The Global Pharmaceutical Industry Case Study
Sarah Holland (Manchester Business School) and
Bernardo Bátiz-Lazo (London South Bank University)

Scenario Planning. A Worked Example in this Industry Context!.

Step 1. Key trends • the pharmaceutical industry facing a rapidly changing environment, which offers both opportunities (such as harmonisation of regulatory requirements) but also threats (more discriminating purchasers) • the need for global presence to achieve adequate return on escalating marketing capabilities and R & D costs: • a strong focus on healthcare cost containment, such that new treatments must be justified on cost-benefit grounds, adding to development costs; • to command price premiums, new products must offer unique benefits, yet information leakage means that most products are imitated rapidly; • IT developments provide greater access to detailed healthcare information for both providers and patients, also pushing forward cost-effective treatments: • Educated consumers demanding advances in therapy; • There are opportunities to change organisational models but no-one has yet found a feasible alternative; • Continued industry consolidation.

Step2 Identify and list forces likely to have an high impact on the industries future development.

a) Increasing concentration of buyers b) Increasing power of distributors (parallel trade) c) Generic substitutes d) Scientific advances leading to new drug discovery processes and greater targeting of treatments e) Government pressure on costs and intervention f) Harmonisation of healthcare practice g) Globalisation, greater harmonisation and entry into Japanese markets by European and North American firms h) Growth of pharmaceutical sales in developing markets i) Continued mergers and acquisitions leading to more rapid concentration in the industry or vertical integration j) Transformation of traditional distribution or business models by DTC marketing and the Internet k) Threat to intellectual property resulting from the HIV/AIDS crisis in Africa l) More informed consumers

Step 3

The scale below is one possible view on the industry based on what we may believe are certain or uncertain forces:

Certain a,b,c,e,f,g
Uncertain d,h,i,j,k,l,

Step 4
It’s the factors with high impact and greatest uncertainty that should be used to develop scenarios, namely

• Scientific advances leading to new drug discovery processes and greater targeting of treatments • Continued mergers and acquisitions leading to more rapid concentration in the industry or vertical integration • Transformation of traditional distribution or business models (including greater use of the Internet for DTC marketing) • Threat to intellectual property resulting from combination of generic competition and the HIV/AIDS crisis in Africa • More informed consumers

Step 5
|Big Positive Change (1) |No Change (2) |Big Negative Change (3) |
|Improved diagnosis and more efficient |Time to Market remains key dimension |Patent protection shrinks as clinical trials |
|clinical testing | |become ever more cumbersome and costly |
|Genomics provides cost effective ways to |Emerging markets remain the main areas |R&D priorities radically change |
|detect disease and develop new drugs |antibiotics and generics | |
|Enhanced R&D and marketing capabilities pay|Mergers and acquisition activity stops |Big Pharmaceuticals become a holding company of|
|off by bringing more blockbuster drugs |and/or poor performance of vertical |drug discovery outfits. |
|faster to market |integration. | |
|Internal biotech’s become the solution to |New marketing channel |Emergence of Virtual companies |
|organisational problems | | |
|Harmonisation of approval processes within |Intellectual property rights are retained |The world’s most populous developing markets |
|the EU (ie single submission) and between |and strengthened across the world, with |are opened up to cheap copy products from |
|the EU and the US |exceptions being made only in cases of true|countries such as India, and effectively lost |
| |emergency such as AIDS |as markets for major Pharmas |
|More and better quality information creates|Direct to consumer communication continues |Angry consumers force governments to permit |
|better informed and educated consumers. |to be outlawed in most countries outside |direct to consumer (DTC) communication so that |
|Medical practitioners welcome and support |the US and informed consumers continue to |they are not “kept in the dark” about new drug |
|the empowering of final consumers |use the internet |developments. DTC is then politicised in |
| | |election campaigns |

Step 6 – Three possible future scenarios:

Scenario one Benign Change in the Environment
Increased opportunities for pharmaceutical sales developing in emerging markets, with little substitution from biotech products, no entry of new participants and a decrease in mergers and acquisition activity. Time to market remains critical but genomics helps to fine-tune NCE selection and reduce time in clinical trials. Orgaianisational changes result in a number of very promising “blockbuster drugs” advancing through the pipeline. There is greater harmonisation amongst EU regulators and between the EU and the US.

Scenario two Moderate change in the Environment
Relatively little substitution from biotech products, some advances to reduce R & D expenditure (moderate improvements in basic drug discovery research) or some improvement to make expenditure in clinical trials more effective. Outsourcing (ie licensing of products) continues to develop but without challenging established players. Entry of new participants and/or consumers opting for some forms of alternative medicine (ie non-drug based such as herbolaria). Slow but consistent steps towards greater industry concentration continue. However, there are increasing sales opportunities in emerging and recently industrialised countries.

Scenario three: Hostile Future Environment
Death of blockbusters in the pipeline as most promising drugs fail the clinical trial stage. Most income generation is associated to licensing agreements and profitability thus plummets. There is a recruitment crisis as a whole generation of new scientists is lost to mid-sized players and biotech. All investments in genomics prove futile at present as it will be one or two more generations before any practical result is evident. Significant substitution from biotech and generic products fulminates patent protection while courts are an ineffective way to mount a challenge. Emergence of new alternative e forms of non-drug-based therapeutic treatments and widespread adoption of alternative medicine practices. Entry of new global participants such as Japanese, Korean or Indian laboratories. Biotechnology-based firms enter European and North American markets enmasse’. Increased mergers and acquisition activity puts substantial short-term pressure on profit margins. No significant opportunities in emerging and recently industrialised countries are evident.

Note: These three resulting scenarios are the extremes of possible futures. Providing the strategies we develop are robust in all of them then we will have managed the uncertainty in the future environment as well as possible!