Sekolah Pendidikan Profesional dan Pendidikan Berterusan

Universiti Teknologi Malaysia

FINAL EXAMINATION

Case Study Question Paper

NAME : Jong Chou Wee

STUDENT NUMBER/IC : TD22060098

SUBJECT CODE : PDBM 2083

COURSE NAME : BUSINESS STRATEGY & STRATEGIC MANAGEMENT

LECTURER’S NAME : TEACHER FAUSTINA

PROGRAMME : Professional Diploma in Business Management

DATE : 22nd October 2022

TIME : 2 hours

FULL MARK : 100

Q1:
The PESTEL analysis pharmaceutical industry can give companies an idea about the external
factors which can have a temporary or lasting impact on the pharmaceutical industry. The
given list shows the effect of the external factors:

Political Factors:
For any business to flourish, it is essential to have a stable political condition. Here are some
political conditions which can impact the pharmaceutical industry :

Most countries maintain frameworks that include guidelines about safety standards,
certifications, etcetera. They also mark the banned drugs, which may cause health hazards. If
a pharmaceutical company fails to follow those regulations, its business may suffer severely.
Administrations of most countries try to gain control over the price of the drug to make it
affordable for people. It may toll on the growth of pharmaceutical companies.
Governments of some countries subsidize the pharmaceutical companies to keep the essential
drugs within the commoners' reach. It helps the companies to survive in the competitive
market.
Economic Factors:
The economy of any direct impacts the businesses. The pharmaceutical industry is also
affected when the economic conditions of a country get affected. The PESTEL analysis
pharmaceutical industry can identify the economic conditions which can affect the
pharmaceutical companies :

As the economic conditions of the countries are developing with time, the household income
of people is also increasing. It may allow them some essential drugs. They may have the urge
to buy costlier drugs, which were previously out of reach for many people.
The researchers are constantly working on drug modification, resulting in more beneficial
and potential drug production. As people are buying those drugs, the pharmaceutical industry
is also flourishing.
The average healthcare spending of the families is increasing. If there are aged people in a
family, there are more chances of high healthcare expenses. It also includes the cost of
medicines. It is also giving the pharmaceutical companies to earn better profit even after
following Government guidelines about pricing.
Social Factors:
Socio-cultural factors of any country can impact the industries within the periphery of the
country. The pharmaceutical industry is not an exception, and the sociological conditions
dominate it gravely. Here are some sociological conditions which can impact the growth of
the pharmaceutical industry:
The lifestyle of people has people incredibly fast yet stagnant. As a result, more people are
moving towards obesity. Thus, facing health conditions like diabetes, thyroid, hypertension.
The patients need continuous medication to deal with this. Hence the sales of the
pharmaceutical companies are also increasing.
As the healthcare system has improved all over the country, the number of the aging
population is also growing. Hence, there is a need for more medicines for them than for the
younger ones. It creates a greater demand in pharmaceutical companies resulting in their
expansion.
Many people are concentrating on having a healthy lifestyle while doing exercises, eating
healthy. It may result in a decrease in the demand for drugs in the future.
Technological Factors:
The pharmaceutical industry is greatly dependent on technological innovations. The PESTEL
analysis pharmaceutical industry can show how the technical conditions can affect the
business :

The pharmaceutical industry is greatly dependent on technology. The research and

biotechnological innovations have resulted in the production of drugs that are good in quality
and have low production costs. It will allow more people to get access to medicines that they
previously could not afford.
The drugs require proper storage conditions. Technology has made it easier to preserve
medicines and transport them without getting harmed due to unpleasant conditions.
Technology has provided pharmaceutical companies with the chance to reach more
companies through campaigns. They can also deliver the medicine at the door, which has
increased the reach of the companies. It can also increase the revenue of pharmaceutical
companies.
Environmental Factors:
Environment is a significant concern, and the impact of waste materials on the environment
has worried the environmentalists. Here are some ecological issues which may affect the
pharmaceutical industry:

