in demand of drugs. Attach toing old age is the dislocation of the body’s public presentation. which can take to diseases. surgery. and general wellness jobs that require the usage of medicines. Old age will go on to supply a profitable market for the sale of pharmaceuticals.

The Human Genome Project is traveling to open many doors for extended merchandise development. with surveies into countries ne’er before possible. With a better apprehension of human DNA. scientists will be able to research remedies for untreatable diseases and unwellnesss.

With so many viing houses in the industry the chance for amalgamations and consolidations is near space. The meeting of houses will assist the freshly created company to diminish R & A ; D costs by uniting information. open up new markets with shared merchandises and combine resources to organize industry giants. There are many chances within this extremely demanded industry. which explains the inundation of new little pharmaceutical companies.

The U. S. anti-allergic therapies market is on the threshold of dramatic alteration. Patent terminations of taking prescription antihistamines and corticoids will ensue in the debut of more generic and OTC merchandises that will vie with incumbent trade names. increasing patient use but significantly coercing monetary values. Through 2010. gross revenues growing in the OTC sector will lift but growing in the prescription antihistamine and corticosteroid sectors is likely to decelerate. This will ensue in switching market portion as patients switch from corticoids to antihistamines and OTC medicines.

During 2004 to 2010 the antihistamine. corticoid and OTC sections will go on to see unprecedented alteration. Although Aventis’ Allegra and Pfizer’s Zyrtec come off patent in 2003 and 2007. severally. other merchandises such as Schering-Plough’s new Clarinex are expected to capture gross revenues. This. coupled with the high monetary values of antihistamines. will ensue in the class spread outing its portion of the overall allergic reaction market from 73. 4 per centum in 2002 to 76. 1 per centum in 2010. The market portion of cardinal market sections is shown in Chart 1.

Despite an chance rich industry. there exists a downside that must be carefully examined to keep a competitory advantage.

Menace:

In every industry at that place will stay dominant forces that will interfere with the success and public presentation of a given house. That is to state. no industry is job free. Within the pharmaceutical industry there are forces at work that could be the ruin of many concerns in the sector. First of these menaces is the Human Genome Project ( HGP ) . which mentioned above in the early phases was an chance. However. once the undertaking is complete. whether it is hebdomads or old ages from now. human technology will go more prevailing. With the ability to rectify familial defects before a individual is born. the demand for medicine and drugs will go disused. With no more human imperfectnesss there will be no demand for manufacturers of drugs. i. e. pharmaceutical houses. any longer.

The pharmaceutical’s opposition to most economic conditions has a major drawback ; it is extremely sensitive to authorities ordinances. Therefore political forces act uponing policies in regulative bureaus can hold a profound consequence upon the pharmaceutical industry. For case. under the Bush Administration the McCain-Schumer measure will do extending patents even more hard for Brand-Name manufacturers. Many trade name name producers’ patents will run out in the approaching twelvemonth ( 2004 ) . opening up the floodgates to generic makers. which is the last menace discussed here.

The generic manufacturers are able to monetary value their drugs at significantly lower monetary values. viing at the monetary value degree. The generics therefore gain a competitory advantage through monetary value distinction that entreaties to many Americans and foreigners’ abroad. So even in the extremely attractive industry of pharmaceuticals there still exist barriers to prehending chance and doing a net income. It is of import for the pharmaceutical houses to recognize these menaces and implement schemes to antagonize them.

Emerging Tendencies

Motivated by high research costs and short patent life. companies today utilize “high compaction marketing” to drive a new drug trade name portion higher and faster. One consequence. a record $ 1 billion in gross for Celebrex. in merely 9 months after launch. The qualities that a drug must possess. and the selling tactics that need be applied. find the possible success of a quick-time blockbuster.

Direct-to-Customer selling is on the rise as pharmaceutical companies have found that it has had a positive impact on gross revenues. Doctors are likely to order a prescription asked for by the patient. every bit long as the state of affairs warrants it.

Decision

The Pharmaceutical Industry today faces profound challenges. Companies must go on to present stockholder value through growing and by increasing borders. diminishing the cost of R & A ; D and launch timescales. and increasing merchandise life.

They must expect. assimilate and exploit increasing globalization. trade with amalgamations and acquisitions. and go on to run into ever-stricter regulative demands. And there are profound societal. political and economic factors such as cardinal structural alterations in the Healthcare Value concatenation and the. as yet unknown. deductions of Pharmacogenomics.

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