The Global Pharmaceutical Industry
In the pharmaceutical industry market segments can be found depending on the criteria used. For example, geographically there are three main market segments (the Triad accounting for 80% and with the strongest growth): The United States of America, Europe and Japan with the main future segment being the least developed countries. Another way of classifying the market segments that the pharmaceutical industries face is by those products directed to primary care (those used by office based practitioners) and specialist products (those used by hospitals).
This industry includes quite a few distinguished strategic groups. The ethical drugs are those which are prescribed as opposed to OTC (over the
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Therefore a major key driver of change is the globalisation of the world 's economy.
Porters five forces framework helps identify the sources of competition in an industry or sector. In the pharmaceutical industry many barriers to entry exist thus reducing the risk of new competitors. Such barriers could be the patents on blockbuster drugs, the organisational infrastructure needed to deliver a new drug, consumer loyalty to ethical drugs and heavy R&D costs followed by low manufacturing and unit costs achieved by economies of scale and finally the need of differentiating a drug from an already established one in the market.
The risk of substitutes has increased in the last years due to the development of biotech drugs, OTC drugs and generics. Generics just copy what already exists in the market and as they don 't face R&D costs, their prices are much lower offering the same value as ethical drugs. OTC drugs have been developed in which no prescriptions are needed and most of the consumers can obtain them.
Once the patent expires the cost of switching from one drug to another (from ethical to generic) is low for the consumer thus giving them more consumer power. Also, consumers are becoming more demanding allowing new strategic gaps to appear such as drugs to combat cancer or Alzheimer or lifestyle conditions such as obesity or hair loss.
The suppliers are obtaining more power as more
Many other drugs also lose patent protection leading to the creation of substitutes that are cheaper.
Pharmaceutical companies are provided with temporary monopoly rights on the production of new drugs which result in a higher cost on consumers. If competing companies were allowed to produce generic forms of those drugs, consumers will be able to afford those medications even in cases where those consumers have no insurance coverage. The company responsible for developing and inventing the original medication could be offered incentives to invent in the future by either obtaining tax breaks or NIH funding for future research. They could even be offered a percentage of the sales of the generic drugs. Economist Gary S. Becker advocates dropping many FDA requirements that, in his opinion, provide no additional safety measures but rather delay the development of new drugs.[12] Betamethasone, for example, has been part of the standard prenatal care in Europe since the late 1970’s while it got adopted in the U.S. after 1997. On many occasions, the FDA ignores all scientific evidence concerning certain drugs because the manufacturer did not follow their mandated bureaucratic standards.
2. Patent related and Generic Competition: The developed countries like US and Europe have strong patent protection laws which gives a lot of benefits for the pharmaceutical companies. But, the patent
In the video Escape Fire, I was so flabbergasted by the numbers and health outcomes we as a society have let our nation become. One of the most heart-wrenching evidence is, even though our health care industry is so expensive our health outcomes are the worse. 75% of disabilities and dead’s are preventable, according to the film.
The high prices set by pharmaceutical companies for drugs allows the companies to continue researching, developing, and producing new drugs. As new diseases are discovered, new medications must be discovered in order to treat them.
Pharmaceutical companies also defend the costs because of the patent laws. When a patent expires, a generic drug can be made and sold for lower cost. "Although
Market failure appears when there is a failure in allocation of goods and services. When the market is unsuccessful, the government is called to intervene and correct the failure. Over the years, government participation in the pharmaceutical market has been more wide-ranging than any other good or service. With the government’s ability to regulate, mandate, inform, finance and provide, their intervention to overcome market failure can be beneficial for the economy. Market failure plays a significant role in today’s economy.
The Pharmaceutical industry has been in the spotlight for decades due to the fact that they have a reputation for being unethical in its marketing strategies. In The Washington Post Shannon Brownlee (2008) states, “We try never to forget that medicine is for the people. It is not for the profits. The profits follow.” This honorable statement is completely lost in today’s world of pharmaceutical marketing tactics. These tactics are often deceptive and biased. Big Pharma consistently forgets their moral purpose and focuses primarily on the almighty dollar. Big Pharma is working on restoring their reputation by reforming their ethical code of conduct.
But the question still remains, how has ethics become involved in the pharmaceutical Industry? To understand this better, I will briefly talk about the history of the industry. In the late 19th and early 20th century key discoveries, such as insulin and penicillin, were made. These medicines were needed in large quantities, and thus allowed major companies that we know today to begin the mass-manufacture and distribution of these. In order to test and approve drugs and to require appropriate labeling legislation was enacted. As the pharmaceutical industry grew, prescription and nonprescription drugs became legally distinguished from one another.
While this case is literally full of negative aspects, we will only focus on the main points for both arguments. Pharmaceutical companies want to be sure that the products they spend years and millions of dollars to create are not easily reproduced and sold at discount prices. The profits pharmaceuticals make of their patented products are supposed to refinance new research. So taking away their exclusive distribution rights and allowing other manufacturers to just copy the product and sell it at
We analyzed the Indian Pharmaceutical industry on these five forces and the findings of industry competitiveness and profitability are written under the relevant competitive forces.
The pharmaceutical industry confronts several dilemmas every year. Most of these dilemmas revolve around money or whether or not to sacrifice now for a bigger payoff in the end concerning money and/or lives. Pharmaceutical companies tend to use shortcuts that create ethical problems. Drug companies have spent millions/billions of dollars in research, and they obviously want to see
Porter 's five forces framework assesses the competitive pressures a company faces within the industry. The five forces of competitive pressure include: competition from rival sellers, competition from potential new entrants to the industry, competition from producers of substitute products, supplier bargaining power and customer bargaining power. The model helps us determine the strength of competitive pressures and profitability of an industry. [3]
Moreover, generic drugs manufacturers sometimes start production of patent-protected drug analogues even before a patent expires. Although research-oriented companies in many cases are able to protect their patents, they do suffer from lost revenues.
This enabled numerous “me too” drugs to achieve satisfactory returns on investment. Imitating a known drug reduced R&D risk considerably, while the marketplace was open to products offering minor advantages such as a more convenient dosage with fewer side effects, but with much the same therapeutic outcome. Generics legislation had a major impact on the industry, providing incentives for innovation and a race to market. The time during which R&D costs could be recouped was drastically curtailed, putting upward pressure on prices. By the end of the 1970s generic entrants and more stringent controls on clinical trials had led to substantial increases in R&D spending.