Pharmaceutical Industry – Consolidated Paper

Emphasis on Product Design 27 Major Areas of Functional Concern 28 Segment & Strategic Group 30 Financial Profiles – Segments & Strategic Groups of the Pharmaceutical Industry 31 Current Issues – Lawsuits 39 Industry Growth 33 Industry Comparison Industry Competition 36 37 Current Issues within the Industry 38 Current Issues Conclusion 42 – Technology 40 – Regulation 41 Works Cited 43 Introduction This paper summarizes the results of assorted research conducted as part of our pharmaceutical industry analysis.

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Our analysis includes exploration into various areas of interest within the industry to include the impact of macro-environmental issues, industry life cycle, segment and group analysis, five-forces, and current issues within the industry. The goal of the paper is to provide a high-level overview of each of these areas in an attempt to depict our analysis of the major challenges within the industry. Macro-Environmental Challenges is described as an industry that develops, produces, and markets drugs or pharmaceuticals licensed for use as medications (McGuire, 2007).

This industry has, in one way or another, a direct impact on each and every citizen in the United States. At some point in time we have consumed pharmaceutical medicine through accusations, over the counter drugs, prescription drugs, etc. Pharmaceutical medicine is forever changing. Enhancements are constant, thus changes within the industry remain forever changing and constant. A recent Businesses. Com article states “The process of drug discovery/invention is elaborate requiring on an average 8-10 years at a cost of U. S. 300 million to reach a new drug to the market” (Supplier Relations US, LLC, 2013). Since the industry is changing all of the time, it’s important for companies operating within the industry to find cost-effective (and efficient) ways o remain competitive and to limit the cost of doing business. Incurred cost origination from a variety of items stemming from general manufacturing costs all the way to costs involving relegation and patents. Wisped. Com states that “Pharmaceutical companies are allowed to deal in generic and/or brand medications and medical devices.

They are subject to a variety of laws and regulations regarding the patenting, testing, and ensuring safety and efficacy and marketing of drugs (Wisped, 2013). ” Additionally, this industry is a principled industry who seeks to provide make available useful and valuable products to the market. Starting with the early sass’s, the pharmaceutical industry has steadily grown from decade to decade. The rate of formation hit its peak during the decade period of 1990 – 2000, with 31. 15% of current pharmaceutical companies founded during that period of time (Hoovers, 2013).

However, the most recent decade suggests that the growth within the industry has stalled. A pharmaceutical sales rep by the name of Pam Coiffed feels that the pharmaceutical industry is much like the real-estate market in that it’s inundated with far too many companies and sales agents (Coiffed, 2013). The chart low depicts growth within the industry over the past decades. In reviewing the chart, you will notice the industry decline within the most recent decade. [pica] (Information gathered from researching the founding years for each U.

S. Pharmaceutical company as noted on Hover’s Online) The pharmaceutical industry today is highly competitive industry that reaches the international level. North America currently controls approximately 39% market sales. 3 Global pharmaceutical sales are expected to grow at a compound annual growth rate of 3% – 6% during the period 2011-15 (Wisped, 2013). The markets for pharmaceutical commodities are predisposed by trends driven by consumers, technology, and distribution channels.

Advances in technology, tighter regulatory controls, and patents expire make the pharmaceutical industry a very aggressive and uncompromising market. Health care has been at the forefront of U. S politics for several years. The Presidential debates during 2012 showed up that there are many different ways that this industry can be impacted by the US government. In a 2011 article titled U. S. Healthcare Reform and the Pharmaceutical Industry, the article writer states “The 010 Patient Protection and Affordable Care Act (AC) will very likely restructure the US health care market in the coming years.

For the pharmaceutical industry, the AC is likely to affect the industry in both positive and negative ways since the United States is the world’s largest prescription drug market and has among the fewest price control mechanisms; the AC holds significance to pharmaceutical firms internationally. Over the course of its implementation in coming years, the AC will significantly expand prescription drug use, including at the relative expense of other health services” (Diametric, 2011). This Act will require every U. S. Citizen to carry health insurance through various means, I. . Employer, private policy, or government health plan. Below is a description of how the United States government can impact many factors of the pharmaceutical industry: “The government heavily influences the drug manufacturing industry through the patent system and regulation of drug development. Newly developed drugs usually have patent protection for 20 years from the time of patent application, after which they can be duplicated in generic versions (drugs with the same active ingredient), which are typically much cheaper.