As the production of drugs is related to a large carbon footprint, many countries are coming
up with regulations to decrease the effect on the environment. As abiding by these regulations
may be costly for the new companies, they may fail to establish their business.
The production of drugs results in the creation of different biotechnological pollutants. They
may be hazardous for people's health. The company needs to take care of this waste to
maintain the safety of the people.
Like other companies, pharmaceutical companies may take up some corporate
responsibilities towards the environment. They can donate money or campaign for some
environmental causes, which can help them create a better image.
Legal Factors:
A nation's legal conditions do not have much direct impact on the pharmaceutical industry.
However, there can be some indirect issues that may affect the growth of the pharmaceutical
business. The PESTEL analysis pharmaceutical industry can help to point out the legal
aspects which can work on the growth of the pharmaceutical industry :

As pharmaceutical products are one of the essential ones, the government always uses laws to
control the fraud regarding the expiration dates and manufacturing of the batch of drugs. If a
company fails to adhere to the set guidelines, it may have to face legal proceedings.
Pharmaceutical companies are mainly dependent on their database. If they get affected by
cyber threats, the customer may lose their confidence in them. It can affect their business as
well.
Pharmaceutical companies should maintain strict legal guidelines while formulating the
framework for their business and researches. They ensure the safety of the products. It helps
them to avoid legal issues. Thus, allowing them to stay away from the high expenses of
proceedings.

Q2:
The pharmaceutical industry has plenty to celebrate. In the last decade, major therapeutic
advances, such as immunotherapy and cell and gene therapy, have given new hope to
patients. COVID-19 vaccines were developed in record time to help save the world during a
historic pandemic.

But during that same period of groundbreaking innovation, pharmaceutical companies failed
to keep pace with the capital markets. In fact, returns from pharmaceutical companies lagged
the S&P 500 by about one-third, and biotech fared even worse.

Looking at the stock performance of the top 50 pharmaceutical companies, the divide
between the leaders and laggards has been widening. In 2021, the five-year total shareholder
return (TSR) for drugmakers in the top quintile was up by 29%, compared with a decline of
11% in the bottom quintile, according to a PwC analysis. As performance pressures mount,
investors are taking a closer look at which pharma companies are positioned to win and
allocating their investments accordingly.
Market headwinds are well documented. Drugmakers are grappling with extended drug
development timelines, pricing scrutiny, high costs of regulation and litigation, and
increasing competition in nearly every category. Another wave of patent expirations is just
around the corner, meaning more therapeutic areas will have generic or biosimilar
alternatives. Gross margins for some novel treatments, such as chimeric antigen receptor T-
cell (CAR-T) therapy, are well below historical averages and the increasing personalization
of medicine means manufacturers need to generate returns on smaller populations of patients.
All of these forces need to be overcome in pursuit of higher shareholder returns.

First, as leaders set the path ahead, they should incorporate a sharper lens on shareholder
value creation into everyday decision-making. Connecting product-market decisions (e.g.,
portfolio choices, launch investments, production expansions) to shareholder value creation
across the enterprise is essential to help translate great science into great returns.

Similarly, another overarching imperative will be delivering on the promise of digital

innovation. PwC research shows results to date have been disappointing. Looking ahead, the
pharmaceutical industry can learn a lot from leading tech companies in areas like developing
digital products, personalizing customer engagement, harnessing new types of data,
deploying intelligent automation and working in a more agile fashion.

