MANAGEMENT AND STRATEGY FINAL REPORT

Table of contents

Question 1 2

Question 2 2

Question 3 2

Bibliography 2

Question 1Analyse 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, trans-ferable marketing and lead countries. The single most important market global-isation 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 ad-apt 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 2Critically 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 GlaxoSmith Kline 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 3Critically 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

BIBLIOGRAPHYAuthor Last Name, First Name. “Book Title or Reference Title.” City: Publisher, Date.

Reuters

http://www.reuters.com/article/idUSLDE64H1RT20100518?

http://www.reuters.com/article/idUSTRE64H36V20100518?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