PEST ANALYSIS OF PHARMACEUTICAL INDUSTRY

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DEFINITION:
A PEST analysis is an investigation of the important factors that are changing which influence a business from the outside. PEST stands for: Political changes e.g. a change in government, or a change in government policy. Economic changes Relate to changes in the wider economy such as rises in living standards or the general level of demand, rises or falls in inte rest rates, etc. Social changes Relate to changes in wider society such as changes in lifestyles e.g. more women going out to work, changes in tastes and buying patterns. Technological ch anges Relate to the application of new inventions and ideas such as the development of the Internet and websites as business tools.

Indian companies exploited this law and used the reverse-engineering route to invent a lot of alternate manufacturing methods. DPCO nullifies the market forces from encouraging competitive pricing of goods dictated by the market. PM is the cost of packing. The recognition of the pharmaceutical industry as a knowledge-based industry has a positi e impact on this industry. to improve access to healthcare for rural communities. Effective January 2005. Now the pricing is determined by the Government based on the approved costs irrespective of the real costs. DPCO 1995 gives a uniform maximum allowable post manufacturing expense (MAPE) of 100% as compared with earlier MAPE of 75% for some of the drugs. popularly known as the Patent Act. It controls the domestic prices of major bulk drugs and their formulations. The Minister in charge of the industry has been threatening to impose even more stringent Price Control on the industry than before. A lot of money was saved this way. As an example. That meant that the impurities and trace elements found in different brands of the same substance were different both in qualification as well as in quantum. import duty on the life-saving drugs has been removed. This also encouraged competing company to market their versions of the same drug. The retail price (RP) of a DPCO formulation is calculated by the following formula RP = (MC+CC+PM+PC)*2+Excise Duty in which MC is the material cost. indicating that the government wants to focus on the health of poor people by providing them adequate healthcare 3. 4. the country goes in for the IPR (Intellectual Property Rights) regime. The finance minister of India announced a scheme. 2. and PC is the packaging charges. DPCO came into existence in 1970. Therefore .1. DPCO which is the bible for the industry has in effect worked contrary to the stated objectives. Thus far an Indian company could escape paying a patent fee to the inventor of a drug by manufacturing it using a different chemical route. This is throwing many an investment plan into the doldrums. including cost of bulk drugs/excipients and process losses.POL T L/LEG L TORS: 1. CC is the conversion cost. 5. This Act will impact the Pharmaceutical Industry (in totality) the most. called Janaraksha.

that it cannot reliably predict effects in humans. John L. Just for a few extra bucks the current government has made many a life saving drugs unaffordable to the poor. The Government puts the surpluses generated by efficient units into the price equalization account of inefficient units thereby unduly subsidizing them. Now. 7. economy of operation. Dr. a patented drug would be manufactured using the same chemical route and would be manufactured by the inventor or his licentiates using the chemicals with same specifications. Excipients etc. that the costs outweigh the benefits. . the medical officer assigned to examine it. 2005 the Government has shifted from charging the Excise Duty on the cost of manufacturing to the MRP thereby making the finished products more costly.different brands of the same medicine were truly different. cited Rezulin's potential to harm the liver and the heart. that medical progress is being held back by misleading animal models. that some of the tests are outdated. or that animals have an intrinsic right not to be used for experimentation. animal welfare. The different brands would have to compete on the basis of non input-related innovations such as packaging. Warner-Lambert's anti-diabetes drug Rezulin is a glaring example of animal testing methodology. A number of scientists. Effective the January. Soon after Warner-Lambert submitted for FDA review in the summer of 1996. 8. Here Branding actually meant quality and a purer brand actually had purer active ingredient and lesser or less toxic impurities. Warner-Lambert made over two billion dollars before it was withdrawn in 2000. 9. Clerical testing is done on animals. all the brands of the same active ingredient would not have any difference in purity and impurities. Gueriguian. This is the biggest change the environment is going to impose on the industry. In Pharma industry there is a huge PSU segment which is chronically sick and highly inefficient. extra-ingredient innovations and of course pricing. Product patent regime will eliminate all this. and animal rights organizations²such as PETA and BUAV²question the legitimacy of it. Therefore. Company press and officials also claimed that the drug was the first anti-diabetic drug to target insulin resistance and that it was virtually free of side effects. communications. Rezulin killed hundreds of people and obliged many more to undergo liver transplants. On a long term basis this has made practically everybody inefficient. poorly regulated. colours. The marketing effort would be now focused on logistics. poor scientific practice. 6. arguing that it is cruel. flavours. Gueriguian also questioned its viability in lowering blood sugar for patients with adult-onset diabetes.

