A PESTEL/PESTLE Analysis of Pharmaceutical Industry
The global pharmaceutical industry is expected to have grown to more than 1.12 trillion dollars by the year 2012. This trillion dollar industry is facing various uncertainties globally. A market research firm ‘Evaluate Pharma’ projected a global growth rate for the Pharma industry of 6.3% CAGR through 2022. The rising prices of drugs are another source of rising skepticism globally. However, apart from the political and economic, there are other kinds of pressures too this industry is facing. Globally, the pharmaceutical companies have to invest a lot in R&D. Coupled with it are the other expenses which generally result in higher prices of drugs. In US too, the industry is under intense pressures. This is a PESTEL analysis of the pharmaceutical industry analyzing how these various pressures affect it.
Political:
For past some years, the pharmaceutical companies are facing tough political scrutiny globally. The drug prices were already under pressure in Europe and Japan and now in US too. It is not just the drug makers, but the drug distributors too are in trouble. For a quite long time in US, the drug producing companies were able to charge as they liked. Margins are already running low and pricing pressure is leading to losses for several drug makers including Johnson and Johnson. Political pressures can be a major challenge for the pharmaceutical industry. In US, particularly several things have changed because of the rising political pressure. Such pressures become a cause of worry for the drug makers, distributors and even the investors who are worried that under rising pricing pressure, the drug makers would have to provide steeper discounts. The current situation in US is sparking fears over what may come next. During recent years, politicians and pharmacy managers have added to the industry’s pressure. Such pressures do not just become an impediment to growth but also have the potential to cause losses.
Economic:
The economic crisis is over but its effects are still there around. Around the world in several countries where the economic situation has not yet fully recovered, the condition of healthcare is pretty bad. Various kinds of economic and political pressures are already leading to losses for the Pharma companies. 2015 however, was a bumper year in terms of approval for new drugs. However, the stronger dollar globally is also a cause of trouble. It is reducing the net profits of the US based Pharma companies. Still, its effect can be positive for the companies based in Europe. The US based Pharma companies are faced with a growth squeeze and are trying to cut costs in varying ways. Amid all these challenges the Pharma industry faces growing pressure related to profitable growth. However, the economic situation has continued to improve and the rate of employment is also up since the recession. Still, currency fluctuations will remain to be a source of worry for the Pharma companies.
Social:
Socio-cultural factors present both opportunities and threats to the pharma sector. On the one side is the aging population which brings a wide range of opportunities for the industry. Aging population will need dedication for several kinds of problems that come with increasing age. There are other problems too like obesity which is a common problem across US and affects nearly all the age groups. Changing age composition of the US population and other factors have pressed new demands on the healthcare industry and the Pharma sector. The public is also more informed than ever and their expectations and demands have also changed simultaneously which has led to additional pressure on the companies. Social networking has added to the public activism and the Pharma companies are under a lot of pressure over how they get closer to the consumers and maintain profitable growth rates.
Technological:
Technology has brought several opportunities for the Pharma and healthcare sector. However, it also remains a source of expenditure for the Pharma companies. Especially, the rise of social networking has given rise to several new profitable opportunities for the Pharma sector. Social media has started playing a very important role in healthcare.
It has become a new means to connect with the customers. It also provides the Pharma companies an opportunity to advertise direct to the consumers. New technologies help companies reduce production costs and bring down expenses. The rise of IT has brought several major opportunities where costs are also minimum for the drug makers.
Environmental:
There are some important environmental risks associated with pharmaceuticals. Various kinds of pharmaceutical residues can pollute the environment. While most of these products do not have a major impact on the environment, still their proper storage and disposal is essential to avoid any kind of environmental impact. Based upon the size of the global Pharma industry, its responsibility is also big. The pressure on the Pharma companies is high over synchronization between environmental needs. Both government and the community are pressing the industry to invest more in environmental concerns.
Legislative:
The legal pressures are one of the biggest challenges before the pharmaceutical industry. In the recent years, financial penalties on pharma companies in US have also become more frequent. Apart from anti-corruption laws, strict compliance is a costly challenge before this sector. In this area, there are four major challenges to be dealt with. Those challenges are – anti corruption, cyber security, abuse of sales and marketing tactics and anti-trust issues.
Not only in US, in the emerging markets too, the level of legal scrutiny and oversight has increased. Several companies have spent millions of dollars in the past years to resolve the investigations conducted by DoJ. In such an environment, the companies are required to identify their risks and opportunities proactively and develop policies that can mitigate these risks.
Sources:
https://www.ft.com/content/b48b155c-c58d-11e5-b3b1-7b2481276e45?mhq5j=e1
https://www.reuters.com/article/pharmaceuticals-prices-idUSL8N16B2EX
https://www.strategic-planet.com/2011/01/a-pestle-analysis-for-the-pharmaceutical-industry/
https://www.bloomberg.com/news/articles/2017-04-18/drug-investors-feel-pain-of-price-pressure-as-earnings-take-hit
https://www.pharmacompliancemonitor.com/four-risks-pharma-companies-face/9474/