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Introduction Competition Policy or Strategies in the Pharmaceutical Industry

Abstract

The pharmaceutical industry is under the pressure because of different hurdles. These hurdles include the huge loss of revenues and profits due to expirations of patent with increased costs and regulatory strategies. The present study focuses on the analysing how the main pharmaceuticals sustain a competitive advantage after the patent-cliff, evaluating the most effective strategy of competitive advantage from Strategic Alliance and M&A, explaining the reasons pharmaceuticals use Strategic Alliance and M&A and observing if M&A have increased efficiency in the R&D to release new drugs. The data for this thesis was analysed through 10 years evaluation of financial statements of three big pharma companies Pfizer, Bristol Meyers Squibb, and GlaxoSmithKline. The data collected was analysed through a quantitative approach by using SPSS as a statistical analysis tool. The results of this study show that pharmaceutical industry uses a number of different competitive strategies according to the needs however, the two most common strategies are merger and acquisition and strategic alliance. Out of these two the study reveals that merger and acquisition is the most common and effective strategy being used in the pharmaceutical industry. With respect to pharmaceuticals R&D, the thesis describes that merger and acquisitions have a positive impact on R&D. Implication, and recommendations of the thesis are given in the study. Get  homework help from professionals.

CHAPTER ONE: INTRODUCTION

1.1  Background

The pharmaceutical industry as whole has been experiencing the same matter that companies in other industries are experiencing. This industry is now being forced for reinvention in the face of challenge experiencing from the business environment. It is clear that only the companies or the industry that is agreed on the fact of accepting change is more likely to succeed (Baines, 2010).

The pharmaceutical world has undergone rapid changes with extraordinary complicated modification in the last decade. The Pharmaceutical industry is still the innovative and lucrative market compared to other industries. However, it is seen that pharmaceutical industry has been changing and adapting to form more strategic competitive strengths and trends. Pharmaceutical companies have been the most inventive industry with strong development of strategies. These strategies show that the pharma world shows clear focus, unity and market orientation (The Executive Issue, 2012).

The potentials of humankind have been with no doubt united with the biggest pharmaceutical industries. Development of new medicines requires an estimated investment of about 1.2 million and requires 12 years and more for finishing it and legally registering it as an approved product (Kesič, 2008). This is still a complex, broad and risky job without the guarantee that the new products will give a successful outcome on the market as compared to competitor. Pharmaceutical owners therefore, need a good grasp of the affecting changes for their industry and select from the competitive strategies available.

No wonder that every good strategy consists of clear and differentiated value propositions with an unambiguous implementation plan. A high-quality competitive strategy influences every function in the business. Like all other companies, the pharmaceutical companies are also facing many changes combined with some troublemaking events in the global environment. The business of pharmaceuticals include the relationship changes between providers and patients, changing productivity and expense of R&D, changes in laws and codes of conduct and changing needs in competitive strategies (Young, 2014). 

The overall pharmaceutical industry in Europe focuses on the two major objectives that are included in the competitive policies. These objectives are the public health security at high level as well as the support from pharma companies that ensures the continuity of benefitting Europe from innovations. Conventionally, Europe pharmaceutical industry has a major contribution in establishing the track record in the world through scientific advancement in medicines (Hanger, 2009).

With regard to economic growth, Europe’s pharmaceutical companies have also contributed positively in it. A Workable European Pharmaceutical company is important for the overall industry of pharma because only practical companies would be able to produce positive impact on the citizens of Europe with time. For this, competitive strategies are necessary that would help a company make its place in the market. The world market is expected to reach at $ 1 trillion in the years 2014. Global spending has also been at growth to nearly $ 1.2 trillion by the year 2017 (Brussels, 2014). The pharmaceutical companies are overall considered as the key stone for knowledge based economy.

Dynamic shifts in the market have been consistently affecting the pharma industry. New strategies of competition are required including Strategic Alliance, Mergers, and Acquisition (M&A). Pharma’s are affected by rapid changes with high levels of alliance and formations as compared to other industries that are fully developed. The high frequencies of strategic alliances and the formation of competitive policies have become evident in pharmaceutical industries which initiated the increase of operative alliances from 1993 to 2000 (gottinger& etal, 2010).

