The model impeded by legislation enacted to set a fixed period on the Patent Protection of these drugs; typically 20 years from the initial filing (Johnson et. al. 2010. p547). Upon expiry of such patents organisations faced the ever-imposing threat of substitutes. Substitutes can rapidly erode the sales an organisation; effectively rendering the product redundant (Lynch 2007, p96). Launch of generics, exacting copies of drugs, constrain profits within the industry through fierce competition driving down prices (Lynch 2007, p97). This was vividly demonstrated by “Allegra, a treatment for hay fever, lost 84% in just 12 weeks following patent expiry” (Johnson et. al. 2010. p548). This profound impact places implications on organisations R&D planning as they must ensure they can gain the costs of R&D back within 20 years; As Johnson et. Al (2010, p297) claims “Generous R&D budgets are crucial to making innovation happen”.
The ramifications of such factors pushed organisations to diversify and pursue other paths and opportunities; biologics presented such an opportunity. One major biologic, vaccines, have a higher redevelopment success rate and lower risk of generic entry than conventional medicine in turn they offer Blockbuster sales potential (Johnson et. al. 2010. 551). In fact Mintzburg (1993, p73) lists a diversification as a key strategy for expansion and growth. The readiness in which the industry pounced to exploit the multitude of opportunities created by molecular biology and genetic engineering indicated such adaptability can overcome such macro enviomental factors (Johnson et. al. 2010. 550).
The main vehicle for diversification was Pharmaceuticals acquiring biologic capabilities (Johnson et. al. 2010. 554). More Pharmaceuticals moved to integrate their resources through mergers and acquisitions; combining companies with a strong pipeline but weak sales and marketing with its opposite (Johnson et. al. 2010. 555). Such integration arguably breeds synergy; the overriding reasoning behind such consolidation. (Campbell et al. 2008, p217).
Amongst the shift in focus for the industry governments were becomingly increasingly engaged with wanting to battle the Pharmaceutical industry. Ageining populations and recessions placed greater burden on health budgets. This in turn lead to governments seeing targeting pharmaceuticals as an easy to control costs (Johnson et. al. 2010. 548). Rumelt et al. (1994 p455) views government as a key entity, which can improve or impede organisations competitive advantage. The industry was required to act and work with, what in many counties was, an all-powerful sole purchaser. (Johnson et. al. 2010. 548).
Whilst an aging population was in fact a result from the advances the industry created there was a surprising inherent lack of trust from the public. (Johnson et. al. 2010. 554). As Wit and de Meyer (2010, p16) point out organisations are presented with a “profitability vs. responsibly paradox”. The industry was perceived as greedy and exposed to sensationalist newspaper headlines and consumer backlash when price disparities between countries emerged. (Johnson et. al. 2010. 554). The corporate social responsibilities of Pharmaceuticals have a great weight placed upon it as the products sold have such an emotional involvement.
The industry has faced many challenges, it has appears to react very aptly to most situations. An overriding element, which encompasses all the macro environmental factors posed upon the industry, is a push for innovation; the industry is founded upon it. This ability to innovate not just with products but strategic approaches seems to create competitive advantage and ensure growth for the sector. The industry however, must remain wary of how governments and society perceive them.
Word count: 844 words.
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