The Role of It in the Pharmaceutical Industry
Table of Contents Table of Contentsi Introduction1 1Definition of The Pharmaceutical Industry1 2Environmental Analysis2 2. 1Legal Issues2 2. 2Political Issues2 2. 3Economic Issues2 2. 4Social Issues2 2. 5Technological Issues2 3Forces of Competition3 4Value Chain4 4. 1Discovery4 4. 2Production Development4 4. 3Manufacturing4 4. 4Marketing4 5Role of Information Systems & Technology4 6GlaxoSmithKline5 7United Drug6 7. 1Company Overview6 7. 2Competitors6 7. 3Technological innovation6 7. 4Further analysis:6 8Astra Zeneca7 Conclusions8 ReferencesI Introduction
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For the purposes of this report, we will perform a detailed overview of the pharmaceutical industry, including defining the industry and its strategic forces, an environmental analysis, the forces of competition within the industry and value chain analysis as well the role of IS/IT in the industry. Four companies will be individually researched within that industry and this individual analysis will include financial information as well as industry market sources. A clear plan will also be outlined for further analysis on these companies. Definition of The Pharmaceutical Industry
Today the pharmaceutical industry is a global organization, in the area of research and development of new drugs to combat serious illnesses and life-threatening diseases. Historically apothecaries prepared medicinal compounds, whereas, today universities and large-scale manufacturing developments, with advanced scientific and technology techniques, develop and manufacture new drugs. The diseases of the last century were cholera, tuberculosis, typhoid fever, but the modern diseases of, cancer, brain degenerative-diseases, etc, demand stronger, medically advanced drugs to combat them.
This level of research demands teams of highly organised, trained scientists working in laboratories, who develop and invent new drugs. This requires high capital investment for research and development to patent new drugs, as the pharmaceutical industry is an intensely competitive industry. The challenge for management therefore is to seek better improved strategic models as the industry is restructuring itself to meet ever changing market needs. A company can invest several billion dollars and many years of effort to develop and legally register a new drug, with no certainty of success or return on investment.
A lot of time and investment goes into research and development, aligned with legal, political, issues plus the costs of overheads are astronomical, as a company can invest up to forty per-cent of revenue in the development process. The pharmaceutical industry is driven by the need to compete in existing and new emerging markets, like China, Russia, Brazil, India and Mexico, etc. For example, Elan, an Irish company, recorded sales in 2009 of its drug Tysabri of one billion dollars, in forty different countries. Global sales for the industry were recorded at over $600bn with a yearly increase of 10%.
Any new drug needs to be patented and registered and given the legal requirements to be marketed, as different jurisdictions will have different legal implications, especially if a company is sued due to adverse effects of the drug. As the population of the world lives longer due to new life-saving drugs thus creating a wider market share for companies, supply must constantly meet demand. This event leads to companies, being driven by intense competition, to engage in mergers and acquisitions in order to survive, the dominant companies globally, according to recent statistics, are: • Pfizer(US) • GlaxoSmithKline(UK) AstraZeneca(UK/Sweden) • Hoffman-La Roche(Switzerland) So despite the global economic downturn, the pharmaceutical industry has continued to be profitable, it has remained economically strong due to constant demand irrespective of economic and market changes, and it is also globally established, with improved healthcare being a constant driver for the world’s population, the companies within the pharmaceutical industry will always create new drugs to meet this demand. Environmental Analysis The core issues facing the pharmaceutical industry are legal, political, economic, social and technological issues. Legal Issues Lawsuits are a major concern for the pharmaceutical industry. When a company markets and supplies a particular drug to millions of people worldwide, it is inevitable that sometimes it will produce negative side effects. An example of this would be GSK’s Avandia, a diabetic drug which has recently been reported to cause strokes and has resulted in thousands of lawsuits. (Hallam & Larkin 2010) 2 Political Issues The introduction of new legislation impacts the industry and leads to reforms. A recent example of this is the new legislation introduced by Minister Mary Harney which will come into effect in 2011.
