History of the Industry
The pharmaceutical industry is a relatively new industry, the origins of which can be traced to the mid-19th century. Until that time, there was no mass production of drugs; apothecaries relied mainly on natural remedies, which were ineffective in solving the most prevalent health issues of the time. Production of medicine was mainly restricted to doctors and pharmacists working in small laboratories, who extracted crude, such as opium, and tried to enhance their composition by reducing waste ingredients. The emergence of the pharmaceutical industry was largely associated with the overall development of science and medicine.
For instance, scientific developments related to the creation and application of drugs such as morphine and strychnine have led to the need for mass production of these drugs. This, in turn, caused apothecaries to initiate wholesale production and distribution, abandoning previous direct sale channels. Similarly, well-established chemical companies also moved into the emerging market of chemical drugs after researchers discovered an application for their chemicals in medicine and science. Pharmaceutical firms first emerged in Germany at the end of the 19th century, but soon gained popularity in other areas of the globe, such as England and America. The pharmaceutical industry grew in pace with the growth of medical technology, expanding the range of products available.
However, the development of new drugs required a lot of time and effort, making it difficult for individual scientists or small groups to search for new medicine. As the popularity and income of the pharmaceutical industry grew, pharmaceutical firms began forming partnerships with laboratories and research groups in order to expedite the development of new products and the improvement of existing ones. These partnerships continue today, with most pharmaceutical companies owning state-of-the-art laboratories, staffed with highly qualified research groups. Apart from the advancement of medical science, the pharmaceutical industry was also influenced by government regulations. For instance, in some countries, pharmaceutical companies were able to form stable partnerships with the government, thus achieving stability and increasing their market share.
In the United States, the pharmaceutical industry began in 1846-1848. In the context of the Mexican-American war, the troops suffered from outbreaks of diseases, including cholera, dysentery, and malaria. The imported drugs aimed at treating these diseases turned out to be spurious (Rahalkar, 2012). This experience pushed the American government into creating custom laboratories and enacting regulations and control mechanisms to ensure the high quality of imported drugs. One such mechanism was the Import Drugs Act of 1848, which became one of the first regulations governing the pharmaceutical industry in the United States. The Act utilized the United States Pharmacopoeia to define the quality and purity norms for imported drugs, which helped to prevent negative import outcomes in the future(Rahalkar, 2012).
Another event which shaped the regulation and, in turn, the pharmaceutical industry in the U.S. was the vaccine tragedy in 1901 (Rahalkar, 2012). At the beginning of the 20th century, the U.S. government-owned stables and vaccine preparation laboratories; during the vaccine tragedy, two separate vaccines produced by the official laboratories turned out to be contaminated. This resulted in the death of 23 people and in the creation of the Biologics Control Act of 1902, which obliged all manufacturers and distributors of biological products, including vaccines and toxins, to obtain licenses from the government (Rahalkar, 2012). Under the new regulations, the production of vaccines was distributed between exclusive facilities, and distinctive distribution channels were established.
In 1906, the U.S. government established the Food and Drugs Act, also known as the Wiley Act, which imposed further controls on medicine safety. According to Rahalkar (2012), the Food and Drugs Act of 1906 became “the first wide-ranging, national legislation on food and medicines safety” (p. 3). The Food and Drugs Act also became the foundation for the establishment of the Food and Drug Administration in the 1930s. The FDA is still responsible for the control of the manufacturing, sale, and distribution of drugs throughout the U.S. In 1938, another tragedy called for the revision of medicine controls and regulations. In the Sulfanilamide Elixir tragedy, over 100 people died due to diethylene glycol poisoning; the substance was used for mixing Sulfanilamide drugs (Rahalkar, 2012).
Following the tragedy, the Food, Drug, and Cosmetic Act of 1938 was established, mandating manufacturers and distributors to obtain approval and provide evidence of drug safety to the FDA before selling the drug. Moreover, this law also mandated manufacturers to provide customers with directions for safe use (Rahalkar, 2012). Further regulations obliged manufacturers and distributors to distinguish between prescription and over-the-counter drugs, setting out the basis for the classification: “medicines for minor ailments, i.e., indigestion, headache can be fall under OTC drugs and freely sold at pharmacy store without prescription” (Rahalkar, 2012, p. 3). Finally, the Drug Amendments of 1962 enhanced the procedures for ensuring the safety and efficacy of drugs prior to distribution, which has also put additional pressure on the pharmaceutical companies.