With a foundation set on those goals, pharma leaders can gain competitive advantage by
focusing on five key actions:
Build differentiated capabilities to outperform competition:
Key industry capabilities (e.g., decentralized trials, machine learning at scale) will help drive
the business forward in a differentiated manner. Companies that execute flawlessly on these
capabilities will have a competitive advantage.
Assets, such as patents and products, have always been important to value growth in the
pharmaceuticals sector. But assets come and go. Capabilities are enduring and can create a
lasting competitive advantage. As pharmaceutical companies look to outperform in the future
marketplace, six capabilities are expected to be critical to success:
Drive more returns from large IT and cloud investments:
Companies have made massive investments in enterprise resource planning (ERP) systems,
artificial intelligence (AI), automation and cloud. Now is the time to capitalize on these
investments, driving them to the front-end patient experience to improve customer
satisfaction, while also improving the efficiency of operations.
Retain talent, prioritize culture:
In the age of “The Great Resignation” and the ”war for talent,” having a differentiated culture
to attract and retain the right staff will be critical. Employees want to find purpose and know
that what they are doing can drive change in the world. For employees at pharmaceutical
companies, work means saving lives. Doubling down on this mission, while building a
unique culture that matches your strategic imperatives is critical. Communicating and
executing on those values daily will help drive the most sustained loyalty from your
personnel.
Think broadly about portfolio and transactions:
The industry spends a lot of effort and focus on determining where best to drive the business
strategically (e.g., geography, therapeutic categories, scientific modalities). There is no doubt
that making the right strategic choices can provide a lot of headroom, however, we see
returns accelerated by better execution of divestitures as well as in building out the best-in-
class partnership ecosystem to drive leading science, technologies and talent to the business.
Protect the enterprise:
Given the aforementioned challenges in the industry, it will be critical to minimize any
downside risk around cybersecurity, regulatory challenges and legal matters in order to
preserve value.
Q3.
Every industry has a life cycle, and pharma's has just entered its competitive stage. Here's
how to prepare.

Increasing numbers of low-cost and substitute products. Intense cost pressures. Falling prices
and profits. Dramatically higher R&D costs. Fewer new, innovative products. High-quality
products with little differentiation. Single-digit sales growth.

These are characteristics of several key US industries: automobiles, telecommunications,

manufacturing, apparel, airlines—and pharma. Like products, industries go through life cycle
phases. And in recent years, just like others, pharma has matured into the Competitive stage
of its life cycle. Most pharmaceutical executives understand the importance of product life
cycles for brand planning. Similarly, they need to recognize the drivers and implications of
industry life cycle stages. Moreover, understanding industry life cycles can help companies
anticipate and benefit from market changes, ultimately providing a competitive edge in an
increasingly competitive field.
Experts identify four industry life cycle stages, though these vary from industry to industry.
For pharma, the life cycle can best be characterized as Commencement, Commercialization,
Competition, and Commoditization.
The life cycle typically takes the form of an S-curve. The introductory stage is a relatively
flat line, reflecting the challenges of gaining customer acceptance (Commencement). As
customers appreciate and demand the product, explosive growth occurs (Commercialization).
That growth eventually tapers off as customer segments become saturated (Competition).
Ultimately, sales growth stops and begins to decline as cheaper substitutes and alternative
products appear (Commoditization).
The US pharmaceutical industry—the world's largest, with more than $286 billion in sales—
is currently in the Competitive stage. What's the telltale indicator? A relatively consistent
decline in sales growth over the past decade, from solid double digits to single digits. In
2007, US pharma's annual growth rate hit 3.8 percent, the lowest since 1961, when the
Commercialization stage began. Other characteristics of the Competitive stage: increasing
marketing and R&D costs, more sophisticated buyers, greater competition, and decreasing
profits.
Industries mature at different rates, depending on market-and industry-specific forces. Using
Harvard professor Michael Porter's Competitive Structural Analysis Model, we can identify
five forces catalyzing pharma's transition to the Competitive stage.

Reduced R&D productivity The industry's impressive run of developing new products
peaked in 1996, when FDA approved a record 53 new molecular entities (NMEs). But over
the past decade, pharma's pipelines have dried up: In 2007, only 17 NMEs were approved,
though R&D spend had doubled. This past year, the US branded pharmaceutical industry
launched fewer products than in any of the past 30 years. The lack of new, truly innovative
products is the root cause of most of pharma's other difficulties, including greater generic
penetration, higher cost pressures, slowing sales growth, and reduced profitability.

