International Trade in the Pharmaceutical Industry

Assignment: Prepare a group presentation of fifteen minutes to discuss international trade in the industry assigned. Use a maximum of 12 slides to discuss the issues confronting this industry, the main sources of investment, the most promising opportunities for a company in this industry. Your industry is Pharmaceuticals.

Use the following dimensions:

  1. Basis for the business or industry, including statistics on international sourcing, markets, etc.(Pharmaceutical in Canada, USA, Cuba
  2. Consumer demands
  3. Increasing or declining areas of business or trade
  4. Ties to global business—imports and exports, trade alliances, etc.
  5. Current issues, conflicts, debates (Current events)
  6. Most important persons or organizations (companies, government authorities, etc.)
  7. Opportunities and problems
  8. Your assessment and recommendations for investors
  9. List of references (websites, articles, books, etc.)
  10. Executive summary of the research

Executive Summary

The paper offers an analysis of international trade in the Pharmaceutical industry. The industry plays a significant role in the well-being of the people across the globe. It is also a capital-intensive sector due to its reliance on research and development to offer innovative products. The paper is divided into segments that address key aspects of the international trade. First, there is a review of the basis of the industry, which identifies that diversification and global expansion as key considerations for success. Next is the trend in consumer demands that offer an analysis of the demand in geographical and product perspectives. The following section addresses the changes experienced in different markets. In this context, the US remains the most important market and importer, while there are emerging markets in developing countries, especially in Asia. The next section addresses the issues that raise discourse in the industry, which include patenting and the legal structures of different countries. The review is followed by identifying the key players in the industry and then the opportunities and problems experienced in international trade of pharmaceuticals. Finally, there is an assessment and recommendation for potential investors in the industry.

Basis for the Industry

The global pharmaceutical industry is a diverse and innovative sector that is characterized by many competitive organizations that engage in various activities to produce different products. The pharmaceutical industry entails conducting research, developing, manufacturing and distribution of medical products for the human or veterinary application (International Trade Administration, 2016). Despite the fact that the industry fared well during the recent global economic crisis, the companies engaged new business strategies that include diversification of products and geographical expansion. These changes were fundamental for survival in a competitive and dynamic market. Additionally, the use of information technology has facilitated timely sharing of information on developments within the industry. In this context, market reports are used to offer information on pharmaceutical products and trends, which has been imperative in keeping market players up-to-date on developments in the industry globally.

According to Eurostat (2014), the European Union (EU) was the number one trader globally in medical and pharmaceutical products in 2013. The region traded more than 171.1 billion Euros, followed by the United States that traded 83.9 billion Euros. The US is the key trading associate for the EU, representing 30% of all pharmaceutical exports from the EU. Additionally, the US and Switzerland are the key exporters to the EU, with about two-quarters of all products entering the region. The pharmaceutical market is dominated by multinationals that are based in the US and Western Europe. Among the top ten organizations, half of them are situated in the US  and account for approximately 40% of the global market. Cuba and Canada are also successful markets and producers of pharmaceutical products. Cuba’s success can be attributed to the existing connections with US companies, and the sustained support of the government. The Cuban industry meets 80% to 90% of its domestic demand, which has significantly reduced the dependency on imports (Jiménez, 2017). Canada pharmaceutical sales are about 2% of the global market. The country is ranked 10th largest pharmaceutical market globally, with an estimated compound annual growth of 0.9% annually (Government of Canada, 2015). Governments across the world are working towards improving healthcare, and the quality of life and this is evident in the increased spending in the healthcare sector. The International Trading Centre (2017) states that between 2012 and 2020 there is a projected growth of the Compound Annual Growth Rate (CAGR) by 20%. In this context, the financial investment in the US will increase from $65 billion to $280 billion (International Trading Centre, 2017). Subsequently, there is a presented growth in the pharmaceutical industry. The US, EU, and Japan are the leading consumers with over three-quarters of the global expenditure. The top ten markets include the US, Japan, France, Germany, Italy, Spain, UK, Brazil, and Canada.