Once a drug has been approved, the FDA can grant marketing exclusivity, which may or may not run concurrently with the patent. The generic drug industry has continued to expand rapidly, holding 80 percent of the US prescription drug market, and has been encouraged by laws in some states that require pharmacists to substitute generic versions of drugs in prescriptions they fill” (Diametric, 2011). Safety concerns are certainly an important topic within the political realm of the industry.

The FDA reports that “Most new drugs appear first in prescription form, but mom may eventually be available over-the-counter (ETC) if long experience shows them to be safe to use without medical supervision. Once a drug has been approved, FDA requires extensive results monitoring by the manufacturer, recognizing that adverse effects may appear only after a drug is in general use by large numbers of people” (FDA, 2012). Keeping this information in mind, it may be wise for investors to understand that the life a drug by the Patent holding company only has exclusive rights for finite amount of time.

It may also be important for investors to understand owe a drug company looks to continue to be competitive and relevant in the market and what different avenues the company can take to extend the Product Life Cycle of a specific drug. The Hoovers website (Hover’s. Com) goes on to explain that, “Comprehensive health care legislation signed into law in March 2010 will expand coverage to more than 30 million Americans over the next decade. The expansion of coverage increases the number of potential customers for pharmaceutical manufacturers.

The legislation also established a 12-year exclusivity period for biologic drugs, protecting drug makers from generic competition” (Hoovers, 2013). With a thorough analysis of the industry it could be recommended that investors share as many Americans that have not been covered by health insurance will be covered. It is estimated that 49 million Americans who previously were not covered by any sort of health plan will be impacted (Diametric, 2011). As mentioned in the data collected from Hoovers, generic drugs will have a chance to expand their market share in the years to come.

The information that follows was collected from S&P and explains new legislation and how it will affect generic drugs which also look to be favorable. The article, Pharmaceutical Regulation, states “With its emphasis on cost savings and expanded coverage, healthcare reform is a win-win situation for the generic pharmaceutical sector, in our view, since nearly all health insurance plans should favor its low-cost products. We also expect this sector to benefit materially from the planned implementation of a new FDA regulatory process to approve generic versions of biologic (no such system presently exists)” (FDA, 2012).

Generic drugs are widely known for being the most prescribed and most affordable medications available. The FDA predicts that “Generics are expected to increase in prominence throughout the world as nations grapple with new methods to contain rapidly increasing healthcare costs. According to a July 2012 analysis by ‘MS Health Inc. (M’S), a pharmaceutical market research firm, sales of generic drugs in the US saved Americans $1. 06 trillion over the past 10 years. Ralph G.

News, president and CEO of the Generic Pharmaceutical Association (Gap), an industry trade group, noted, “By saving consumers, patients and providers nearly $200 billion each year, generic prescription drugs have proven to be a vital component of the solution to monitoring health care spending” (FDA, 2012). With the emphasis on cutting cost in the U. S government that has been at the forefront of many news outlets, one could deduce that the importance of generics has become increasingly important.

The lower cost generic alternatives have made treatment for illnesses such as obesity, diabetes, cancer, arthritis, and cholesterol affordable for patients. It is estimated that generic drugs can be as much as 90% cheaper than name-brand prescription medication and more than 70% of prescription medications consumed today are generics (Lemma, 2009). Economic Challenges within the Macro-Environment The economy over the last five years has had a significant impact on all industries including the pharmaceutical industry.

As we know, our economy hit recession status. The impact on the pharmaceutical industry varies. After all, we know that illnesses do not stop because the country is in a recession. By way of history, the pharmaceutical industry has reasonably been impervious during economic downturns (Tillie, 2009). Those companies within the industry who depend more on financial assistance than their counterparts may experience more of an impact. In a downward economy there are not as many investors who are willing and/or able to invest.

A potential investor who may be entertaining whether to invest in a pharmaceutical company or a generic pharmaceutical company may benefit from the information provided below. It could be interpreted by the following information that a high return in the short term could be expected from a major pharmaceutical company and a generic company may produce a smaller long term return. Additionally, when analyzing the cost benefits of prescription drugs, “Profits from sales of prescription drugs usually plummet once lower-cost generic alternatives are available. Generic drugs now account for more than half of all prescriptions filled in the US.

Traditional drug companies must constantly discover or acquire new drugs. Manufacturers of generic drugs, on the other hand, have a constant source of new products as patents expire” (Diametric, 2011). “Large drug companies may spend more than 15 percent of their revenues on R&D, a very high ratio, but without any certainty that profitable new products will result. Most new candidate drugs eventually prove unsuitable and are abandoned. Because they interfere with the natural state of the body, most drugs adversely affect a small reapportion of people taking them.

