A host of modern pharmaceutical companies all started out as Rhine-based family dyestuff and chemical companies e.g. Hoffman-La Roche, Sandoz, Ciba-Geigy (the product of a merger between Ciba and Geigy), and Novartis1 etc. Most are still going strong today2. Over time many of these chemical companies moved into the production of pharmaceuticals and other synthetic chemicals and they gradually evolved into global players. There are certain factors like the introduction of the penicillin during the late 1940s, its success and relative success of many other innovative drugs which actually institutionalized the efforts of research and development (R&D) in the pharmaceutical industry. The industry expanded rapidly in the sixties, benefiting from new discoveries and a lax regulatory environment. During this period healthcare spending boomed as global economies prospered.
The industry witnessed major developments in the seventies with the introduction of tighter regulatory controls, especially with the introduction of regulations governing the manufacture of 'generics'3. The new regulations revoked permanent patents and established fixed periods on patent protection for branded products, a result of which the market for 'branded generics'4 emerged.
PESTLE analysis is a useful tool for understanding the "big picture" of the environment, in which you are operating, and the opportunities and threats that lie within it. By understanding the environment in which you operate (external to your company or department), you can take advantage of the opportunities and minimize the threats (RAPIDBI).
Specifically the PEST or PESTLE analysis is a useful tool for understanding risks associated with market growth or decline, and as such the position, potential and direction for a business or organization.
Technological advancements, tighter regulatory-compliance overheads, rafts of patent expiries and volatile investor confidence have made the modern pharmaceutical industry an increasingly tough and competitive environment. An analysis of the structure of the pharmaceutical industry using the PEST (political, economic, social and technological) model (Susanne, 2004) is given below.
Increasing Political Attention
Over the years, the pharmaceutical industry has witnessed increased political attention due to the increased recognition of the economic importance of healthcare as a component of social welfare. Political interest has also been generated because of the increasing social and financial burden of healthcare. Examples are the UK's National Health Service debate and Medicare in the US.
Increased Economic Value
During the year 2003, there were many high value mergers and acquisitions which were witnessed by the global pharmaceutical industry. With a projected stock value growth rate of 10.5% (2003-2010) and Health Care growth rate of 12.5% (2003-2010), the audited value of the global pharmaceutical market is estimated to reach a huge 500 billion dollars by 2004. Only information technology has a higher expected growth rate of 12.6%. Majority of