Consumer Demands

The demand for pharmaceutical products is growing at a rate of 5% to 8% in the global market. The increased demand can be attributed to various global trends. In this context, the trends include increased accountability for health provision by governments, increased income levels in some countries, rapidly aging population, chronic illnesses and the increase in population. According to International Trade Administration (2016), the demand for pharmaceutical products is anticipated to increase from 1 trillion dollars recorded in 2015 to 1.3 trillion dollars by 2020. In this context, the annual growth in demand stands at 4.9%. Most of the countries, including the US, Canada, Cuba, and the EU have adopted appropriate regulatory measures that facilitate cooperation in the export and import sector. For instance, in the US, legal facilitation that allows direct-to-consumer advertising has led to increased demand for certain patented drugs. Additionally, the US forms the largest free-pricing market. Subsequently, US consumers are charged more to make up for profits in other countries and to meet the revenues incurred in research and development.

Increasing or Declining Areas of Business or Trade

The United States remains the most important and profitable market for pharmaceutical products now and in the foreseeable future. Nevertheless, market growth is being experienced in regions of Asia, Latin America, and other developing countries in Africa and across the globe. Notably, the International Trade Administration (2016) alludes that there is a forecast of growth in by double digits, following the improved legislative systems in patent regulation that will make the markets more attractive for leading organizations. On the same note, emerging organizations pose a significant challenge for the US-based firms, requiring them to choose markets more selectively to increase profits and sustainability. The developed markets in Europe and North America present variations to those in developing countries regarding politics, culture, social, and religion, and this affects pharmaceutical sales. For instance, the use of traditional medicines in China and Asia limits the penetration of Western companies in the region. Despite this, these traditional medicines are increasingly being accepted in the West and being incorporated to supplement the use of modern pharmaceutical products.

Despite the regional differences in pharmaceutical sales, there is an increased growth of certain segments of pharmaceutical markets. In this context,  biologics and generics are increasingly being consumed in the market. The International Trade Administration (2016) reports that biologics comprise more than a third of all new pharmaceutical products that are enlisted for clinical trials or FDA approval in the US. At the same time, countries such as Cuba have increased funding and research in Biotechnology to cater for the growing demand of these and related products. Additionally, generic products accounted for about a quarter of all products sold globally. For instance, the Government of Canada (2015) reports that there has been considerable growth in the past decade in the use of generic products. The phenomenon can be attributed to the many expired patents and policies that have been enacted targeting the use of these products. Additionally, the Government of Canada (2015) states that there is increased adoption of pharmaceutical procedures based on oncology, biotechnology, and specialty drugs, while the International Trade Administration (2016) alludes that health care reforms in many parts the world have shifted to favor generics.

Ties to Global Business

The international trade in pharmaceuticals is assessed through its effectiveness and innovativeness in manufacturing drugs and meeting the needs of the intended consumers. Suggestively, the success of the global business can be determined by the increased health index. Imports and exports are influenced by the rules and regulations that have been enacted in different countries. The bureaucracy and taxation systems experienced in different countries influence pricing and the partners involved in the business. Most of the pharmaceutical products that are manufactured in the US, Cuba, and Canada are consumed in the domestic market. Particularly, the complex products such as biologics are available in the local market or are imported from EU countries. Most of the imports are sourced from Ireland, Germany, Switzerland, India, and Israel, which are among the leading producers of pharmaceutical products in the world.  The US stands out as the key hub for pharmaceutical product manufacturing, considering that imports represent about a third of the market share. Nevertheless, it is also the largest importer of pharmaceuticals (International Trade Administration, 2016). The domination of domestic industries and the protective legal structure in places like the US requires non-US pharmaceutical companies to enter the market through an alliance because direct engagement can take long and compromise the survival of these companies. Nevertheless, emerging markets such as those in developing countries that lack the infrastructure and personnel to engage in pharmaceutical developments offer competitive platforms for foreign firms to venture. Additionally, the need for improved health care in these countries forces the government to facilitate and provide attractive legal structures that foster engagement of foreign companies directly or through the alliance.

Current Issues

There are a variety of challenges facing the international pharmaceutical trade. Notably, these issues emerge in the differences experienced between countries by regulation, marketing, science capacity, and cultural aspects. In this light, the following are the key issues that are raising conflicts and debates in the international pharmaceutical industry (International Trade Administration, 2016).

Regulatory approval. Different countries differ in legal provisions for development, testing, and clinical trials, as well as trading requirements.

Patent approval. Some patents take long to be approved such that when products are being released to the market, organizations from other countries have already established a market share. Additionally, some countries might not agree to the terms of the patent, while others lack a strong legal structure to protect patents.