Sophisticated payers focused on costs The increasing power of managed markets in the US
has accelerated the transition into the Competitive stage. Private and public payers have
dramatically influenced the prescribing, pricing, and perception of branded drugs, while
employing techniques such as restricted formularies, product tiers, and prior authorization to
control their use. By forcing companies to compete for reimbursement access, managed care
companies have negotiated dramatically lower prices for pharmaceutical products. Moreover,
managed market entities have highlighted to consumers the high costs of branded products by
introducing higher copays and more out-of-pocket payments for non-reimbursed products,
resulting in additional pressure on drug costs.

Branded and generic competition Twenty years ago, it typically took years for a branded
competitor with a similar mechanism of action to enter the market; now it's not unusual to
have multiple, same-class competitors at the same time. In addition, the explosive growth of
generics has left branded products with less than one-third of the US prescription market.
Generic intrusion has been hastened by generic companies that aggressively challenge patents
and increasingly bring their products to market even at the risk of lawsuits. According to
Urch Publishing, new generics will threaten more than $100 billion of brand revenues in the
US and Europe in the period from 2007 to 2011, with the most dramatic changes occurring in
2010–2012. The branded market has been further eroded by non-prescription options,
including over-the-counter products and alternative therapies.
Intensified scrutiny and criticism of the industry No other US industry has as many
stakeholders as pharma. Virtually every American uses ethical drugs at some point in his or
her life. A variety of healthcare professionals and other entities are involved in assessing,
prescribing, distributing, managing, and dispensing pharmaceutical products. Numerous
regulatory agencies regulate and monitor most aspects of the industry. Other government
officials, policymakers, and payers have direct or indirect oversight and influence. These and
numerous other stakeholders—such as the media, lawyers, and politicians—have forced
pharmaceutical companies to spend enormous amounts of time, money, and other resources
in responding to their demands, resulting in reduced efficiencies, sales, and profitability.

Intense competition for market share The lack of new products compels companies to rely
almost exclusively on existing markets and products. Regulatory restrictions have made it
increasingly difficult to expand markets. Payers limit pharma's ability to raise prices, while
patent challenges and generic products have reduced the duration of product exclusivity.
Consequently, companies are left with only one real option to generate sales: grabbing market
share from competitors.
Q4.
Strategic groups in a Pharmaceutical industry can be :
• Proprietary drug companies
• Generic drug companies
Proprietary drug companies focuses on developing drugs that are patented while generic drug
companies operate by other typical manufacturing firms by adhering to FDA regulations.

Proprietary companies are specialized in cure to diseases like cancer, chronic diseases etc.
whereas generic drugs are for the regular and common health problems.

Although the United States and Europe are leaders in drug production, retaining the majority
of the top 10 pharmaceutical companies, the drug development chain requires different
corporate forms.

Five types of pharmaceutical industry can be listed and classified as below.

The generic drug manufacturer industry is a well-known division of the pharmaceutical
company.

In this industry, the company has created products with the same strength, dosage and
effectiveness to compete with products already on the market. It is like a clone of other
products. The most popular company is Cipla. Who created the original medicine. They may
have their own research center, but after most of their products are generic drugs, the drugs
are available to make to anyone after a certain amount of time and a limit license of
invention.

New drug developers

They invest money in new projects and after consecutive drug approvals. They are building a
market for it. They have their own brand. They also have research centers and a production
unit there. A company like Merck, Pfizer, Novartis, Glaxo, etc. They are trying to build their
own brand in the market. They patented their drug for a period of time, say 15 years, to take
advantage of the innovation before it became available for general production. Lenders
Licensing In this type of business the brand gives orders to make their own brand under the
control of another business. The Lending Licensing Company that manufactures another
company's products with the same company's brand is manufactured only by the Lending
Licensing Company address used on the label. Research and Development Everyone in the
company works on product research and development. Here all activities are carried out
related to drug development, testing of new drugs as well as generic drugs. The brand
development industry and the industry in general depend on the R&D center. Raw Material
Manufacturers These are companies that typically manufacture APIs (Active Pharmaceutical
Ingredients) that are used as raw materials in other finished drug manufacturing products.
These organizations act as suppliers to other large companies. Options offered by Sanofi
since 2008
Reduced and focused portfolio:

