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M AN A GE M E N T AN D S TR A TE GY

F IN AL R E P OR T
Table of contents

Question 1

Question 2

Question 3
Question 1
Analyse the factors driving globalisation in the pharmaceutical industry. Are
there any countervailing factors that are restricting globalisation in the
industry.

Using George Yip’s model we can analyse the factors driving globalisation in
the Pharmaceutical industry.

Market drivers: “are the degree of globalisation of a market that will depend
on the customer’s needs, global customers, global distribution channels,
transferable marketing and lead countries. The single most important market
globalisation driver is the extent to which customers in different countries
share the same need or want for in this case a pharmaceutical a product. The
extent of shared need will depend upon cultural, economical, climate, legal and
other similarities and differences” (Campbell, Stonehouse & Houston 2002). For
the Pharmaceutical companies globalisation is needed for the growth of global
and regional supply channels. Cheaper labour in emerging markets allows for
quicker growth rather than just organic growth, it allows the companies to
adapt to local needs.

Cost Drivers: To what extent do the cost trends in the industry push for
globalization? increased cost of product development relative to market life.
Patents have a limited life of twenty years for Pharma companies. To gain their
return on investment for money spent on Research and Development they
need to
Question 2
Critically analyse the pharmaceutical industry environment using appropriate
strategy tools. Identify the main opportunities and threats arising from
environmental change for the chosen firm.

The pharmaceutical industry is highly competitive, finding the elusive


“blockbuster drug” can make a listed company, failing to do so can have the
opposite effect. The industry as a whole has suffered many set backs from new
Government regulations, pricing, animal activists and bad publicity from drugs
that have had long term side effects. The Obama healthcare plan may also hit
them hard.The pharmaceutical market growth was at a ten year low in 2006
and with the economic crisis over the last two years has again seen little
growth although there were a few mergers and acquisitions. To illustrate how
pharma companies are struggling the largest of all Pfizer is laying off 6000
people which is 18% of its workforce after purchasing Wyeth (reuters).
Technological advances, patent expiries due in the next twelve months much
tighter regulatory control has made the Pharma industry a highly competitive
environment. Other issues for large Pharma are when the Office of the United
States Trade Representative (USTR) express concern about the proliferation of
counterfeit drugs in countries including Brazil, China, India, Indonesia and
Russia. This not only eats their profits but could have an adverse effect on
patients not just in healing but also confidence.

There are not many ways to gain a competitive advantage over competition
but by diversifying, survival in this cut throat industry is possible. According to
the CEO of GlaxoSmithKline most large Pharma companies need four principal
strategies to survive.

First, expand the range of products in the research and development pipeline
and the use of external as well as in-house scientists to discover them.

Second, expand geographically, especially into emerging markets.


Third, increase sales of products other than patented prescription medicines.

Fourth, experiment with greater flexibility in pricing in different countries and


with ways to ensure drugs provide value for money.

There is little doubt that a large number of the largest pharmaceutical


companies are highly dependent on the sales of a handful of drugs for most of
their sales and an even higher proportion of their profits but the most
successful drug Pfizers blockbuster Lipitor’s patent is coming to an end and
will be sold as a generic drug soon.

By using a Pestel model we can analyse what issues pharmaceutical companies


are facing

Political

Since the issue brought about by the Thalidomide tragedy in the 1970’s the
pharmaceutical industry has witnessed increased political interest forming new
tighter regulations from governments. Over time regulations have evolved and
now there are not just regulations covering safety and results but also
regulations concerning chemical composition, manufacturing quality controls,
handling, packaging, labelling, distribution and marketing. Other types of
measures have the potential to affect market access, even where a country’s
intellectual property rights law is adequate. Price controls, regulatory and other
barriers could discourage the development of new drugs (2009 Special 301
report). These barriers may include difficult regulatory approval delays or
unfair reimbursement policies. India has introduced new laws in Drugs and
Cosmetics (Amendment) Act 2008 because of the serious problem of
counterfeit medicines.

Economic

Financially pharmaceuticals have become a burden to it’s large buyers like the
NHS in the UK and Medicare in the U.S. healthcare market. Pharma companies
have also had a monopoly when they discover a new wonder drug. Strangely
even in times of recession there are still Mergers and Acquisitions of
companies, these transpire when a new blockbuster drug or a new market is
needed for example Abbott Laboratories (USA) recently purchased Indian
company Piramil which will create the largest Pharma company in India (in-
Pharmatechnologist). Once patents expire generic drug companies are able to
produce the same drug and sell it cheaper and this has a negative impact on
the Pharma industry having spent millions in research only to have there
blockbuster drug sell for a portion of the price an example is Allegra a
treatment for hay fever which lost 84% of its market twelve weeks after patent
expiry to generic drugs.
. Return on investment is not always possible as the price increases for new
testing under government regulations. Government price controls cause issues
relating to parallel trade across the EU when the drugs can be shipped from a
low cost country to a high cost country and they pocket the extra. There were
many acquisitions during the pandemic swine flu of vaccine companies by
large Pharma companies.

