The Global Pharmaceutical Industry

The Global Pharmaceutical Industry

In the pharmaceutical industry market segments can be found depending on the criteria used. For example, geographically there are three main market segments (the Triad accounting for 80% and with the strongest growth): The United States of America, Europe and Japan with the main future segment being the least developed countries. Another way of classifying the market segments that the pharmaceutical industries face is by those products directed to primary care (those used by office based practitioners) and specialist products (those used by hospitals).

This industry includes quite a few distinguished strategic groups. The ethical drugs are those which are prescribed as opposed to OTC (over the counter) drugs which can be bought without prescriptions. Branded drugs are those which are patented as opposed to generic drugs. Biotech drugs are those that work in the fields of molecular biology and genetic engineering.

The macro-environment can be categorised into certain environmental influential areas by the Pestel framework. The technological and socio-cultural categories are extremely relevant in this industry. Drug companies must face high levels of investment on research and development projects. This causes the transfer of costs from producing the drug to its final consumer price. The USA heavily invests in R&D resulting in higher prices. This is becoming unsustainable for the pharmaceutical industry as prices are higher in the USA than in other countries which should either share part of the R&D burden or rise their own prices. But anyhow these costs are still being sourced in the best place world wide for this kind of investment which is the USA. Moreover costs are rising due to the fact that clinical trials and investigating are becoming more complex and costly and high technology solutions are needed for the cure of any decease.

The need of developing cheaper, more effective and tolerable drugs is increasing due to the fact that the worldwide population is ageing and life expectancy is increasing. The demand for drugs is increasing and ethical drugs face problems as generic drugs enter their market. Moreover customer expectation is increasing as more alternatives enter the market and product price disparities awareness arises due to the information provided by the internet.

When a manufacturer "discovers" a new drug, there is a 20 year patent protecting it before others, such as generics, can copy their formula. Nowadays this is becoming a major concern as there are quite a few patents in the verge of expiring. Ethical drugs revenues will plummet once generics have the right to copy and sell them at a much lower cost. Therefore the reduction of patents could be considered a key driver of change. Another legal constraint was set in the 2001 Doha talks in which it was decided that patents could be broken in case of an international emergency to promote access to medicines for all. In these cases generics must be packaged, labelled and easily differentiated from the original ethical version.

The pharmaceutical industry in many countries is subject to a monopsony in which the main consumer is the government whose major concern is to control spending on drugs and R&D investments. Depending on the universal coverage system adopted by countries, some are unable to deliver the most effective treatments to the majority of the population and only a small part of the population benefits from it and other models are unable to provide the best although they cover the needs of the population in a more uniform way. Due to the governments price controls a parallel trade is arising in which countries outsource their production in order to decrease production costs and still obtain a margin on their sales. The new economic scenario of the free movement of goods is a key driver of change as corporations seek to locate their production centres or their strategic market segments in the most attractive of countries or areas. Furthermore the industry is undergoing regulatory processes of international harmonisation beneficial in terms of trade difficulties or obstacles. Therefore a major key driver of change is the globalisation of the world's economy.

Porters five forces framework helps identify the sources of competition