The Origin, Evolution and Analysis of the Pharmaceutical Industry

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Executive Summary

This portfolio provides an overview of the pharmaceutical industry; its origin, evolution and PESTEL Analysis to establish the key change drivers which prompted the globalisation of pharmaceutical operations.

It also offers a synopsis of the influence that social and legal environmental drivers have on the globalisation process.

Origin and Evolution

The nineteenth century witnessed several changes in the pharmaceutical industry. During this time Upper Rhine Valley, near Basel Switzerland, where dyestuffs were found to have antiseptic properties, was known for its contribution to the industry (OECD, 2007 p. 194). The discovery of Penicillin in the 1940's encouraged Research and Development efforts in the industry.

Characterised by intense competition, innovation and risky R&D, the modern pharmaceutical industry is a global non-assembled [1] industry. Extensive medical discoveries with permanent patent protection, contributed to the rapid expansion of the industry in the sixties, when global economies were flourishing and healthcare spending soared. The manufacturing of "generic" [2] medicines became more popular due to changes in patent protection [3] in the 1970's and tighter regulatory controls on clinical trials [4] were enforced (Holland 2007 cited in Johnson, Scholes and Whittington 2008)

Environmental Analysis (PESTEL)

The organisations' globalisation strategy should be based on their ability to sustain their competitive advantage in a volatile environment. A PESTEL Analysis of the environment in which it operates, as is shown in Appendix 2.1, is therefore necessary to analyse the environment and establish the key change drivers influencing the globalisation of pharmaceutical operations (Johnson et al 2008, p. 54, 300).

Key Drivers for globalising operations

Due to the complexity of the globalisation process, George Yip devised a "drivers of globalisation" framework, as is shown in Appendix 2.2, which will provide key information of the overall globalisation possibility within the industry (Johnson et al 2008 p. 295).

Marketing strategies for pharmaceuticals are transferable due to fundamental principles being the same regardless of location. Marketing of branded OTC [5] medicines have increased due to developments in direct consumer marketing strategies. Increased consumer awareness of price disparities place increased pressures on governments to curb heath care costs, leading to issues with parallel trade where government intervention with price and reimbursement policies, result in distributors profiting from buying from low-cost markets and selling to high-priced markets.

Country specific differences in terms of culture and medical practices explain the large number of pharmaceutical companies around the world. Emerging markets and unmet medical need have led to mergers between pharmaceutical companies reducing R&D costs and creating potential cost advantage.

The Influence of Social & Legal Environmental Drivers on Globalisation

Due to pharmaceutical innovation and increased awareness of the well-being of humankind the average life expectancy in developed countries increased significantly. Patients (final consumers) now have higher expectations in their treatment opening the door for new marketing opportunities but could also place pressure on the industry as consumers would want more technological advancement in therapy. However, the reputation of the industry was damaged when many companies were brought to justice for false marketing and publishing misleading scientific results. It was said they were more concerned with making profits then patient safety. Tighter regulatory controls on clinical trials were brought in during the 1970's due to the thalidomide tragedy resulting in highly risky R&D. New Product Development within the pharmaceutical industry can now take up to 12 years from the initial discovery through to marketing authorisation whereby it is then introduced to the consumer this is due to lengthened trial periods. Government intervention in terms of price control is challenging for the pharmaceutical industry, whereby different governments in various countries impose various criteria for reimbursement and fluctuation leading to low control on "parallel trade".

Appendices

Appendix 2.1

PESTEL Analysis (Johnson et al 2008, p. 610-612, 614, 616)

Political Forces:

Government intervention has placed many challenges in the face of the pharmaceutical industry.

In many countries it is described as a "monopsony" as there is usually only one powerful purchaser, the government. Due to this the 1980's saw the political targeting of the pharmaceutical industry to control rising health care expenditure.

Legislation governing patents increased price wars by encouraging the manufacturing of "generic" medicines.

Economic Forces:

The Economic Recession of the 1990's had a turbulent effect on the pharmaceutical industry.

Funded systems in the industry found it difficult to cope with unrestrained health care.

There were no regulations controlling the free movement of goods from one country to the next, therefore distributors were free to source drugs in low-priced markets and sell them to high-priced markets, making substantial profit. This is especially apparent in the US and Canadian market.

Social Forces:

Due to pharmaceutical innovation and increased awareness of the well-being of humankind the average life expectancy in developed countries increased significantly.

Patients (final consumers) now have higher expectations in their treatment opening the door for new marketing opportunities but could also place pressure on the industry as consumers would want more technological advancement in therapy.

However, the reputation of the industry was damaged when many companies were brought to justice for false marketing and publishing misleading scientific results. It was said they were more concerned with making profits then patient safety.

Technological Forces:

The evolution of the internet has contributed hugely to consumers being better informed about various treatments and medicines available.

It has also encouraged across borders purchases from consumers, thus raising awareness of price disparities. It does however pose a threat to consumers as there is no guarantee that the medicine they purchased is not counterfeit.

Environmental Forces:

The industry has contributed significantly to human well-being whilst still remaining a political target in efforts to curb health care expenditure.

Carbon footprint policies have resulted in a greater need for being "greener" thus asking for more environmentally friendly manufacturing.

Legal Forces:

Tighter regulatory controls on clinical trials were brought in during the 1970's due to the thalidomide tragedy resulting in highly risky R&D.

New Product Development within the pharmaceutical industry can now take up to 12 years from the initial discovery through to marketing authorisation whereby it is then introduced to the consumer this is due to lengthened trial periods.

Government intervention in terms of price control is challenging for the pharmaceutical industry, whereby different governments in various countries impose various criteria for reimbursement and fluctuation leading to low control on "parallel trade".

Appendix 2.2

Globalisation Drivers

Market Drivers

Similar customer needs

Global Customers

Transferable Marketing

Government Drivers

Trade policies

Technical standards

Host government policies

Cost Drivers

Scale economies

Country-specific differences

Favourable logistics

International Strategies

Competitive Drivers

Interdependence between countries

Competitors' global strategies

(Source: G. Yip 2003 cited in Johnson et al 2008, p. 297)

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