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Future Prospects of Global Pharmaceutical Industry

1741 words (7 pages) Business Assignment

11th Nov 2020 Business Assignment Reference this

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Introduction:

Pharmaceutical companies in today’s world are feeling burden from many areas — be it regulators, who are responsible for making rules in drug safety, be it employers who are pushing back on prescription drug costs and reimbursement and be it competitors coming with generics or some alternative brands, and of course from shareholders who will never be satisfied. There is shrinking of new formulas for discovery of new medicines in pharmaceutical companies’ pipelines and the worsening of risk/reward ratio for R&D outlays. The consequences of these trends have resulted in declining price/earnings (P/E) valuation ratios, reduced profitability & revenues for the most influential pharmaceutical firms. The most obvious question is whether they can survive at all in their present form and without radical changes. There is no consensus about what comes next, as evidenced by the different strategic actions the major companies have made with mergers & acquisitions in recent years. Some companies have chosen to double down on branded pharmaceuticals, planning that the bad times cannot last forever. By exploring new therapeutic areas or becoming more adoptable at using technology these businesses can continue to generate large profits from their exclusive patents. Some pharmaceutical companies have set their strategy in different areas by expanding in the sectors such as nutrition, generic drugs, consumer health, wellness & diagnostics. (Karamehic, and Ognjen, 2013).This assignment examines the current issues in the global pharmaceutical industry and  possible future paths and prospects which the pharmaceutical industry may develop over the next couple of decades.

Global Pharmaceutical Market: Today’s scenario & future.

At the global platform, countries such as the US, demand for the pharmaceutical products is continuously increasing due to an increasing ageing population and funds from the government is insufficient  to pay for these costs. According to Jaffe (2007), the US spends 16% of GDP on health care, up from 6% in 1960 and spending is expected to increase by another 4% by 2020.

Japan, Hong Kong and Western Europe, are also experiencing an ageing population and falling birth rate (Lassere, 2007). Japan spends 6% of its GDP on healthcare. However, because of diet and lifestyle people live a little longer than those in the US.

In years to come, due to the one child policy it is also likely that China will also experience an ageing population. Demand for drugs such as statins will be high due to ageing population. Hence demographic and social factors becomes very vital in explaining success in the global pharmaceutical industry. (Floyd, 2008)

Political factors also plays vital role. To reduce its cost burden , governments  in many countries are trying to open up the pharmaceutical sector. The ageing population combined with lower taxes to attract more FDI has led to a shortfall in revenue for government. In many industrialised countries, including the US, the government purchases over 45% of drugs. The market is being deregulated to allow foreign drugs to compete.(Bradfield, 2009)

The E7 countries will be the new emerging market for the pharmaceutical industries. It has been predicted that  the real GDP of the E7 countries will triple from US$5.1 trillion in 2004 to $15.7 trillion in 2020, whereas that of the G7 countries will grow by just 40%, from $25.8 trillion to $36.1 trillion(Figure 1). (Rob Arnold and Chiswell, 2019)

Future prospects & predictions:

Business models on which pharmaceutical market operates is shifting from mass marketing & sales approach to one focussing on  target markets. (Wolski, 2019).As various forces are at work, following changes are predicted in future in pharmaceutical industries: -

  1. Automation of processes: Industries will more rely on automation whether it is  pharmaceutical manufacturing processes to product quality, or to drug packaging,  or to delivery systems. To meet higher quality standards, many companies will increasingly use automation to eliminate human error.
  2. Artificial Intelligence: Artificial intelligence (AI) is going to play major role in healthcare IT in single-patient clinical trials. AI will also use in R&D processes to enhance drug discovery.
  3. Stricter Regulations: In July 2018, the FDA released six new draft guidance documents related to gene therapy products, while stronger FDA pharmaceutical manufacturing regulations on newer innovations such as 3D-printed devices may take hold.
  4. Companies Will Adapt Their Use of Data: Pharmaceutical manufacturing companies and other organizations will work more closely with physicians, healthcare organizations, and patients. Data analytics and machine learning will help improve customer engagement.
  5. Increase in Global Spending: In 2018, global spending on medicines reached $1.2 trillion and, by 2020, the annual rate of pharmaceutical industry growth is expected to exceed 8%.
  6. the pharmaceutical industry outlook for 2019 and beyond looks quite robust. (Das, 2019)
  7. Big tech giants can enter the pharmaceutical market. Companies such as Amazon and Google have shown positive signs of entering new markets to explore. They could use their expertise in other industries to disrupt healthcare. For example, with its expertise in supply chain, Amazon could make a big impact in hospital purchasing. (Sucich, 2019)