Sanofi has significantly reduced the size of its portfolio over the past decade. This reduction
in size directly affected the quality of the patents, suggesting that some of the higher quality
patents that could still contribute to the overall quality were also eliminated.
Reduce litigation:

the company's litigation strategy has also changed. Previously, the company had actively
filed and been involved in 127 US patent lawsuits since January 2009, appearing as a plaintiff
in 113 of them. In recent years, the company seems to have taken a step back in this and has
only filed one case in 2018, two in 2019 and four in 2020 so far.

Acquisitions to increase footprints :

Acquisitions have helped the company strengthen its patent portfolio in the pharmaceutical
business, while it already maintains a well-established medical device business. The
company's acquisition of Synthrox Inc. for $2.4 billion under current CEO Hudson in 2019,
Bioverative for $11.6 billion and, Ablynx for $4.8 billion in 2018 under former CEO
Brandicourt, were highly strategic. These moves, directly addressed the decline in portfolio
strength of Sanofi in the pharmaceutical industry.

Success in sanofi stretagies can be attributed to the fact that they have strengthen its portfolio
quality and quantity by acquiring more business units and organization top priority nowadays
to focus on increasing portfolio , reduce the unnecessary focus areas and maintaining the
existing market. This has really paid off as now sanofi holds more petents and licenses for
manufacturing and there market share is also growing.

Q5.
The good old days of the blockbusters are gone. The pharmaceutical industry has to adapt to
a new reality and the changes that come along with it. The patent cliff is no longer years
away, it is here now. Healthcare reform, changing customer expectations, technology
advancements, and cost containment signal that pharma companies must rethink the
traditional industry paradigm.

The emerging healthcare ecosystem is one where the patient is a focal point for a myriad of
healthcare services. In order for pharma to participate in the new ecosystem, the industry
must not only focus on the patient, but also partner with its stakeholders to improve health
outcomes, costs, and experiences. Organizations will thrive if they transition by recognizing
and engaging their respective constituencies. Those that don't will experience the full force of
changing market dynamics.

Pharma companies must step back and think strategically, starting with the definition of
"customer." The definition of customer has evolved from "someone who buys good or
services" to "an individual with whom one must deal," which implies emphasis on the
relationship. In pharma, a customer can be a patient, physician, payer, or provider.
Companies that proactively engage the customer, whoever that may be, will be able to
navigate the rapidly changing environment. The emerging business model is one that
accentuates consumer choice, explicit value versus price considerations, engagement and
dialog, and lifestyle care.

Pharma companies will have to overcome current challenges when engaging different
stakeholders. It's up to them to recognize these components and craft customer-centric
strategies that identify, and internally adapt to, change.
Pharma must take a new approach to business as the industry transforms. Decision-making
was once the domain of the physician, but increased patient activity blurs the line as to who
owns the relationship with pharma companies. Balancing cost with effectiveness is a top
strategic priority, as is getting the right message to the right constituencies through multiple
owned and indepen¬dent channels. And, while engagement is a critical consideration,
communication and dialogue with stakeholders is happening outside of traditional venues.
Pharma must contend with new audi¬ences looking for new products and new information in
new channels, all while managing costs and delivering safety and efficacy. In addition,
pharma must focus on delivering value as part of engaging healthcare stakeholders (e.g.
payers and providers).

Patients are changing their attitudes and behavior toward healthcare. They have an increased
awareness and role in decision-making, due in large part to shifting financial responsibility.
They are hungry for information from numerous sources—from their doctor and health
insurer to their pharmacist, drug companies, independent experts, and peers. They are looking
for guidance as they navigate the increasingly complex world of healthcare. And, they want
to break down traditional communication barriers to enable interactive dialogue, not just a
one-way flow of information.

