Using the PESTEL model identify the main environmental forces affecting the Global Pharmaceutical Industry

Political Governments set stringent (inflexible) regulation and is a powerful purchaser. Governments around the world focus on pharmaceuticals as a politically easy target in their efforts to control rising health care expenditure. Inter-country pricing unequal.

Economic European free trade agreements. Social Deregulation of market to allow foreign drugs to compete.

Ageing population puts pressure on healthcare systems. Epidemic of chronic diseases. Rising consumer expectations. Payers choosing generic drugs for first-line treatment of common diseases.

Technological Increase productivity, decrease costs and develop new treatment modalities to enhance profitability. Impact of Internet on traditional business models. Impact of genetic research on industry.

Environmental Industry operations are becoming more stringent with increasing standards and requirements for environmental protection. Legal

Rigorous regulatory scrutiny(inspection) governed by legislation. Legislation enacted to set a fixed period on patent expiry

Influences Political
Uncoordinated harmonization policies Unified trade market (eu) Universal healthcare High government purchasing power Economic crisis Expansionary presence of Asian players Trend toward outsourcing of R&D

Implications
Threat from parallel trades Threat of cap on profits via price controls Expand into new geographies beyond EU A mid-sized firm may lack financial strength Lower margins as firms fight to survive Define a clear growth strategy : R&D, sector Opportunity to grow in emerging markets Increasing customer base for growth Opportunity to enter new markets cheaply Threat of substitute products Opportunity to advertise OTC & build brand May result in competitors exiting market Threat of higher legal costs in future More expensive, time-consuming R&D Marketing advantage of large, global firms Need to maintain a strong R&D pipeline

Economic

Social Technological

Ageing demographic Rising middle class in emerging markets Higher eCommerce, client awareness Growing biologics/biosimilars market

Environmental

Media focus increases consumer activism

Legal

Patents Increased litigation Restrictive advertising laws

Use the Five Forces framework to identify the environmental forces i.e. industry attractiveness, affecting the industry. Determine if the threats are Low. Medium or High now and how they may change in the future.

Threat of entry (Barriers to entry).

Scale & experience: In the global pharmaceutical industry, research & development (R&D) is key to success. The pharmaceutical industry is characterized by a highly risky and lengthy R&D process, intense competition for intellectual property, stringent government regulation and powerful purchaser pressures Legislation on government action: The pharmaceutical industry in many countries is subject to a monopsony(only one buyer interfaces with many sellers) there is effectively only one powerful purchaser, the government. From the 1980s on, governments around the world focused on pharmaceuticals, as a politically easy target in efforts to control rising healthcare expenditure

The threat of substitutes. The biggest threat to the pharmaceutical industry is the dramatic impact of generic medicines with exactly the same active ingredients as the original brand, at a lower price. Leading pharmaceutical companies are faced with great difficulties to recover the cost of their R&D investments. The power of Buyers. Governments and insurance companies may be categorized as buyers in the pharmaceutical industry. Power of Suppliers This environmental force is relatively smaller with respect to other forces, as the pharmaceutical industry does not require major natural resources to manufacture their products. Competitive rivalry Competitor balance: Companies with consistently high levels of R&D spending and productivity became industry leaders. To be a good competitor, is not based on what drugs a company has in the current market, but what drugs is in their pipelines.
Industry growth rate: Individual companies are dependent on its R&D capabilities, which are proportional to the rate of new drugs available in the pipeline (

Barriers To Entry HIGH

Patents High Expenses Brand Loyalty Complex Clinical Trials

Suppliers LOW-MEDIUM
Small Research Firms Universities Reduction in Funding Customer Selectivity

Competitive Rivalry HIGH Highly Fragmented

Consolidations constrained Growth (3-6% for Sales)

Customers HIGH

Primarily government Public Medical professionals

Substitutes HIGH

Generics (post-patent) Biosimilars Parallel Trades