Paradigm Shift in pharmaceutical industry: From Treatment to Prevention:

With the emergence of new disruptive technologies, the pharmaceutical industry needs to reimagine its future. There will be paradigm shift from treatment of symptoms to prevention measures and complete cures, rather than providing temporary respite. (Heuvel and Stirling, 2019)

Source: Frost & Sullivan -Figure 1: New Paradigm Shift in Treatment

(das, 2019)

Conclusion:

The current turbulence from which the pharmaceutical industry is going through is not a temporary aberration; it is been expected that there will be unrelenting  and continued pressures in the next 15 years from a growing range of stakeholders, along with increasing competitive forces from Asia and other regions. This being the case, traditional industry recipes that have worked well in the past are unlikely to lead to sustained success in the future (Hamel 2000).

How well prepared is the pharmaceutical industry to meet the inevitable changes arising from this turbulence? The answer according to Fuld (2004) is 'not very'. There is he contends, 'a large gap in competitive preparedness. Nearly every manager sees one or more looming threats just over the horizon, yet only a small fraction have done anything to see around the corner'. The reason for this is 'self-induced competitive blindness’. One way of overcoming this 'blindness' is to engage in scenario thinking which is a powerful mechanism for learning and change in organisations. The bottom line is to adopt “Technological Advancement”. Exciting opportunities remain- large emerging markets, ageing population, scientific advances, personalised healthcare, more educated customers, information technology and, of course, unmet medical need. (johnson, whittington and scholes, 2014)

References:

  • johnson, g., whittington, r. and scholes, k. (2014). Exploring Strategy text and cases. 10th ed. Harlow United Kingdom: Pearson, pp.549-557.
  • Karamehic,, J. and Ognjen, O. (2013). Financial Aspects and the Future of the Pharmaceutical Industry in the United States of America. NCBI, [online] 25(4)(10.5455/msm.2013.25.), pp.286-290. Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3914743/ [Accessed 11 Nov. 2019].
  • Bradfield, R. (2009). Technology Analysis & Strategic Management Four scenarios for the future of the pharmaceutical industry. [online] Reserachgate.net. Available at: https://www.researchgate.net/profile/Ronald_Bradfield/publication/258108401_Technology_Analysis_Strategic_Management_Four_scenarios_for_the_future_of_the_pharmaceutical_industry/links/00b49526fa051b4a14000000.pdf [Accessed 12 Nov. 2019].
  • Floyd, D. (2008). The changing dynamics of global pharmaceutical industry. [online] ism-productivity.com. Available at: https://www.ims-productivity.com/user/custom/journal/2008/Spring/IMSspr08pg14_18.pdf [Accessed 14 Nov. 2019].
  • Rob Arnold, R. and Chiswell, D. (2019). Pharma 2020: The vision. [online] Pwc.com. Available at: https://www.pwc.com/gx/en/pharma-life-sciences/pdf/pharma2020final.pdf [Accessed 15 Nov. 2019].
  • Wolski, T. (2019). 10 Pharmaceutical Manufacturing Predictions for 2019 & 2020 - A-Plus Corporation. [online] A-Plus Corporation. Available at: https://www.aplususapharma.com/blog/10-pharmaceutical-manufacturing-predictions-for-2019-2020/ [Accessed 17 Nov. 2019].
  • Das, R. (2019). Top 8 Healthcare Predictions for 2019. [online] Forbes.com. Available at: https://www.forbes.com/sites/reenitadas/2018/11/13/top-8-healthcare-predictions-for-2019/ [Accessed 18 Nov. 2019].
  • Sucich, K. (2019). The Future of Healthcare: What Can We Expect by 2025?. [online] Dimensional Insight. Available at: https://www.dimins.com/blog/2019/05/22/future-healthcare-expect-2025/ [Accessed 18 Nov. 2019].
  • Heuvel, R. and Stirling, C. (2019). PHARMA 2030 OUTLOOK. [online] Assets.kpmg. Available at: https://assets.kpmg/content/dam/kpmg/tw/pdf/2017/06/pharma-outlook-2030-from-evolution-to-revolution.pdf [Accessed 19 Nov. 2019].
  • das, R. (2019). Drug Industry Bets Big On Precision Medicine: Five Trends Shaping Care Delivery. [online] Forbes.com. Available at: https://www.forbes.com/sites/reenitadas/2017/03/08/drug-development-industry-bets-big-on-precision-medicine-5-top-trends-shaping-future-care-delivery/#78dd20f65d3a [Accessed 22 Nov. 2019].

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