Such adverse effects often cannot be detected in clinical trials that typically consist of only hundreds of users. Most drug companies are constantly involved in product-liability litigation” (Diametric, 2011). “Because their products affect customers’ health, maintaining stringent quality controls is crucial for pharmaceutical manufacturers. Flawed manufacturing procedures can lead to improper concentrations of active ingredients or contamination by foreign particles. The price of a recall can be high for drug makers, resulting in lost revenue and customer trust” (Diametric, 2011). Vestment in the pharmaceutical industry will produce positive returns for investors. It would seem that investment in this industry is not without risk based on the economic factors of the last 5 year’s however, with the information from the Political and Economic portions of this analysis, events seem to be taking place that may indicate that there will be a large expansion in this entire industry. Social Challenges within the Macro-Environment Social factors affecting the pharmaceutical industry are important to the brand image off pharmaceutical company in the way they are perceived by the public.

With the emergence of social media and communication networks that reach worldwide in an instant, it can be imperative to ensure the image of a company is viewed a positive. These outlets can change the perception of an item in a matter of days. Patients are becoming more informed through social means and, with their newfound knowledge, are becoming more demanding (Shaw, 2011). In a paper written by Donald Beanies from the University of Pennsylvania, many of the social issues are discussed including the challenges of moving into an international market.

Beanies states “The real issue is that there is a need for Pharmacy companies to e able to demonstrate the value they bring to their patients and other stakeholders. In other words, show the value that can be provided to the patient by the products they submit for approval, especially where they are in therapeutic areas that are already being addressed while the needs of many others are not met or are undeserved” (Beanies, 2010). It may be wise for an investor to understand the steps a pharmaceutical company is taking to ensure that their “brand” is being preserved.

Potential points of interest may be how much involvement a company may have in contributions to the community and other philanthropies. Donald Beanies goes on to explain “Many regions have diseases which are not fully understood and may have different medical needs because differences in genetics, diet, climate or other factors which are unique to their environment. It is important that companies recognize that they need to invest in clinical trial and other investigative work before they attempt to introduce their portfolio of current products to the region.

This like the other problems listed requires rigorous assessment and understanding of the ways of doing business, culture and a host of other physiological and social factors, especially in places where people have practiced one form of medicine for years. In these cases the solution may be a combination of current and new approaches and therapies and not simply going in with the goal of replacing treatments that have been used for Based on the information provided by Donald Beanies, one could deduce that a significant amount of time will be associated with a pharmaceutical company moving into new regions throughout the world.

It may be wise to understand how the company will be impacted financially before investing in a company that is looking to expand in some of the regions that have different challenges then the U. S. Technological Challenges within the Macro-Environment Technology plays a big role within the pharmaceutical industry and is needed to aid in the development and manufacturing of drugs along with research and invention. Improved technology positively influences social, economic, and environmental factors (Wisped, 2013). The pharmaceutical industry has experienced numerous modern advances during its existence.

This necessitates the need for all essential performers within the industry to adjust to the markets in which they participate. This, of course, entails a greater focus on investment and spending. Technology is an important function within the pharmaceutical industry and plays a key role by ensuring it has the research capacity to invent new pharmaceutical products. It is vital for industry leaders to provide an effort towards implementing technology practices to keep up with an ever changing industry. Technology enhancements not only benefit the business, but their consumers as well.

With the advancement of social media and on-line communication, “Technological advancements will create new business prospects both in terms of new therapy systems and service provisions. The online opportunities will see the growth in: New info and Communications technologies, Social Media for Healthcare, Customized Treatments, Direct to Patient Advertising, and direct to patient communications” (Shaw, 2011). The level and mixture of technologies that the industry must deploy are expanding, which inflicts both new investment burdens and insecurities.

I think it would be fair to say that the pharmaceutical industry uses manufacturing technology that is the cutting edge of science. Consumers often here of stories reflecting a particular company within the industry is on the verge of creating new products that will have an impact on the health of society. The advancement of technology has produced encouragement to people around the global map who are impacted by sickness and disease. Lawsuits are probably the most feared legal issue in the pharmaceutical industry. “The top 20 pharmaceutical cases account for over $16 billion in recoveries.

