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1. Identify the main environmental forces currently affecting the global
pharmaceutical industry. (Please apply the first framework in the weekly
slides)
Political. There are tight government regulations, price controls and buyer pressure. Legislation
allowed to set a fixed period on patent protection (typically 20 years). On the expiry, rivals could
launch generics. Government agencies such as the Food and Drug Administration (FDA) in the
US examine the safety of new drug in a lengthy process.
There is a “monopsony” in many countries, meaning that the government is the most powerful
purchaser. Many countries have price or reimbursement controls which caused a challenge in
form of “parallel trade”. In EU, distributors could source drugs in low-price markets and sell
them in high-price markets. In the US, there were no formal price controls and some drugs were
twice the price of the same drug in Canada.
Sociodemographic. The world population is aging. People older than 65 years old consume four
times as much healthcare per person as younger people. There are wide spread chronic diseases
linked to obesity and unmet medical needs like treatment for cancer. Fifteen percent of the US
population did not have health insurance in 2008. The middle class in developing countries is
increasing. The US and EU share of pharmaceutical market is declining.
Technological. There is a decline in R&D productivity while it is lengthy and risky. The cost of
developing a new drug is estimated at over $1 billion. Eighty per cent of pharmaceutical
companies fail to recoup their R&D investment.
Biologics became mainstream contributing $80billion in 2008 with projected sales growth three
times that of small molecules.
Legal. There are different patent laws in different countries.
Competitive. There is an intense competition for intellectual property through big investments in
R&D. There is an increased competition from the generic drug manufacturers. This caused
dramatic decrease of sales for firms after their patents expired. Mergers and acquisitions is a
popular strategy to dominate the market. The top 10 generics companies account for half of the
global market through economies of scale and access to new technology. In 1980, small
biotechnology start-ups as industry players appeared. By 2009, most of the small
biotechnological companies were acquired. Biologics became mainstream contributing
$80billion in 2008 with projected sales growth three times that of small molecules.
2. Prioritize the forces identified in Q1 according to expected impact (high,
medium, low) and certainty of impact (high, medium, low). The forces that
are both high impact and high uncertainty can be used to create different
future scenarios. Choose two such scenarios and describe them: How is a
patient diagnosed and treated in this future, what sorts of drugs are used
and why? Where are the threats and opportunities globally? What does the
competitive environment look like? …And anything else that you can think
of.
Sociodemographic force of aging population and unmet medical needs has both high expected
impact and high certainty of impact. This will likely cause the industry to focus mostly on
