Pharma Indusrty Report

Introduction

The pharmaceutical industry is responsible for the development, production and marketing of medications. The importance of this industry as a global sector is inarguable. In 2008 total revenue of global pharmaceutical industry was $615.1 billion and expected to reach $734 billion at the end of 2013. United States, Europe and Japan are the largest pharmaceutical market. However, as in many other industries, the development and growth of Chinese pharmaceutical sector has shown the highest rates of growth over the last 

Pharma is a dynamic industry with high pace growth and the potential for high profits. Top-selling drugs have annual sales reaching $1 billion. However, a new drug requires millions of dollars invested in research and development (R&D) and testing before it can be brought to market. The majority of new projects in most of the cases never get an approval from the Food & Drug Administration (FDA), what is leading to a large amounts of capital burned just to get one profitable product.

Individual pharma stock investors face a difficult task in analysis due to the high level of technical expertise required to adequately evaluate the viability of potential new products, as well as the continued prospects for existing FDA-approved drugs. The most stable stocks are those of large- and mega-cap companies with multiple products and large R&D budgets. However, the greatest returns come from smaller companies that achieve scientific breakthroughs.

1. Identify the main environmental forces currently affecting the global pharmaceutical industry.

PESTLE analysis used to help organization to understand in depth that what is the current status of the organization and the external factors which are effecting. It also helps to the Management to make strategy for the future and overcome the weak areas of the organization. PESTLE is a mnemonic which in its expanded form denotes P for Political, E for Economic, S for Social, T for Technological, L for Legal and E for Environmental. It gives a bird’s eye view of the whole environment from many different angles that one wants to check and keep a track of while thinking of a certain idea/plan. In this case, we are going to analyze the Pharmaceutical industry from all these perspectives.

Political Factors

Political factors includes government regulations and legal issues defines both formal and informal rules under which firm operates some example like tax policy, trade restrictions and tariffs, political stability. Politics has huge influence up on the regulations of business and the spending power of consumers and other business. Throughout the years the pharmaceuticals industry has increased political attention because of increase in recognitions of the economic importance of healthcare as a component of social welfare.   Another major problem affecting the industry in many countries is monophony. This means only one powerful purchaser who is the government. Since 1980 governments around the world attracting pharmaceuticals as a politically easy target in their effort to control increasing health care expenditure like price and reimbursement controls and also the industry loosed both public and political support to resist this change.

Economic factors

Economic factors affect the purchasing power of potential customers and the firms cost of capital examples like economic growth, interest rates and exchange rates. The government price control is a major challenge to the industry in the form of parallel trade. Basically parallel trade is free movement of the product across the Europe without any trade barriers which will affect the local manufacture because the distributor will buy drugs in low price markets and export them to high price markets. For example buying the product from manufacturer in Poland and exporting them to UK. The exchange rates and currency problem is also one of the major issue. For example Canada has inflexible pricing and reimbursement criteria, where USA does not have price controls as a results the price drug in America is high compare to Canada which leads to damage of brand image in consumers mind for example price of Lipitor is 3.20/pill in USA where in Canada which is 1.89/pill for same drug.

Social factors

The social life, physical activities and level of health of a community affects the pharmaceutical industry. Change in social life and trends mention new direction for the local and national pharmaceutical industry. Patients are becoming more informed. Their expectations have changed and they have become more demanding. Recently, the industry gets attraction and become more popular after impact of global diseases e.g. SARS, AIDS, because of media and government attention.

Technological factors

Technological factors can lower barriers to entry, reduce minimum efficient production levels and influence outsourcing decisions. Some of the technological factors includes R&D activity, technology incentivize and rate of technology change. Technology plays an important role in to pharmaceutical industries according to current state of art methods for development and manufacturing of drugs and open new ways of research and invention.  The usage of advance technologies automatically impact on social, economic, and environment. Advance technology in pharmaceutical industries fully helps to accurate chemical compounds, and contributes to a better control on new scientific methods and their optimization.

Legal factors
Pharma industry is a highly regulated and patent law. Pricing policies and product liability laws on pharmaceutical innovation are highly affected. The innovation of pharmaceutical is also affected because of regulation. It results into delaying the market launch of new products and process through long approval time. For example, It takes 10-15 years on average to experiment drug to travel from lab to patient consumption, as patent protection is fixed that is only 20 years but companies has to spend 15 years on experiments by the time it reaches to the market the patent will be almost comes to expired and which will result in birth of generic medicines which has exactly same ingredients as of branded drugs but shows huge difference in price, because the generic brand does not spend on clinical trials so the entry of generic are the major impact on pharmacy industry because of the legal policy set by political forces. The evolution of the internet is also stretching the legislative boundaries with patient’s demanding more rights in their healthcare programs.