In this report, which is focus on analyzing the development and the current situation of the pharmaceutical industry in the United States based on strategic management perspective. U.S. is still leading the world's biggest market of pharmaceuticals and has the most advanced technology of producing bio-pharmaceutical drugs in the worldwide industry.HistoryThe development history of pharmaceutical industry should be concerned in terms of analyzing and diagnosing the whole industry. During the World War I, the pharmaceutical industry boomed because a large amount of drugs from Germany were patented and allowed to be produced in the U.S.. After The World War I, the door of the pharmaceutical industry was opened. When the World War II started, pharmaceutical companies cooperated with government to provide drugs to the military and there was no doubt that it would stimulate the development of pharmaceutical industry. There were a lot of new drugs and innovations appeared. For example, dyestuffs were found to be used as antiseptic and Penicillin was a significant discovery in the whole emergent industry. After World War II, pharmaceutical companies expanded business scale and operation scope and achieved the strategy of rapid expansion in healthcare industry. From 1946-1950, thousands of new drugs and biologics drugs were approved by Food and Drug Administration (FDA) and Research and Development(R&D) became firmly established within the sector. From 1954- 1970 period, the rate of return on investment of new drugs was 21% which benefited from the permanent patent protection and increasing investment enthusiasm. In 1980, Ronald Reagan became the President and the government encouraged to develop pharmaceutical industry energetically. A lot ofpolicies influenced the industry such as Bayh-Dole Act and Stevenson- Wydler Act. In 1990, with the economy declining and the expenditure of health industry raising, pharmaceutical companies had to face problemd of purchasing power decline. The whole industry was under stress to deliver genuine product innovation. Entering 2000, biotech drugs were becoming more and more popular even if it was produced in a harder way. Kenneth I . Kaitin(2004) stated that:"Business as usual is no longer an option when it comes to developing newprescription drugs. Pharmaceutical and bio-pharmaceutical companies arespending more on R&D than ever before, yet the number of new drug approvalshas declined steadily. As a result, many drug firms are focusing on ways toimprove the efficiency and productivity of their R&D programs."In the current situation, pharmaceutical companies have to focus on building capabilities that are truly differentiated and consistent with the changing demands of the healthcare market for survival. This project is going to have a deeply analysis on the current industry situation and on some specific pharmaceutical companies based on strategic management knowledge.ChallengesPharmaceutical industry of U.S. is facing severe challenges, coming with the healthcare reform, industry consolidation and other fiscal intermediaries within the U.S. Healthcare industry. Frist of all, patent expiration problems that affects many pharmaceutical companies in the U.S.. In the top ten sale list, there were six patent medicines expired between 2011 and 2012. Thirty billions dollars pharmaceutical market are threatened by generic medicines. Most of the large pharmaceutical firms are trying tofind substitute medicines to dominate the market again. Secondly, business models are going through the painful process of downsizing. In order to improve competitive capability and to be more efficient, a lot of companies are facing choices. Simplex business model or the risks of diversification, different companies have different implementation. Downsizing is not just cutting cost. It has to consider productivity and innovation. Thirdly, increasing cost of providers and high expectation of patients. Medical treatments have grown increasingly because of rising prescription drug costs with the development of economics, social progress and the application of advanced healthcare technologies. It not only helps to improve the health of the country, but also leads to higher expenditure. Finally, healthcare reform also has a significant impact on pharmaceutical industry. Since quite basic details are undecided, it is unpredictable for the future of pharmaceutical industry. Healthcare reform is aiming at extending coverage and reducing expenditure. The coverage will rise from 85% to 95%. There is no doubt that it will increase the consumption of drugs. A lot of poor people and those with pre-existing condition will have insurance so that they can afford to go to the hospital. Compare to the healthcare reform in 1990s, Cook and Anna(1994) opined that, "New drugs, breakthrough or not, could face a special rebate if their introductory or launch price was judged too high, further lowering the profit incentive. All of these additional provisions are designed to ensure that pharmaceutical producers would absorb most, if not all, of the rebate from their profits." However, it is a totally opposite situation for pharmaceutical industry in the current healthcare reform. With the reform of the medicine, pharmaceutical distribution companies will have more market opportunities in the coming future.EndingAccording to the analysis above, the report is focusing on analyzing the trend of the pharmaceutical industry based on the result of the strategic analysis tools. With the five forces model, it shows that pharmaceutical industry is competitive. The threat of new entrants and the high intensity of rivalry among the competitors lead to fierce competition within the whole industry. The high bargaining power of buyers (pharmaceutical retailers) intensifies the competition among firms. Adding to the economic situation and political effects for buyers and suppliers make the competition increasingly serious. The strategic group mapping is regarded as an important strategic analysis tool with the help of which competitors ' activities are exactly identified in the pharmaceutical industry. Obviously, the map also shows that the top five pharmaceutical companies are under great competition pressure in the pharmaceutical segment and R&D costs. In order to survivein this great