Pharmaceuticals

Introduction Industry Leaders and Fragmentation

R e c e n t l y , t h e * All amounts are given in Billions USD

pharmaceuticals industry,
Company Country Sales Profits Market Value
which is composed of
drug makers, distributors, McKesson 161 237.6 -4.2 30.7
and wholesalers, along AmerisourceBergen 161 194.5 -3.2 24.5
with biotechnology firms, Cardinal Health 161 156.5 1.4 18
has been doing very well Johnson & Johnson 161 82.6 14.7 427.1
relative to other industries. Sinopharm Group 173 66.3 1 8.9
Between 1992 and 2002,
revenue has more than
tripled among biotech
firms alone, reaching
nearly $30 billion. An increasingly aging population taking Highly Fragmented Highly Concentrated
more and more medications promises further growth.
Profitability and Demand Drivers
Industry Composition

The pharmaceuticals industry consists of drug Primary Demand Drivers: Profitability Drivers:
manufacturers, biotechnology companies and the • Desire to cure illness and disease • Ability to discover and market new drugs
distribution and wholesale companies that handle the • Evolving medical and pharmaceutical technologies
products produced. This industry is primarily focused on
medicinal and veterinary chemical and biological Trends
compounds. Companies making related products, such as
One problem with the steady growth of this industry is that all growth requires investment. Investment requires capital and, in order to
vitamins, other health supplements, or diagnostic
make up the difference, the companies increase prices of their products. With investments in R&D in pharmaceuticals and
substances, are also included. The majority of the revenues
biotechnology increasing every day, the prices are increasing as well. These price increases are so fast that some speculate that
in the industry come from drug companies who make
unless there is regulation, only the wealthy will be able to afford medicine. This is primarily a United States phenomenon, as most of
prescription, generic, and over-the-counter drugs for
the European countries, as well as other countries with pharmaceutical industries existing in them, have governmental regulations in
medical or veterinary use. Biotechnology companies differ
place. However, it is still a challenge as Healthcare Providers are increasingly cracking down on determining necessary medical costs
from traditional drug companies in that their work consists of
that they cover compared to non-essentials they don’t; requiring doctors to prescribe alternate solutions.
using biological knowledge to manipulate living cells, either
With the large costs of drug innovation and the complexities of regulatory and approval process, a new trend of Big Pharma partnering
from animal or plant sources. Biotechnology companies also
with smaller pharmaceuticals has become more pronounced. Small startups often have the right idea and scientists to do the work, but
focus on research to a greater extent than drug companies.
then have trouble raising the necessary capital to complete intensive research. Additionally, they often are not experienced enough to
Compared to other industries, the pharmaceuticals industry
navigate the complex approval process and regulatory environment effectively. Big Pharma, on the other hand, has trouble finding
boasts a relatively high percentage of funds spent on
new ideas and constantly innovating. When the two team up, synergies they create are profound, with capital and experience of Big
extensive Research & Development (R&D) and is one of the
Pharma, startups can bring drugs to market quickly, efficiently, and cheaply, while Big Pharma has more access to potential
largest employers of scientists. The next step is screening:
blockbuster drugs in return. This recent trend also stems from pressure by governments and consumers to innovate more prevention
testing the drug first on bacteria cultures and then on
medicines than treatments. By combining resources, small startups and Big Pharma are more efficient and can adequately produce
animals. Finally, clinical trials are performed where the drug
revolutionary products.
is tested on humans. All that remains is the approval to
The increasing quality of life standards in developing nations has created another trend for pharmaceuticals as they focus on
produce the drug.
penetrating developing markets that have high growth. The exportation of research and formation of in-country pharmaceutical and
biotech industries has become an important development for the industry. With ever-advancing technology allowing rapid innovation,
companies are able to enter these markets more profitably. Taiwan, India, China, South Korea, and Singapore are all notable nations
when dealing with this trend. The government of Singapore has already devoted a large city zone, buildings, and other incentives to
bring more biotechnology to the country. This area, Biopolis, is already home to over 1000 researchers from 18 different nations. The
concentration on these markets show the direction the industry needs to move into as growth in industrialized countries slows down
and increasing pressure from regulations burden the pharmaceutical companies.
Recently, investigations and prosecutions regarding global compliance violations have resulted in financial judgments against leading
pharmaceutical companies and criminal convictions, particularly in United States, Indonesia, China, and Poland. Expanding regulatory
forces are driving an urgent need for pharmaceutical companies to develop practical and effective solutions for meeting the challenges
of integrating governance, risk, and compliances on a global level.
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 Pharmaceuticals
As with many industries, technology is a major driver. For pharmaceuticals, technology is just about everything. Recently, the newest
technological trends have been with the research and use of stem cells, and the introduction of nanotechnology as a complement to
drugs in healing patients.
Patent expiration is a major issue for some companies as their principal product becomes available generically, which in turn cuts
profits. In relatively strong markets such as China and India, multinational pharmaceuticals companies require and expect intellectual
property rights to be strictly enforced, when often they are not. There, countless local manufacturers are able to produce cheap
counterfeit copies of patented drugs, which often make their way to Western markets. Implementation of intellectual property rights is
improving.

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