Due to high-profile cases leading to large compensations, most pharmaceutical companies endorse tort reform” (Wisped, 2013). An article recently published in the Macon Telegraph (and can also be found on Hover’s. Com), reveals a Jury award for punitive damages following complications too vaginal mesh. The first several sentences of intuitive damages of $7. 76 million to a former nurse who blames its vaginal mesh implant for years of “living hell” despite unsuccessful repair surgeries. The award adds to the $3. 35 million in compensatory damages awarded by the state Superior Court Jury on Monday, making a total of $11. Million in damages. It’s the first verdict in about 4,000 lawsuits filed against the giant health products maker based in New Brunswick, N. J. Johnson & Johnson said the decision isn’t supported by the evidence. ” Verdicts like this certainly place a greater desire for tort reform amongst industry leaders. Indisputably the pharmaceutical industry is an exceedingly regulated industry. Pricing strategies and product liability laws on pharmaceutical advances are greatly affected. Additionally, the innovation of pharmaceutical products is also impacted because of regulation.

This triggers interruptions in the market regarding the introduction of new products and process through lengthy approval time. There was on article in Pharmacy Manufacturing Magazine titled FDA Considers Expanding Definition of Nonprescription Drugs, which criticized the regulation of pharmaceutical drugs when trying to get their products into the hands of their nonusers. The article indicates that The Food and Drug Administration are “exploring ways to make drugs for common conditions available as nonprescription products.

Under this paradigm, the agency would approve drugs that would otherwise require a prescription for over-the-counter (ETC) distribution, if certain conditions are followed” (FDA, 2012). Five Forces Review It’s natural for humans to be competitive. We are competitive in school, sports, games, politics, and most certainly, in business. Industry leaders must dissect and analyze what their competitors are doing so that they can adjust their operations in n effort to gain the competitive advantage. Strategic planning is essential to obtain and maintain the advantage over the competition.

The issues discussed below are summarized in an attempt to give us a better understanding of the competitive forces and their impact on companies within the pharmaceutical industry. Threat of Entry The threat of entry posed by new or potential competitors appears to be low due to high barriers associated with elevated manufacturing costs, challenging regulatory restrictions, high sales and marketing costs, and complications/length of time associated to obtain the appropriate patent (Mueller, n. D. ).

It would take a large amount of capital for a company to enter into the industry due to the high costs of research and development and marketing costs. A 2012 article titled The Truly Staggering Costs of Inventing New Drugs, suggests that “The average drug developed by a major pharmaceutical company costs at least $4 billion, and it can be as much into the industry, the high barriers of entry protect the companies within the industry from many competitors gaining access into the industry. However the 1984 Waxen-

Hatch Act changed the rules for generic drug manufactures allowing many generic manufacturers to enter the industry and by 1996 generic drugs accounted for forty percent of pharmaceutical prescriptions (“A Recent History,” 2007). As with any business, costs play a major role in determining an organization’s expectations and devotion to their business venture. Time plays a key role in the decision making process. The pharmaceutical industry does not produce a quick turnaround on a stakeholders investment. “During the sass, it took an average of 12 years and $194 million to bring a drug to market.

And the long and tedious recess, which included research and development, clinical trials and government approval, did not guarantee favorable results, as more than 50 per cent of all development dollars were spent on products that never reached the market” (A Recent History, 2007). What this means is not only the cost of research and development but the uncertainty of the success of the drug being researched is one huge barrier of entry (A Recent History, 2007). Marketing and sales costs are also considered to be a high barrier of entry. Once research and development is over, it is important to promote the drug that is manufactured.

Because of competition in the industry, a new company would need to spend millions Just to get their drug marketed to hospitals and doctors (A Recent History, 2007). Patents are also a barrier of entry. A drug can be patented on two things. One is the chemical makeup of the drug, and the other is how it is manufactured. Patents keep competitors from manufacturing and marketing the same drug for 17 years. Depending on the time it takes the drug to be on the market, it can leave the company with a monopoly on the drug anywhere from eight to twelve years (“A Recent History,” 2007).

Based on the research conducted, it is safe to say that the threat of entry is low due to the costs associated with the manufacturing of a drug as well as patents which protect other companies who may manufacture a drug first. Although the Waxen- Hatch Act lowered the barriers of entry and allowed for more competition, it still seems that the threat of entry is low due to other factors. Degree of Rivalry The pharmaceutical industry is a very competitive industry. The industry depends on product differentiation against competing companies. Although there were hundreds of companies in the industry in the sass, each had no more than five