US pharmaceutical company is one of the largest pharmaceutical companies in the world. Unfortunately, Pfizer faced challenges by macro-environment forces that affect their sales volume decline dramatically in 2011. PASTEL, Porter’s Five Forces and Industry Lift Cycle frameworks to be applied to analysis the broad macro- environment that affected Pfizer in the pharmaceutical industry. 1 . PASTEL framework PASTEL (Appendix l) Is classifies Into six environmental Influences Including Political, Economic.
Social ; Cultural. Technological, Environmental and Legal. I) Political The promotion of pharmaceuticals products in US and patent protection period were direct governed by Food and Drug Administration (FDA). Whereas, self- regulation practiced in New Zealand, UK and Australia are under self-governed by Pharmaceutical Advertising Advisory Board (PAPA) In Canada. Lack of regulatory supervision by PAPA may lead to MIS-prescribe to the patients. * The pressure groups of patients and ageing populations (over ass) on the healthcare systems.
They are lacked of medical insurance and unaffordable to the expensive drugs such as cancer medicines. Subordination on cancer medicines is strongly demanded. * The Government’s focus on reducing the healthcare expenditure because the healthcare and medical system were unable to share the benefits to the pressure groups. * The community groups protest against over safety alerts for drugs and oppose strongly in drug price differentials with other countries. FDA delegated the Institute of Medicine (MM) to inspect the drug safety and proclaimed 15 safety drugs alerts or revokes for safety reasons.
Further, FDA authorized Risk Evaluation and Mitigation Strategies (REAMS) to keep track and assure drug safety. II) Economic * Pharmaceutical sales growth Is tightly related to the growth of GAP. Economic decline due to GAP per capital drop in the country and caused reduce in tax revenue. * The power of payers in their decision making on drug expenditure increased. * The supremacy medical and scientific in US may be threatened by Asia. Some developing countries such as China and India have developed fast growth economies in their countries.
The growth rate in the consumption of middle class populations in the healthcare products provided opportunity in the market. India has desire to become a major source In R&D such as clinical trials whereas China Is the third largest in pharmaceuticals industry globally. The squeeze in the credit finance affects the innovation and debt funding to the biotech industry. Hence, raise capital through M&A. Ill) Social & Cultural the healthcare costs. * The operating environment was influenced by the US President, Beam’s to encourage and improve healthcare system.
Uncertain price pressures increase. * The launched of vaccines to prevent serious diseases are important to the public. Customers are willing to vaccinate and accept special treatment such as stem cell therapy to prolong their personalized healthcare, death rate reduced. * Healthcare benefits extended to employees by organizations to rate competitive advantage in the global medical practice. These medical benefits are coverage for the elderly by US government in order to provide well being to the population but price pressure increased. The pressure on the pharmaceutical industry tends to contribute ethical drugs rather than profit oriented. The patients may not purchase the drugs without prescription. * The expectation of patients on being well-informed in drugs information was increased. ‘v) Technological * Since the pharmaceutical industry is a high risk business in the competitive market. The R&D process of time on drugs takes 10-15 years to obtain an approval by FDA. * Scientific and medical advancements in developing new drugs in order to establish competitive advantages in the market. The impact of information technologies and marketing tools such as advertising, promotion and e- prescribing (pull strategies) for well-informed patients in order to switch towards personalized healthcare. V) Environmental * The investors and employees are more emphasis on sustainability in the market. * There are no significant information stated that the pharmaceutical process will influence on the environmental such as pollution, raw material waste etc. V’) Legal The intellectual property rights to protect the companies on new product including patents etc. Against imitators to copy their new invention. The patent protection period in US is fixed on 20 years to prevent the erosion of generics products. * The regulations to ensure drug safety by FDA to protect consumer interest. Hence, additional cost incurred on this monitoring. * There were many companies are re-organized through merger or acquisition to adopt new technologies, gain economies of scale and to fund in US. There are no significant information stated in the case on the regulations of company mergers and acquisitions in US.
The increase in liability claims such as Lilly and Merck were filed in the United States Department of Justice. These were caused lost confidence from patients or public in the pharmaceuticals industry and FDA. 2. Five Forces Models The five forces models (Appendix II) is to analysis the attractiveness of an industry by the forces of threat of new entrants, bargaining power of buyers, threat of substitutes, bargaining power of suppliers and competitive rivalry. * The barriers to enter into pharmaceuticals industry are high. It is a high capital investment business.
