The global pharmaceutical industry – harnessing the whirlwind
Identify the main environmental forces in PESTLE currently affecting the global pharmaceutical industry.
Briefly discuss the attractiveness of the pharmaceutical industry, using Porter’s five forces. How would these forces change within the next 5 years.
Identify strategic groups within the ethical pharmaceutical industry. What are the key success factors for each group?
Do you want to work in this industry? Why or why not?
A CEO’s dilemma
In April 2017, Emma Walmsley started work as CEO of GlaxoSmithKline (GSK). Before joining GSK’s consumer products division in 2010, Walmsley spent 17 years at L’Oréal, the French cosmetics group.
She was not only the first female CEO of a global pharmaceutical company but also brought an unusual outsider background, as a brands expert with more than two decades of experience in fast-moving consumer and luxury goods.
Her appointment was seen as a signal that GSK would retain the consumer business as a core part of its operations, after facing activist investor pressure to divest it amid flagging sales and falling profits. GSK was a top ten global pharmaceutical company with £28 bio in annual revenues, but the firm’s longstanding policy meant most of the annual profit was required to pay dividends, severely limiting strategic flexibility.
Less than six weeks after Walmsley took the reins, she faced a shock when Neil Woodford, a much celebrated UK fund manager, announced that after 15 years he was pulling every last pence out of GSK stock.
GSK, declared Woodford, was ‘a healthcare conglomerate with a suboptimal business strategy’. Walmsley, whom he saw as a ‘continuity candidate’, seemed to be the last straw. It was clear that she needed to act swiftly, but how?
Industry evolution
As described in Box 1, the pharmaceutical industry is characterised by a highly risky and lengthy research and development (R&D) process, intense competition for intellectual property, stringent government regulation and powerful purchaser pressures.
How has this unusual picture come about? The origins of the modern pharmaceutical industry date from the late nineteenth century, when dyestuffs were found to have antiseptic properties. Penicillin was a major discovery and R&D became firmly established within the sector.
The market developed some unusual characteristics. Decision making was in the hands of medical practitioners whereas patients (the final consumers) and payers (governments or insurance companies) had little knowledge or influence. Consequently, medical practitioners were insensitive to price but susceptible to the efforts of sales representatives.
Business environment
Ageing populations create pressure on healthcare systems, since ‘over-65s’ consume four times as much healthcare per head as younger people. Combined with an epidemic of chronic disease linked to obesity, this created
an unsustainable situation.
In response to these pressures, government and private payers (such as insurance companies) use a variety of methods to control pharmaceutical spending (see Table 1). Some put the emphasis on the manufacturer and
distributor, others on the prescriber and patient. Controls are designed to reward genuine advances – price and/or reimbursement levels are based on perceived innovation and superior effectiveness
Industry sectors
Prescription-only or ethical drugs contribute about 89 per cent ($978bn) of the $1.1trn global pharmaceutical market by value and 50 per cent by volume. Ethical products divide into conventional pharmaceuticals and more
complex biotherapeutic agents and vaccines (see Box 2).
The other 15 per cent of the market comprises over-thecounter (OTC) medicines, which may be purchased without prescription. Both ethical and OTC medicines may be patented or generic.
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