India spends a very small proportion of its GDP on healthcare (merely 1%). The incidence of Taxes is very high. which would benefit local communities. 7. 6. License Fees. This calls for higher inventory carrying costs and longer delivery time. Hazardous substance (Storage & Handling) license. Stamp Duty and a host of other levies and charges to be paid. five stages of economic development exist. Service Tax. According to economics historian Walt Rostow. The first two stages are traditional society and the preconditions for takeoff. The fifth stage . Profession Tax. If good jobs were available locally. and Indian companies would have the opportunity to collaborate with many companies from around the world. This has stunted the demand and therefore the growth of the company. Europe. 5. A study had indicated that nearly 60% of the Retail Chemists do not have adequate refrigeration facilities and store drugs under sub-optimal conditions.Custom Duty. Pollution Clearance Tax. The development of the pharmaceutical industry would help the Indian economy produce more national wealth. citizens would not feel the economic pressure to migrate to the United States. the transportation time is higher. or Japan. developing the pharmaceutical industry would also help other industries. On an average it amounts to no less than 40-45% of the costs. Therefore. Development of clinical trial centers would provide funding from private pharmaceutical industries to local hospitals. 2. 4. Foreign investment would increase. The number of Registered Medical practitioners is low. It¶s only during the last couple of years that good quality highways have been constructed. E ONOMIC FACTORS: 1. In return. 3. Indirectly. income tax. This affects the quality of the drugs administered and of course adds to the costs. As a result the reach of Pharmaceuticals is affected adversely. There is Excise Duty (State & Central). All this adds to the invisible costs. The third stage is economic takeoff. which then matures in the fourth stage. Royalty.2. a staff of nurses and doctors would be maintained. India has poor roads and rail network. Adequate storage and transportation facilities for special drugs is lacking.

according to Rostow¶s model. The Indian economy is most likely in the second or third stage. Early child bearing affects the health standards of women and children. and is expected to take off.V. The development of the IPI would create new jobs. 7. In India people prefer using household treatments handed down for generations for common ailments. Dr. 3.is high mass consumption. The use of magic/tantrics/ozhas/hakims is prevalent in India.As an indication of this position. Increasing pollution is adding to the healthcare problem. Cattle-rearing encourage diseases communicated by animals. Indian pharmaceutical companies no longer have only domestic operations²some companies now have enterprises in the United States and other countries. 4. 2. P. 8. but mainly it would provide access both to modern technology in the field of medicines and to medicines developed indigenously. India. SOCIAL FACTORS: 1. 6. 3. it will be able to provide new drug formulations and improved healthcare treatments to Indian patients. Indonesia. As a result. and Russia²whose share of the world pharmaceuticals market is barely one-third of that of the EU will have a 50% higher market share than will the EU by 2020. China. Smoking. The World Bank estimated that five countries²Brazil. 8. 5. drinking and poor oral hygiene is adding to the healthcare problem.Venugopal summarized the possible benefits to India of modernizing the industry. Poor Sanitation and polluted water sources prematurely end the life of about 1million children under the age of five every year. At a World Intellectual Property Organization (WIPO) conference in 1999. . gutka.

The use of computers in the pharmaceutical industry is increasing.9.000 substances for patenting. 4. the Government of India has more than 10. collaboration between the computer and pharmaceutical industries will help drug discovery and development programs prosper. 3. diseases. small-pox. combinatorial chemistry and information technology.´ It encompasses fundamentals and philosophies about the world and life. As of January 2005. . The knowledge of ayurveda is compiled in Charak Samhita and Sushruta Samhita. have created a cost. 2. mumps and measles. Biology and chemistry are changing as a result of high-powered computers. Advanced automated machines have increased the output and reduced the cost. Technological advances in high-throughput screening hardware. Newer medication. diet. Thus. and general mode of life. chemical information software tools and new database-searching algorithms. 6. Ayurveda translates as the ³science of life. 5. The curative treatment lies in drugs. TECHNOLOGICAL FACTORS: 1. in combination with high-value targets in the pharmaceutical industry.and time-efficient technology platform to screen a large number of compounds. chicken-pox. The Indian computer industry is on par with its American counterpart. and many companies in the world depend upon Indian programmers to develop complex software. Newer drug delivery systems are the innovations of the day. and medicines. 4. This has given India a pioneer stage. and in particular they are being applied to data management and drug discovery program . molecules and active ingredients are being discovered. Ignorance of inoculation and vaccination has prevented the eradication of diseases like polio.

and recently to the highly regulated US and European markets. . The Indian pharmaceutical industry exports generic drugs to CIS (Commonwealth of Independent States) countries. The Indian pharmaceutical industry is characterised by a low degree of concentration.7. New drug delivery system (NDDS) involves the development of technology to introduce a drug at diseased site in a novel way. Africa. It represents an advance level of capability in terms of formulation research part of the process R&D. 8. a low level of R&D intensity ratios with a high level of brand proliferation. a large number of firms with similar market shares. New drug delivery system research has definitive and well defined boundaries of complexities.

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