Overall, the development of the pharmaceutical industry was the result of both scientific developments and governmental regulations. Today, pharmaceutical companies are expected to comply with a large number of laws and regulations that guide the practices for manufacturing, distribution, and sale of drugs.
Predict the Future
Despite the significant progress in medical research, the number of health issues faced by people all over the world is still high, which is why it is likely that the pharmaceutical industry will continue to grow in the future. However, as identified in the previous section, there are some serious threats to the industry that the future innovators will have to resolve.
Cybersecurity is a new threat that was brought by the development of information technologies. It can be potentially damaging to pharmaceutical companies due to the loss of important data and disruptions to financial systems. In order to respond to this threat, it would be crucial for pharmaceutical companies to decrease the reliance on third-party vendors for informational security by establishing internal security controls. It would also be essential to monitor the development of ICT closely and to update safety and security policies on a regular basis to prevent data leaks and ensure prompt response to cyber attacks. Finally, cybersecurity should become part of each company’s development plan, especially when moving into new global markets; this would allow us to study the environment for risks of cyber attacks and data leaks and to introduce effective tools to prevent such events.
Due to the tight connections between pharmaceutical companies and the government, concerns related to corruption pose a significant threat to the industry. To limit the unwanted effects of violations, it would be essential for pharmaceutical companies to establish policies for compliance and cooperation with law enforcement. Moreover, companies should seek to perform internal checks and investigations should any concerns arise, as this would help to resolve the conflict more promptly.
Antitrust Laws and Federal Regulation
The recent case of New York v. Actavis has brought by new concerns for pharmaceutical companies. Driven by severe competition, pharmaceutical brands have to develop and introduce new products to enhance their profits. However, in the Actavis case, product-hopping – a normal practice among pharmaceutical companies – was viewed as a violation of antitrust laws (Sudol, 2016). This is damaging for the industry as it could lead to a limited inflow of new products into the pharmaceutical market. To respond to this threat, it is crucial for pharmaceutical companies to ensure compliance with antitrust law, as well as develop new ways of introducing new products into the market, for instance, by increasing the range of dosages or changing the medicine’s form from tablets to liquid or capsules (Sudol, 2016).
New Pricing Models and Competition
New pricing models, influenced by governmental regulations, will pose a significant threat to all pharmaceutical companies in the near future (PwC, 2012). Furthermore, competition in the pharmaceutical sector will remain a significant issue. To respond to the changes and preserve their market shares, pharmaceutical companies will have to build stronger connections with communities to appeal to customers, alongside increasing the range of products and seeking partnership opportunities with other companies. Moreover, it is crucial for companies to continue investing in developing innovative products that would be more effective than the ones that are already available (PwC, 2012). To sustain competition, companies should also perform regular financial audits to determine opportunities for cost-cutting and increasing productivity.
Overall, in order for the industry to move forward, it is crucial to focus on solving the health issues that are currently perceived by people as the most pressing, such as cancer, obesity, and cardiovascular diseases. In order to promote innovation and ensure further growth of the industry, it is crucial for the industry leaders to respond to the identified threats by:
- monitoring and reacting to the development of cybersecurity threats by building effective protection and response mechanisms;
- maintaining strict compliance with anti-corruption laws;
- promoting transparency and proactivity by initiating internal checks and investigation in case of corruption concerns;
- research and determine possible options for introducing new products without violating antitrust laws;
- establishing partnerships across the industry to achieve a competitive advantage;
- reducing the costs by using efficient technologies and effective HR practices, including talent management;
- increasing the range of products to compete with Little Pharma and generic companies;
- building stronger community connections to appeal to customers (for instance, by holding health education events, fundraisers, etc.);
- reviewing and updating regulatory policies to reflect any external changes, including new laws, official procedures, and other factors affecting the business.
The innovators in the pharmaceutical industry will most likely arise in Big Pharma companies, as they are under significant pressure to develop new strategies due to the increased competition from Little Pharma and generic companies. If companies manage to build strong connections with partners, communities, and the government, they will be able to ensure the future success of the entire industry by solving most of the current challenges, including the increased competitive pressure, changes to regulations, and cybersecurity threats.
PwC. (2012). From vision to decision: Pharma 2020. Web.
Rahalkar, H. (2012). Historical overview of pharmaceutical industry and drug regulatory affairs. Pharmaceutical Regulatory Affairs, 11(2), 1-11.
Sudol, B. (2016). New York v. Actavis: Innovation by persuasion in a noncoercive consumer economy. California Law Review Circuit, 7(1), 38-101.