It will allow for increased generic substitution of drugs, which will be a major driver of competition within the industry. 3 Economic Issues The economy one would think would not be a major influence on the pharmaceutical industry however, during the current recession many pharmaceutical companies are reducing their workforce and closing factories in a bid to cut costs. 4 Social Issues In recent years there has been growing pressure on companies to have regard to ethics and social responsibility. Testing of products on animals is the most common issue affecting the pharmaceutical industry.
Anna Lewcock explains that the RSPCA has given its support to ten pharmaceutical companies, including Astra Zeneca and GlaxoSmithKline on a data-sharing project to cut down the need to test on animals. The project involves the ten companies sharing data to avoid the duplication of tests and experiments performed on animals. 5 Technological Issues Changing technology is always a test for companies. It is vital to keep staff up to date with new information systems, and for management to ensure that they are getting the most from their IT systems.
A major issue for the pharmaceutical industry is deriving systems that will aid research and development. Forces of Competition Porter’s 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: patent limitation, huge advertising and research and development costs involved, organisational infrastructure needed to develop a new drug, great risk in developing new medication.
The risk of substitute products has increased in the last years due to the development of biotech drugs, over-the-counter drugs and generics. Generics copy what already exists on the market and their prices are much lower, as they don’t face research and development costs and offer the same value as ethical drugs. Most consumers can obtain the OTC drugs as no prescription is needed. 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. Also, the suppliers are obtaining more power as more mergers and acquisitions are taking place, thus concentrating the supply side. It is important for a company to find a position in the industry where the company can best defend itself against the forces mentioned above or can influence them in its favour. There are two main competitive strategies a pharmaceutical company may adopt: a) Strategy of cost leadership: manufacturing and distributing products at the lowest possible cost.
For example, a pharmaceutical company can move its R centres to other countries which have low labour costs or it can outsource small companies or biotech companies to do R instead. b) Strategy of product differentiation: offering a product that the customers perceive as more valuable than the competitors products. Product differentiation is a large aspect influencing the structure of the pharmaceutical industry. It is encouraged by patents which give each company ultimate rights over a specific product. Research and Development has a great influence on product differentiation.
Pharmaceutical companies spend large amounts of money on this as it can affect their survival on the market. Product differentiation can also be a barrier to entry into the market. If a new company cannot create a different product, they will not be able to penetrate the market. They will have to spend a great amount of money on R of a new product which does not create conflict with the patented products on the market. In this sense, government policy and patent law is an influential factor for entry. Value Chain 1 Discovery
After targets are indentified, the target is then manipulated to perform desired result. Tests are then carried out using cell and tissue samples and also mice, after which the compound is optimised for further testing. The application for “intellectual property rights” for patient testing is then carried out, after going through administration and management. Trials can last up to twelve years. 2 Production Development The companies are highly regulated by official government bodies, the trials can last between four to seven years and take up twenty five percent of all heir development costs or about one hundred and seventy million to two hundred and forty million dollars. If the tests are successful, post market testing is then allowed to the public. If there are problems then the project and the drug can be withdrawn by the regulatory bodies. 3 Manufacturing This stage occurs during the production development stage, manufacturing is heavily regulated by government institutions and the process is heavily controlled, the facility is kept to high quality standards and the workers aptitude is also monitored. 4 Marketing
This is the final stop in the chain to deliver the manufactured drug or medicine to outlet sources. There are two ways to do this. One is to deliver direct to the consumer by way of the medical practitioners. The second way is by selling over the counter with the right by prescription. This is done through high profile sales executives. Role of Information Systems & Technology Information systems and technology play a major role in the pharmaceutical industry. The process of researching and developing new drugs is a very lengthy process and involves huge costs.
The challenge for the pharmaceutical companies is to implement information systems that reduce the costs and time involved to develop new drugs. (Papp, Journal of Cases on Information Technology, 2003) Information technology has aided competition in the industry. Before the development of advanced computer network systems, a pharmacist would fill prescription as specified by the doctor. However nowadays computer networks enable pharmacists to check for generic substitutions when filling a prescription, which may be required by the patient’s health insurer.
