Case Study: The Global Pharmaceutical

Industry

Presented by:

Naseem uz Zaman Roll 12

Asif Rasool Roll 19
Nafizul Azim Roll 28

Group # 03
MBA 45D, Sec: A
Background
Problem Identification and Key Role
Players
Primary Problem  Absence of Specific goal or strategy
Secondary Problem  Too many generic products
 Higher selling and marketing expenses
 Higher R&D Expenses
 Stricter Regulation on clinical tests and price

Key Player Supporting Player

 The Big 10 Companies  Worldwide Health Insurance Companies
 Governments  Health Development organizations e.g.
WHO, Unicef and so on
 Individual buyers
 Analysis Decision Context
Weaknesses W
SW
Strengths S
1. High entry barriers Most growth over the past
2. Strong R&D departments decade has been in volume
3. Inelastic demand rather than new drugs
OT
Opportunities O Threats T
1. Public opinion regarding
profiteering in life saving
Biotechnology gives scope for
new drug lines drugs
2. Expiry of patents allowing
generic drugs to enter the
market
 Analyze Decision Context (Cont.)
Share within Global Retail Doubl
Pfizer, 10.30%
e Helix
GlaxoSmithKline, 7.00% Pfizer
GlaxoSmithKline
Merck
Merck, 5.00%
Johnson & Johnson

Johnson & Johnson, 4.60% AstraZeneca

All Others*, 54.20% Novartis

AstraZeneca, 4.50% Aventis
Bristol-Myers Squibb
Novartis, 4.10%
Roche
Aventis, 3.60% All Others*
Bristol-Myers Squibb, 3.60%
*individual shares negligible

Roche, 3.10%
 Analyze Decision Context (Cont.)
Doubl
2011 Mkt Share (%) e Helix
​
Pfizer​
Pfizer​
, 6.6% Novartis ​

Novartis ,​6.0% Merck & Co

Sanofi
Merck & Co, 4.7%
Astrazeneca ​

Sanofi, 4.6% Roche

G
​ laxoSmithKline
All Others*, 46.2% Astrazeneca ,​4.3% Johnson & Johnson
Abbott​
Roche, 4.0% Teva ​
Lilly
GlaxoSmithKline, 4.0%
​
Takeda
Johnson & Johnson, 3.2%
Bristol-Myers Squibb
Abbott​
, 3.0% Bayer​Schering Pharma
A
​ mgen, 1.9% Teva ,​2.8% Amgen
​
Bayer​Schering Pharma, 1.9% Lilly, 2.8% All Others*

Takeda, 2.1%

*individual shares negligible Bristol-Myers Squibb, 1.9%

 Analyze Decision Context (Cont.)
Porter’s Five Forces Model and Global
Pharmaceutical Industry
The First Force: Threat of New Competition
1950-1985 1985-1995 1995-2005

High cost of Existing high entry Firms specializing in moving

R&D and barriers were increasing specific molecules along the
clinical testing value chain could be
tomorrow’s main
competitors.

Large and Lead times for new drugs Emphases on disease

expensive sales to prevention and early
Threat of Potential force required be marketed increasing detection begin to shift R&D
Entrants from 3–5 years in priorities; and could favor
the 1960s to 12 years in pharmacogenomics
the mid-1990s providers.

Long lead times Already high costs of R&D

for new drugs, and clinical
testing increasing
Low Low Moderate
 The Second Force: Bargaining Power of
Buyers
1950-1985 1985-1995 1995-2005
The decision to buy was Loss of brand loyalty as Controls on pricing,
imposed by doctors on medical practitioners are reimbursement and
patients (final forced to become cost market access continue
consumers). conscious and consider to tighten.
Doctors had no prescribing generic rather
responsibility to contain than brand drugs.
costs.
Bargaining
Power of Buyers
In the US, a mail-order Patients’ expectations are Growth of managed
channel starts to develop rising care is expected to
to help highly price Government policy to continue deteriorating
sensitive patients. increase competition. the profitability of
big pharmaceuticals
Governments (EU) and regardless of the
managed health outcome of regulation.
organizations (US) imposing
systems to control prices.