Thus, the switching cost of the pharmaceutical company is gig from prescribed to non-prescribed drugs or quit. * It is quite costly to illuminate the specialist such as bio-scientist to support new technologies for innovate the new drugs. * The strict regulatory by FAD on the patent protection period to protect from new competition. However, when the patent expired, the barriers of this industry were become lowered. The new competitors of generics entrants such as TVA and Dry Reedy are desire to be the major players in the innovation of this sector.
Hence, the revenues decline with the impact of generic entrants. * The big pharmaceutical companies were able to establish their plant operations in global market that would be benefit from economies of scale. Thus, lowered in supply cost. I’) Bargaining Power of Buyers – Low * Medicines are the necessity products to the customers to heal their sick, customers do not have bargaining power to drive down the prices. On the contrary, consumers are even drive up the price of medicines due to increase in the demand of vaccines such as flu or HIP. Well educated consumers may consider to purchase the generics rather than patents medicines for alternative which have the same function but low price. * In the past, most buyers were medical practitioners ND their bargaining power is low, but now the buying power that concentrated in a small number of payers is increasing with greater influence on the market. * U. S. Is one of the developed markets and the drug manufacturers on price are flexible, no formal price control. Iii) Threat of substitutes – Medium * The growth sales of generic drugs resulted in patented drugs declined.
Pfizer was seriously affected by the patent drug expired, Lipton. * However, there are no alternative choices for consumers on the drugs such as flu or HIP vaccines. * Less expensive in generics are benefits to the customers which provided the same unction on recovery illness when compared with branded or patented drugs. Thus, the consumption of branded drugs shrank. * Costly innovation in pharmaceuticals will threat by bio-similar. But it is relative lower risk than generic threat. * There are alternative therapies instead of medicines such as Going treatment, physical therapy, acupuncture etc. And cheaper in terms of price. V) Bargaining Power of Suppliers – Low * The sales of generic drugs growth rapidly in the market resulted in low bargaining power of suppliers. * Big pharmaceutical companies can buy the rodents on their mandated cost that would enjoy significant buying power in the market. Thus, it is no bargaining power of suppliers. * However, since the R&D productivity is declining lead to increase in the price charge on the advancement of licensing and acquisition. V) Competitive rivalry – High * Increasing in consolidated of industry by way of mergers and acquisitions, the pharmaceutical companies grew more intense.
High capital investment cost in developing new drugs, plants and new technologies with lengthy R&D process may take certain period to achieve the return on investment (ROI). High exit barriers of this industry. * The highly demand in the medicines from customers such as vaccines to prevent flu are benefit to the industry. * It is benefit for big pharmaceutical companies to sustain and survive in this highly competitive industry as they have sufficient capital to invest and gain valuable profit.
Whereas small companies without much support and potential pipeline may difficult to survive. 3. Industry Life-cycle The industry life-cycle (Appendix Ill) proposed five stages including development, growth, shakeout, maturity and decline of product development. Pharmaceuticals are standing on the development stage with few competitors and products differentiated in the market. Generic drugs may stand on the growth stage when the patented drugs were expired and the consumption of prescribed drugs from medical practitioners switch to non- prescribed.
The ethical drugs or prescription drugs were tends from growth towards shake-out stage. It indicated that the products sales starts to decline as many competitors entered into the market and increase variety of choice. Hence, the weakest will be shake-out in the market. Over the counter (ETC) drugs and vaccines are standing on a mature stage as it revived continuing protection against dangerous diseases such as HIP. Barriers to entry are high as companies with well established products pipeline in this stage and enjoy economies of scale.
Further, loyal consumers on the branded drugs as to maintain the sales revenue and product life cycle in the market. B. Conclusion In the pharmaceutical industry, new drug takes lengthy on R&D but great value in return. With finance support superiority on R&D investment including explore new technologies will create and develop competitive advantage in the market. The regulatory in US on protecting the patent period is benefit for the hermetically companies to boost their sales on the patented drugs as to shorten the payback period on the R&D investment and gain profit.
The affect of generics are crucial to the pharmaceutical companies. It will turn down the sales revenue, products became discontinued and R&D investment cost cannot be recouped and business decline. Strictly regulation and monitor on the drug safety, price, marketing and promotion are the barriers to the company to develop their new drugs and fund raising is difficult to subsidize on investment. Lack no further business development and easy to be shake-out in the market.