competitive environment and meet the trend of the growing industry, what should the pharmaceutical companies implement and change?Innovation-- the key to success in the pharmaceutical industry.Gassmann, Reepmeyer and Zedtwitz (2008) stated that:" The next ten years will be seen as a signal point of transition in healthcare.Medicine will be transformed from an instinctive art of alleviating symptoms to ascience of personalized healthcare. The next decade will be viewed by futuregenerations as the time when treatments became preventative, predictive andpersonalized."Many large pharmaceutical companies are facing their toughest outlook in the coming future. Innovation will help them find the way out. It requires constant adaptationto new requirements. Both large companies and small companies are forced to redefine their concept of pharmaceutical innovation. However, pharmaceutical innovation is a very risky implementation which requires high investments and a long time period. Paradoxical conflict problems also exist in the government's perspective. On one side, government would encourage pharmaceutical industry to invest in producing new medicines so that the market can provide more effective and various medicines to patients. On the other side, the government has to control the rising expenditure of the healthcare. As a result, innovative strategy would be a long-term strategy for sustainable future growth. Pharmaceutical companies should keep updating the key changes in the market strategy so that they can sustain in the right direction. Benefiting from innovative strategy, pharmaceutical companies would maximize the market share and enhance R&D productivity.Establishing Strategic Alliances and PartnershipsDeveloping strategic cooperative partners can bring both parties win-win cooperation and mutual benefits under an increasingly challenging marketplace. As Shalo (2004) stated that:" In fact, research suggests that products co-developed by a pharmaceutical and biotech company are more likely to be commercialized that those that are developed by a single entity." There is no doubt that strategic alliances and partnerships would help pharmaceutical companies to reach to a higher-level success. For instance, Merck Company is regarded as the pharmaceutical industry's best at both internal discovery and external development transformation. As Bernard (2004) stated that:" Merck's partnership transactions have risen by almost eighty percent. In addition, Merck is actively engaging in co-promotion. Three of its next four drug launches willmost likely be co-promoted." However, the strategy might have a chance to lose due to incompatibility to company culture and different value. If the alliances and partnerships were not operating on the same page, it would cause counterproductive side effect and grow further apart.Outsourcing marketPharmaceutical outsourcing market includes Contract Research Organization (CRO) and Contract Manufacture Organization (CMO). Within the last five years, pharmaceutical industry and healthcare sectors are in rapid growth, increasing at compound annual rate of 9.89%. The structure of global pharmaceutical industry's value chain is realigning because of the influence of outsourcing market. Especially for small or medium-sized companies, they have been playing a more and more important role in the pharmaceutical industry chain while integrated companies have less share of the market. The situation is that a number of CROs and CMOs sustain a few main multinational corporations which control the development of the pharmaceutical industry in the whole world. CRO helps to improve operational efficiency and lower cost in terms of professional outsourcing. Winter and Baguley(2006) opined that:" The CRO industry has grown to meet the increasing demand, and it is currently estimated that the number of CROs worldwide has now reached over 1000 in spite of continued consolidation in recent years." Along with more and more regulators and limits to the new drugs development, CRO greatly shortens the application period.Mergers and AcquisitionsBenefiting from mergers and acquisitions will improve the exploration efficiency from the internal department of its R&D organization. The government puts pressure onthe pharmaceutical companies to continue lowering prices. And the patent of lots of "heavy bomb" expires, many companies choose mergers and acquisitions to strengthen their market position. Most of the pharmaceutical firms have often engaged in merger and acquisition activities to solve the problems of new drug discovery processes. It is very difficult for the companies in the bottleneck period to grow organically and keeps merging simply to meet growth expectations. Henderson (2009) as an expert stated that:" such larger mergers might in fact give rise to diseconomies-of-scale, imposed by the costs attendant on managing an enormous and often geographically highly-decentralized research group."All in all, even if the whole pharmaceutical industry is under a great competition, the trends are showing clear signs of these strategy shifts, which also reflect the economic changes in the direction of the coming future. It is very essential for pharmaceutical companies to gather competitive data from the market and adopt to understand and interpret the collected signals that useful for their strategic planning.ReferenceKaitin K. I. (2004). Business Wire. The Global Pharmaceutical Industry.Cook, A., Webre, P., & United States. (1994). How health care reform affects pharmaceutical research and development. Washington, D.C: The Office. Gassmann, O., Reepmeyer, G., & Zedtwitz, M. . (2008). Leading pharmaceutical innovation: Trends and drivers for growth in the pharmaceutical industry. Berlin: Springer.Shalo, Sibyl. The Art of the Deal. BioPartnerships - A Pharmaceutical Executive and Biopharm International Supplement. October 2004. pp. 8-16Bernard, Stan. Back to the Pharma Future. BioPartnerships - A Pharmaceutical Executive and Biopharm International Supplement. October 2004. pp. 6-7Winter J. E. & Baguley J.. (2006). Outsourcing Clinical Development: Strategies for Working With CROs And Other Partners. Gower Pub Co.Henderson, Rebecca. Drug Industry Mergers Won’t Necessarily Benefit R&D. Research Technology Management. Vol. 43. No. 4 (Jul/Aug 2000). pp. 10-11。