The days of controlling the message are over. Transparency is expected, and complete control
is a thing of the past. Customer-focused pharma companies seek out opportunities to
transparently engage consumers, physicians, payers, and other customer groups wherever
discussion is taking place. And, as channels expand, opportunities arise to interact efficiently,
effectively, and relevantly with different stakeholder groups in preferred and appropriate
channels, depending on the needs, values, and behaviors of each group.

Customer centricity provides pharma companies with a blueprint for engaging all parties by
focusing on their needs and priorities, highlighting product value, and delivering quality
products and services. As healthcare delivery shifts from consumer awareness to decision
management, pharma must analyze and act on data about patients, physicians, payers, and
other stakeholders to engage decision-makers at every level. In addition, "total value of
treatment" should be driven by the value delivered to the patients and their experience during
the treatment process.
Four pillars of pharma customer engagement
Political, economic, social, cultural, technological, legal, and business trends have evolved to
create a new paradigm. The industry mindset has changed from ignoring customers to
informing and engaging them, with consumer opportunities and impact growing along the
way.
The new reality in healthcare means that companies must either take a customer-centric
perspec¬tive or succumb to those that do. There are four fronts of customer-centric business
strategy where pharma companies can achieve real business results:
Enhanced Patient Experience: Patients are looking for better information and experiences
related to their overall healthcare journey. They are leveraging new tools and channels to
create a dialogue about health, disease areas, and drugs. And with economic issues at the
forefront, patients are seeking value while being cost-conscious.
Effective Commercial Model: New marketing tactics are available to transform the
commercial model to resonate with Healthcare Professionals (HCPs). There are also new
opportunities to engage physicians and healthcare providers in more interactive and efficient
ways.
Improved Payer Engagement: Targeting and messaging to payers can be improved by
addressing their pain points while still remaining profitable. Information-sharing and
dialogue is critical with this constituency, with emphasis on patient adoption and access to
drugs.
Informed Medical Relationship: It's important to engage the medical community to ask for
feedback and gain insight based on their expertise and experience. There are new tools and
channels that can be leveraged to share information and research more effectively with the
medical community.

Moving to a customer-centric approach can be a competitive advantage and strategic lever as

pharma rethinks how to engage different customer constituencies: patients, physicians, payers
and providers. In order to successfully transform, pharma must focus on improving the
customer experience, which requires a change in paradigm in both customer-facing and
internal operations.

Pharma must proactively redefine and, in most cases, establish a relationship with patients to
meet the demand for patient-centric service. Patients now expect the same level of service
and engagement in healthcare as other services they receive from other industries (e.g.
telecom, financial services, or retail). Therefore, pharma should find ways (within the
regulatory constraints) to engage patients, leveraging a patient-centric view based on patients'
needs and behavior, as well as consumer insights best practices from other industries. For
instance, many CPG and retail companies have effectively leveraged customer journey maps
and established appropriate interaction channels. Pharma would also need to advance its
understanding of the patient journey not only during the treatment, but also prior to and after
their diagnosis.

As pharma moves away from the traditional sales force model, it must find innovative, but
less intrusive ways to communicate and interact with physicians. There should be more
emphasis on the HCP's priorities, needs, and available communication channels.
Additionally, pharma must develop trust with Key Opinion Leaders (KOLs) and physicians
in order to change the perception of the industry from being sales-focused to a provider of
valuable information .
Finally, the pharma industry must transform the historically combative relationship it has had
with payers and providers. In the past, those relationships have been focused on formulary
and cost. Pharma must forge new relationships that are value-focused, such as
reimbursement, formulary decision-making, clinical development guidelines, and patient-
oriented services. For example, pharma needs to effectively partner with payers to
successfully implement "outcome-based" agreements, which have been slow to be adopted.
It's key to understand payers' and providers' pain points and priorities to develop innovative
ways to partner with them. Only then will pharma thrive in this engaged new healthcare
world.