It is analysed that many of the mature and developed industries also encounter reorganization and transformation of alliances as compared to pharma companies. Alliances and mergers in the pharmaceutical companies have rationalised on the part of production that competitors could not be accomplished independently. Mergers and Acquisitions represent an industry wide alternative through these alliances towards consolidation (Reichwald, 2012). 

Pharmaceutical companies have been involved in the strategic alliance and M&A’s to complement their competitive strategies and resources for competition worldwide. However, it is observed that there are more reasons that larger pharmas combine with small sized companies and align strategically. It is considered that the reasons might include the knowledge based R&D modernisation to keep up with the environment, market demands and market leadership (Ohba& Paulo, 2007).

Majority of the companies use cooperative strategies in the application and attainment of competitive advantage. This results in increased and multiple alliances simultaneously comprising of a single one big alliance. Many researchers have explored the importance of strategic alliance and alliance portfolio for diverse performance. The limitation on the work of strategic alliance and use of Mergers and Acquisitions give opportunity to study further (Baines, 2010).

1.2  Problem Statement

Big pharmaceuticals are on the verge of facing crisis. The reason behind this is not only the popular medicines of many huge pharma companies, which are about to go off patent but the route that allows and permits firms to restore the earnings lost. The global economy includes alliances and acquisitions for achieving the goals of competition rather than acquiring and using traditional methods of appointments with agents and distributors (gottinger& etal, 2010).

The use of strategic alliances and M&A helps markets and pharmas to enter and utilise new methods of distribution. This means that not much effort is required for learning the methods of succeeding in local or international markets. Mergers and alliances are done to expands and improve the business in all aspects of the business. Acquisition occurs when one company overtakes another company in either hostile or friendly way. It is observed that compared to Strategic Alliance, Merger and Acquisitions are more in practise in pharmaceutical companies. Many famous companies like Novartis, Roche have undergone M&A. This trend is prevailing for the last decade in Europe (Reichwald, 2012).

The thesis focused on Competition strategies between big pharmaceuticals in the time horizon of the past decade within Europe. As general assumptions on strategic alliance and M&A has been less for pharmaceutical industries as compared to other industries, it is important to explore the reason behind using M&A and strategic alliance as competitive strategy within the constraints of the pharmaceutical industry.

1.3  Research Question

The present study tries to find out

  • How main pharmaceuticals sustain a competitive advantage after the patent-cliff?
  • Is Strategic Alliance and M&A the most effective strategy of competitive advantage?
  • What are the reasons pharmaceuticals use Strategic Alliance and M&A?
  • How M&A have increased efficiency in the R&D to release new drugs?

1.4  Aims and Objectives

The thesis conducted the examination of a series of effect that comes from the competitive strategy or policy of an organisation. This thesis focuses on the advantages gain through competitive environment that specifically include strategic alliance or M&A. The limitation of present study’s literature has provided opportunities for conducting researchers on the topic for further investigation in identifying the driving forces of alliances and acquisitions.

The objectives of present thesis are:

  • To analyse how main pharmaceuticals sustain a competitive advantage after the patent-cliff
  • To evaluate the most effective strategy of competitive advantage from Strategic Alliance and M&A
  • To explain the reasons pharmaceuticals use Strategic Alliance and M&A
  • To observe if M&A have increased efficiency in the R&D to release new drugs

1.5  Overview of the thesis

Introduction: The present heading for thesis is of introduction that would help understand the basis of the research. The reason behind the topic and why is the research being conducted. The topic includes the headings of background about the idea of what the thesis are proposing, aims, and objectives of the thesis and explanation of the problem statement.

Literature Review: Literature review of this thesis will include the history of the topics that are to be answered. This Literature review records what has been distributed on a subject by previous researchers and analysts. The literature review is based on strategies of competition with Strategic Alliance and Merger and Acquisition as the focus. This part will also include the definition and characteristics of Patent Cliff with competition Strategies specifically used in Europe.

Methodology: The methodology used for the present study was the use of Secondary source through analysing journal articles, researches, books, and reports. The method used for analysis was the use of comparing, deducing, and evaluating both the strategies and their importance.

Results: For the result section of this thesis, the result included the findings of the topic. In the results section, the data will be analysed keeping in mind the previous findings.

Discussion: The discussion section translates the outcomes in this area. The point is to portray the discoveries attempting to decipher and assess them. The discussion points out any additional finding that would have been found during the result. The conclusion segment will be part of discussion and relate the study discoveries of different studies.

 

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