Essay question:

Identify the main environmental forces that affect the global pharmaceutical industry. Use
scenario planning techniques to consider the key drivers of change that will affect the
global pharmaceutical industry in the future.

Solution

To understand the main environmental factors affecting the global pharmaceutical sector, this essay will make use of the PESTEL and Five forces framework as well as the scenario planning technique. Drawing from the case study, the global pharmaceutical, it is clear that the global pharmaceutical sector is only present in the national and multinational markets, meaning that their activities and products are highly subjected to regulations, laws and policies. For example, since 1970s, after the thalidomide tragedy where an anti-emetic drug for morning sickness caused birth defects, the sector has been highly regulated; the government became more involved in the regulations and controls of clinical trials. There was also an introduction of a limit period for patent protection on patent expiry. The government put 20 years as the patent expiry period, allowing other companies to produce generic medicines using the exact formulas and ingredient as the original brand. Given the enormous risks and investments, not to mention the 12 years product lead time for drug development, the 20 years patent expiry is a short time for the original brand owners to have broken through and gained profits from their products.

From a legal issue perspective, the case study indicates that the pharmaceutical sector is highly subjected to rigorous regulatory scrutiny, particularly from government agencies including the Food and Drug Administration (FDA). The FDA thoroughly scrutinizes all information and data used in making of drugs to ascertain the stability, efficacy, safety and purity of the drugs. This exercise takes approximately 12 months thus delaying the introduction of new drugs by the pharmaceuticals to the market. In addition to political and legal aspects, the economical also is another external environment factor that had a significant in the global pharmaceutical sector. The 2008 global credit squeeze highly influenced the industry, tremendously reducing access to venture and debt funding for pharmaceuticals. In addition, the IPOs became rare and companies were forced to restructure, cut jobs and entering into deals with rich pharmaceutical companies thereby derailing their growth in the industry.

In addition, as per the case study, the global pharmaceutical industry-the land of shrinking giants, it is evident that the governments, in most countries see pharmaceutical companies as politically easy target, and introduces price and reimbursement controls in efforts to control the rising healthcare expenditure. In return, this affects the sector greatly by shrinking their yields in terms of profits and revenue given the high research and development (R&D) that are incurred by these firms. Specifically, the introduction of price controls by the government resulted to the creation of ‘parallel trade’ whereby distributors were given the freedom to buy drugs from low price markets and sell them to relatively high price markets. In addition, a number of key drivers of change that could affect the global pharmaceutical industry can be identified using the scenarios planning technique. Firstly, the development of emerging markets, and the presence of untapped markets (Italy and Spain) will increase the opportunity for pharmaceutical sales. This trend is coupled with little substitution of pharmaceuticals by biotech products, reduction of merger and acquisition activities and low threat by entry of new participants. These are known as drivers of benign change in the industry. Clearly, with the developing markets, the global pharmaceutical companies can now sell their drugs to relatively wider and less regulated markets. In addition, as showed in the case study and the above analysis, the parallel trade is expected to continue being a significant issue given the continuous role of the government in controlling the prices and reimbursement policies. This will, therefore, result to significant disparities in prices in the pharmaceutical sector…………………..Click the icon below to purchase full solution for $10