This inevitably leads to price reductions between competing pharmaceutical companies. Managing inventories has also become less time consuming. Pharmacies would normally have to manually order drugs from wholesalers, who would deliver the product requested and replenish their own inventories by ordering drugs from pharmaceutical companies. Nowadays however, computers alert the pharmacist when stocks are running low and inventories can be replenished with the click of a mouse. GlaxoSmithKline GlaxoSmithKline are headquartered in the UK, with an operations base in the US and have many operations in every continent.
They currently hold an estimated 7 % of the global pharmaceutical market. They specialise in prescription medicines, vaccines and consumer healthcare. With a turnover of $45,290m and an operating profit of $13,450m in 2009, GSK are an industry leader. According to their website, GSK have three strategic priorities namely, growing a diversified global business, to deliver more products of value and to simplify their operating model. They have outlined clear objectives on how they intend to achieve these strategies.
One of the ways that they intend to grow a diversified global business is by investing in emerging markets such as Japan. In order to deliver more products of value, their plan is to focus on developing a higher volume of mid-size products for more clearly defined patient populations, and thus reduce the risk of the huge costs involved in research and development of “blockbuster drugs”. The plan to simplify the operating model consists of a major restructuring plan, designed to increase profitability. Their main competitors are Pfizer, Novartis and Sanofi Aventis. Daily Finance 2010) By applying Porter’s competitive strategies to GSK, we can see how they can gain competitive advantage over these competitors. • Overall Cost Leadership: GSK have announced their aim to bring down their drug prices in developing countries to enable low income customers to obtain their products. • Differentiation: GSK developed a product which was perceived as unique. This product was the vaccine for the H1N1 ‘swine flu’ pandemic. The company acknowledge that their 17% increase in sales for 2009 was directly attributable to this. Focus or Niche: GSK have identified their geographical niche market as Japan and they intend to grow their business by investing in this emerging market. The role of Information Systems and Information Technology is vital for GSK to Continue to be an industry leader. Further analysis will be required to research how they can make use of IS and IT to complement their strategies. This analysis will comprise a SWOT analysis, application of Porter’s five forces model, and any other relevant information indicating how GSK use IT throughout their organisation.
United Drug 1 Company Overview Founded in 1948, United Drug Plc is a leading international healthcare service provider with operations in Ireland, UK, Belgium, the Netherlands, and the United States. United Drug Plc is listed on the Stock Exchange in London and Dublin. The Company operates across three divisions, Healthcare Supply Chain, Packaging & Speciality Services and Contract Sales & Marketing Services. In Healthcare Supply Chain, United Drug is the largest pharmaceutical wholesaler in the island of Ireland. (www. united-drug. ie) 2 Competitors
United Drug has a number of competitors such as Alliance Boots, Celesio AG, Waymade Healthcare Plc. The companies are considered as the most significant competitors against United Drug mainly because their products are highly related to the products of the United Drug and they can directly or indirectly affect its revenues and profitability. Another important consideration is that these top competitors are also global. 3 Technological innovation United Drug invests into innovation that helps the company to hold its leading position in the industry and attract companies that need outsourcing services.
By doing so United Drug attempts to undermine its rivals by using new technology and services. In January 2010, United Drug integrated a Quality Management System into the entire organisation obtained from Pilgrim Software Inc. , a world-leading provider of Enterprise Compliance and Quality Management software solutions. The software provides a platform for automated solutions of documentation, complaints handling, auditing and also ensure the reduction of risk, errors and greater business compliance worldwide.
It will improve and speed up how orders are processed, managed, logged, saving time and resources, will help the service recovery process hugely, resulting in happier and more loyal customers and also reduce risk and provide corrective action and prevention facilitates to help this along. Overall, the software should be a huge help and success enabler for the organisation. 4 Further analysis: – More detail regarding United Drug products and services – SWOT analysis – Environmental analysis: PEST+L Expand on Competitors and Forces of competition – Expand on Business implications of technological innovation + future developments – Details of sources, references and bibliography 8ELAN Corporation Elan is an Irish pharmaceutical company, founded in 1969 and based in Athlone Ireland. Today it is at the forefront of bio-neurological progress. It has made significant strides in the development of brain-degenerative disease drugs. It’s operating profit for 2009 was $45. 3m, with revenues of $1bn due to it’s key driver drug Tysabri.