Low High High

 The Third Force: Bargaining Power of
Suppliers
1950-1985 1985-1995 1995-2005
Cost of drug ingredients Global sourcing by drug companies Lack of profitability of outsourcing
are very low percentage hassled to further reductions in markets for R&D, clinical trials and
of total costs. the costs of raw materials managing the approval processes
may result in a shakeout with
fewer suppliers able to put upward
pressure on out-sourcing costs

Pharmaceuticals tend to Major pharmaceutical companies

be fully vertically come increasingly to rely on out-
integrated (from sourcing and in-licensing for new
molecule search to products, enabling supplying
mass marketing) companies to place a high price on
such deals. However, counteracted
by global over-capacity in
outsourcing and R&D

Low Low Low

The Fourth Force: Threat of Substitutes
1950-1985 1985-1995 1995-2005

Few substitutes. High Cheap generics (from not Biotechnology and combinational
profits associated very reputable chemistry further reduce lead times to
with introducing manufacturers) market
products that greatly
improved the quality Consumer suspicion of drugs Diversification into generics protects the
of healthcare for many leads to increasing use of market share (but not the profit) of big
patients alternative remedies pharmaceutical companies.

Lead times of 6–7 Improved chemistry and Biotechs may become more successful at
years over competitors computer generation of bringing successful products to market as
(time for rivals to analogues genomics allows targeted application so
produce “me-too” that clinical trial size and length can be
drugs) shortened

Low Moderate High

 The Fifth Force: Intensity of Competitive
Rivalry
Low concentration (lots of
producers in several
therapeutic applications, hence
low price competition)
Large and expensive sales
forces were developed on the
back of brand recognition to
target doctors
Moderate
High cost of R&D expenditure Continued industry
is effectively an exit barrier consolidation results in
fewer larger global companies,
focused on
specific franchises, with
intense rivalry within
therapeutic franchises
Profitable, cash rich industry
but margins are declining.
Mergers and acquisitions are
expected to continue as they
could lead to economies of
scale, better sales and
marketing and more efficient
R&D efforts
High High
Analyze Decision Context (Cont.)
PESTEL Analysis on Global
Pharmaceutical Industry
 Political Factors
• Governments are the biggest buyer of
the industry
PEST
• In 1980s and 90s governments used EL
Pharmaceutical Industry to control
healthcare budget.
• As the industry globalizes and
ownership and employment become
concentrated in fewer countries
 Economic Factors
• Patients (the ultimate) users have very little
influence over price due two reasons: E
P ST
EL
– Doctors is the person who decides the drugs

– Consumption and price have been controlled by

institutions like health insurance company and
governments.
 Sociocultural Factors
• As the “baby boom” generation approaches
retirement, there have been new efforts to S
PE T
develop drugs for the treatment of the elderly
(such as solutions for Alzheimer’s disease).
EL

• There has been growing investor activism in both

Europe and the US, suggesting shareholders could
be increasingly susceptible to ethical, social and
corporate governance issues.
 Technological Factors
• The advent of genomics, potential new ways to
discover drugs, to better target their use and to PES T
conduct medical trials suggest there could be a
major reorganization of the industry.
EL

• The impact of the Internet on traditional business

models is as yet uncertain. The internet could
reinforce a trend to switch from prescription to
OTC drugs and in the process dis-intermediate
retail chemists.
 Environmental Factors
PEST
• The introduction of “cradle to grave” policies in EL
the EU should result in greater need for “green”
(i.e. environmentally-friendly) management.
 Legal Factors
• Pharmaceutical companies often find problems in PEST
enforcing patent protection in developing
countries (particularly in Asia). L
E
• Clinical trials still remain as the stage that
demands the greatest share of resources to
develop a drug.
Identify and Evaluate Alternative
Courses of Action
Four alternative courses of action:
 Do Nothing
 Replace in Volume
 Outsource R&D
 Differential Pricing
Implementation of Action Plans
• Improve Public Perception through Societal Marketing
• Target Untapped Markets
• Diversification
• Develop Favorable Legal Environment through Lobbying
 Recommendations
1. The big pharmaceutical companies need create more and more
drugs through their R&D. Because the lifecycle of drugs are
shortened significantly. Newer products will give the respective
company competitive advantages.
2. Time to market is critical. R&D and the trials had to more quicker
and well-targeted.
3. Finding out the large buyers and maintaining good relationship with
them is the key hold a sustainable cash flow.
4. Bringing more diseases in the treatable category by development
newer medicines.
5. Maintaining a larger sales force is important but cost considerations
may force some companies to look for alternatives.
6. There should be more franchises to capture the market share in the
emerging economies.
Thank You Very Much