Patent violations. In some instance, governments engage in compulsory licensing, which gives some organizations the right to produce drugs or use patented process with an agreement with the owner. Subsequently, organizations can incur losses and have an influence on the pricing of products.

Pricing. The involvement of governments and increased competition affects the pricing strategies of pharmaceutical companies. Additionally, taxation and differences in the currency values across the globe have effects on the prices, which directly impacts the profits or losses made.

Counterfeits. Some products are sold deceptively, and they lack the authenticity of the original products from the legitimate manufacturers. The increase of these products in the market jeopardizes not only the health of the users, but also the profitability of the legitimate manufacturers.

Most Important Organizations

There are many companies across the globe working in the pharmaceutical industry. The fastest developing segments are biological and generics, with the key players being Amgen, Genzyme, and Biogen Idec. These firms are among the top players working independently in developing biotechnological products. Notably, the largest industry players are based in the US and Western Europe. The largest companies in the US according to their revenue capacity are Pfizer, Johnson & Johnson, Eli Lily, Bristol-Myers, Abbott Labs, and Amgen. Other key players based in Europe include Novartis and Roche of Switzerland, Sanofi –Aventis in France, GlaxoSmithKline and Astra-Zeneca of UK, Bayer and Boehringer Ingelheim of Germany, and Novo Nordisk of Denmark. Other significant companies from other parts of the globe include Teva with headquarters in Israel, and Takeda, Astellas, and Daiichi Sankyo, which are based in Japan. Also, India, China, and Italy-based organizations contributes significantly to the development and distribution of Active Ingredient Pharmaceuticals.

Opportunities and Problems

Various global trends show that there will be an increase in the consumption of pharmaceutical products. Emerging markets in developing countries such as China will increase the demand. The aging population across the world will also increase the demand. For instance, in the US, the population above the age of 65 accounts for almost a third of the total prescription medication in the country. Innovativeness in the development of process can reduce the costs incurred and time required to develop certain products. Additionally, the industry can be improved through reduced bureaucracy and taxation evident in different countries to increase trade relations and improve the global health index. Fundamentally, if governments and administration regimes focus on improving health, there is an opportunity to increase and improve trade in the industry. Nevertheless, these opportunities are limited by the increased failure of international relations and foreign policies. For instance, protective laws in some countries limit the engagement of foreign organizations, and the increased domination by the top ten firms pose challenges for new entrants. Another key problem lies in the fact that pharmaceuticals require huge investments in research and development, which are not available for many organizations and governments.

Assessment and Recommendations for Investors

The pharmaceutical industry is highly regulated across the globe. The presented growth of business shows that it can present good returns for investors in the future. Despite the various challenges experienced in the business, there exist opportunities to improve as governments work at improving the quality of life and the global health index. Venturing in the sector requires market diversification, increase of production through new production systems, and improvement of the business process. In this context, organizations should work to penetrate markets through alliances or directly. Nevertheless, advocacy programs should help the governments to reduce prices and facilitate fair pricing strategies.

References

Eurostat . (2014). International trade in medicinal and pharmaceutical products. Retrieved 5 28, 2017, from http://ec.europa.eu: http://ec.europa.eu/eurostat/statistics-explained/index.php/International_trade_in_medicinal_and_pharmaceutical_products

Government of Canada. (2015, 1 19). Pharmaceutical industry profile. Retrieved 5 28, 2017, from https://www.ic.gc.ca: https://www.ic.gc.ca/eic/site/lsg-pdsv.nsf/eng/h_hn01703.html#sector

International Trade Administration. (2016). Top Markets Report Pharmaceuticals Overview and Key Findings. Top Markets Report Pharmaceuticals, 1–10. Retrieved from http://trade.gov/topmarkets/pdf/Pharmaceuticals_Executive_Summary.pdf

International Trading Centre. (2017). http://www.intracen.org/itc/sectors/pharmaceuticals/. Retrieved 5 28, 2017, from Pharmaceutical starting materials: http://www.intracen.org/itc/sectors/pharmaceuticals/

Jiménez, M. R. (2017). Cuba’s Pharmaceutical Advantage. Retrieved 5 28, 2017, from https://nacla.org: https://nacla.org/article/cuba%E2%80%99s-pharmaceutical-advantage

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