Strategic Analysis of the World Pharmaceutical Industry

By Kesic, Dragan | Management : Journal of Contemporary Management Issues, January 1, 2009 | Go to article overview

Strategic Analysis of the World Pharmaceutical Industry


Kesic, Dragan, Management : Journal of Contemporary Management Issues


The world pharmaceutical industry has been changing profoundly in the last decade. Intensive globalization, increased competitiveness and the fight for global market shares create new challenges for pharmaceutical companies. Fast globalization definitively reinforces the consolidation of the world pharmaceutical industry. Alliancing in forms of mergers and acquisitions prevail more and more as a strategic orientation for the world pharmaceutical companies. By alliancing, they tend to create strategic synergies in an endeavour to be successful, competitive and capable to continue with further development circles. The pharmaceutical industry in Eastern Europe has been, to a great majority, taken-over by their multi-national peer companies, thus creating completely new managerial challenges. One may forecast that intensive alliancing processes in the world pharmaceutical industry are to continue to form even bigger pharmaceutical concerns and speed up the oligopolization of the global pharmaceutical industry. It can be concluded that strategic management with a dedicated market focus is to play an even more important and especially the highest top priority function in future globalization and consolidation processes of the world pharmaceutical industry.

1. CHARACTERISTICS OF THE WORLD PHARMACEUTICAL INDUSTRY

One may define the main characteristics of the world pharmaceutical industry as follows:

* increased globalization,

* changing structure of competition and increased competitiveness,

* lack of new products, despite increased investments into R&D (Research & Development) activities,

* fast consolidation and concentration of the world pharmaceutical industry,

* increased importance of strategic management,

* development of new therapeutic fields and technologies (biotechnology, pharmacogenomics),

* ageing of world population and opening up of new, not yet satisfactorily covered therapeutic fields,

* quick development of the world generic markets.

The world pharmaceutical market has undergone fast, unprecedented, tremendous and complex changes in the last several years. The pharmaceutical industry is today still one of the most inventive, innovative and lucrative of the so-called »high-tech« industries; however, we may say that the pharmaceutical industry has been adapting itself more and more to strategic market trends and market demands. Further strategic development of the world pharmaceutical industry shows clearly its consolidation, concentration and strong market orientation. The pharmaceutical industry today, with no doubt, unites one of the biggest potentials of all mankind. Development of a brand new drug is estimated to need an investment of more than $1.2 billion and takes more than 12 years to bring it as a finished, legally registered and approved product to the market place (Pharma Strategy Group, 2005). This is, at the same time, a very complex, comprehensive and highly risky job with no final guarantee that the potential new product might succeed on the market and bring back revenues.

If a pharmaceutical company wants to achieve market success with a brand new product, it needs to invest strongly into marketing and sales activities. Thus, by no surprise, we may conclude that basic research and development (R&D), together with marketing and sales activities are two of the most important operative and even more strategic priorities of the world pharmaceutical industry. Here, the biggest investments of the pharmaceutical industry are put by all means. Having analysed these figures, we have found that the biggest, inventive world pharmaceutical companies invest, on average, approximately 16% of their sales into R&D and even more, about 26% or more into marketing and sales activities (Kesic, 2006). However, these ratios, especially the one of R&D investment, are even higher with the specialists, like biotechnology and pharmacogenomic companies, and much lower with the generic pharmaceutical companies (Kesic, 2006). …

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