Its customers are based in forty different countries, globally, due to modern based technologically facilities, for its research and development in both the United States and Ireland. It works in collaboration with other successful companies, like Johnson & Johnson based in the US, sharing advanced technology facilities and expert knowledge, carving a path that leads to advanced drug development. Biogen Idec. Inc. , aided Elan to develop Tysabri, which catered for approximately 50,000 patients worldwide by the end of 2009.
It’s main competitors are Pfizer, GlaxoSmithKline,etc. , whose yearly revenues average around $40bn to $50bn annually, as the increased pressure of costs in the health-care environment, can only be met by the pharmaceutical companies in the industry with the most potent capital outflow, especially in the areas of research and development. The outlook for the company, is to establish a stronger presence in the area of bio-neurology. The prospects for Elan are highlighted in the total revenue generated for 2009, at $820. 9m, and total assets of $2,321. m plus liabilities equalling $1,806. 9m and shareholder equity at $514. 4m. This enhances role as a cash rich dynamic company, whose outlook for 2010 and 2011 is continuous growth in the sphere of bio-neurology. The driver for this growth will be increasing revenues and an ability to adopt a lower cost base, that will enable Elan to establish a stronger market presence in the pharmaceutical industry. Astra Zeneca Astra Zeneca was formed on April 6th 1999. The group are a merger of the two companies Astra AB of Sweden and the Zeneca group of the United Kingdom.
Both companies came together as they have similar science based customs and similar views on the pharmaceutical industry. The main competition is in the form of the companies of GlaxoSmithKline, Pfizer and Bristol-Myres Squibb. It profits have always been high and it even in the global recession. The revenue has has increased from 31,601 million in 2008 to 32,804 million in 2009, the revenue has contributed to the rise in both the Gross profit and the profit for the period, keeping the profitabillity steady.
From the analysis I have carried out on this public limited company, this group seem to be going from strength to strength, it has improved in all areas, its profits are up from the previous years, in terms of surviving the next year its gearing is down from the previous year and its acid (quick) ratio is keeping strong and has improved from the past year. Its yearly trends are up in most aspects like profits and revenue. This group is in good condition for the future. Conclusions
From the details of this report we have reached a conclusion that the pharmaceutical industry is a very profitable industry. It is highly regulated and has many external forces which impact on it. The overall strategy of the industry as a whole is to develop and manufacture new drugs to combat illness and disease. Billions is spent every year on research and development. Information systems and technology can play a vital role in streamlining the value chain, to cut costs and improve profitability.
Identifying and implementing information systems to complement the core strategy is imperative to pharmaceutical companies in order to achieve competitive advantage. References Newspapers: Journals: Books: Bocij, P. et al (2003) Business Information Systems, Essex: Prentice Hall. Websites: Daily Finance (2010) GlaxoSmithKline Plc Top Competitors [Online], Available from: http://www. dailyfinance. com/company/glaxosmithkline-plc/gsk/nys/top-competitors [accessed 25 October 2010] Hallam, K. and Larkin, C. (2010) Glaxo’s Avandia to be pulled in EU, Restricted in U. S. Online], Available from: http://www. businessweek. com/news/2010-09-23/glaxo-s-avandia-to-be-pulled-in-eu-restricted-in-u-s-. html. [accessed 4 October 2010] Lewcock, A. (2007) Industry project aims to cut animal testing of excipients [Online], Available from: http://www. in-pharmatechnologist. com/Materials-Formulation/Industry-project-aims-to-cut-animal-testing-of-excipients [accessed 14 October 2010] Papp, R. (2003) Information technology & FDA compliance in the pharmaceutical industry [Online] Available from: http://0-find. galegroup. com. millennium. it-tallaght. ie/gtx/infomark. do?