Social

Good health is important to everyone and having wonder drugs to extend life is
a very important role of Pharma companies. Epidemics such as Aids, Swine Flu
and the discovery of new anticancer drugs have received intense media
coverage. In Europe and the US Demographics show an ageing population. We
are living on average to 75+ years, this will put a financial strain on the NHS in
particular as we spend more time in poor health. As an ethical issue should
these companies reduce their prices for third world countries?

Technological

Modern technology and scientific breakthroughs in R&D although costly are


driving factors in the discovery of new drugs. However from discovery to the
patient can take up to fifteen years on average to deliver. Most large Pharma
are cash-rich but innovation poor so it has resorted to buying in innovation.
Biotechnology companies are being purchased for their innovation

Environmental
Drug companies have to follow environmental impact assessment guidelines
for pharmaceutical plants.

Legal

The pharmaceutical industry is highly regulated. As a result there are many


legal, regulatory and compliance costs which the industry has to absorb. There
are legal issues that need to be adhered to concerning animal testing and
battles with animal right activists. Also of late anticompetitive pricing has
become an issue. Intellectual property of pharmaceutical companies patented
drugs has always been an issue guarding their. Counterfeit drugs are flooding
legitmate supply chains (in-Pharmatechnologist).

Industry Analysis (Porter’s Five Forces)

by using Porters 5 forces model on the pharmaceutical industry we can


analyse what competitive threats there are.
• Barrier to entry: High (Pharmaceuticals). Economies of scale, high cost of
R&D and patent limitations. with the patents short term brand loyalty is
meaningless when patent expires.
Govt regulations, time from developing to selling. New entrants are low in
the Pharma industry but Biotech companies fair better.
• Industry Competition: Very High. Advantages gained by first movers,
M&A high to gain
competitive advantage in markets and technology (patents) buying
biotech companies
• Suppliers: supplier power is low eg market barriers in some countries like
Indonesia
• Buyers: buyer power is relatively low
• Substitutes: After first releasing a drug the threat of substitute is very low
(with patents) medium- high (after patent expiry) eg Pfizer’s 12 billion-a-
year Lipitor cholesterol fighter, which will face generic competition late
next year, other sources are Natural medicines ie homeopathic.
Question 3
Critically analyse the strategic capability of the chosen company using
appropriate strategy tools and identify the key strengths and weaknesses
of the firm. In particular identify and discuss any core competences that
the firm has.

Pfizer became the worlds largest pharmaceutical company after


purchasing Wyeth. Its strengths are also it’s weakness, it currently has
forty manufacturing plants world wide, after purchasing Wyeth another
thirtysix. Managing the logistics on seventysix manufacturing and R&D
sites worldwide would be very difficult along with managing the two
differing cultures and pending job losses. They plan to cease operations at
eight plants in Ireland, Puerto Rico and the United States by late 2015 and
reduce activities at six factories in those countries, plus Germany and
Britain. The affected plants make conventional pills, injectable medicines,
biotech drugs and consumer healthcare products. The operations of these
plants will have to be transfered to other sites. "We have a complex
network of manufacturing plants, with excess capacity that is not good for
costs," Nat Ricciardi, Pfizer's president of manufacturing, said in an
interview.( Pierson.R, reuters) Pfizer bought Wyeth to keep money coming
in when their patent on Lipistor expire soon. It’s core competencies are
now in biotechnology after purchasing Wyeth.

“Pfizer can be more competitive, both in its operations and drug pricing,
by streamlining its plants and improving their processes”, Ricciardi said.
( Pierson.R, reuters)

One of the biggest incentives for companies to merge is the ability to cut
costs, reductions from the deal are expected to be $4 billion to $5 billion
by 2012.

The company is counting on the savings to help offset expected plunging


sales of its $12 billion-a-year Lipitor cholesterol fighter, which will face
generic competition late next year.

SWOT chart showing Strength and Weaknesses of Pfizer


BI BL I OGR AP HY
Author Last Name, First Name. “Book Title or
Reference Title.” City: Publisher, Date.

Reuters

http://www.reuters.com/article/idUSLDE64H1RT20
100518?

http://www.reuters.com/article/idUSTRE64H36V20
100518?
loomia_ow=t0:s0:a49:g43:r2:c0.121795:b341210
90:z0 (18/5/2010) ( Pierson.R, reuters)

2009 Special 301 Report Office of the United


States Trade Representative

http://www.ustr.gov/sites/default/files/Full
%20Version%20of%20the%202009%20SPECIAL
%20301%20REPORT.pdf