The European e-Business Report The European e ... - empirica

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The European E-Business Report 2005 Portum auctioning tools and services. 66 However, survey results indicate that the use of such tools is only of minor importance when all companies in the industry are considered. SMEs in particular often do not have the purchasing volumes that make the use of auctions economical for both sides. Negotiation power of customers The negotiation power of customers is relatively high, especially if one includes regulation authorities and health policy institutions as representatives of consumers in this group. In fact, the pharmaceutical market is heavily regulated. Regulatory compliance impacts almost all business segments, including the negotiation of sales conditions. In addition, public health insurance companies and government institutions have a strong influence on the choice of pharmaceuticals as they ultimately decide whether and to what extent expenses for prescribed pharmaceuticals are refunded. Due to the difficult financial situation of public health systems in many European countries, public health authorities are trying to exploit their position as purchasing monopoly in order to contain costs. ICT and e-business developments are unlikely to change the importance of regulatory activities for this sector. On the contrary, government institutions and regulatory authorities significantly influence the use of e-business technologies by companies in the pharmaceutical industry. Examples of where regulatory issues provide a framework or additional incentives for ICT investments are: • Recording, filing and retrieving data needed for drug approval procedures; • Tracking and tracing of pharmaceuticals throughout the supply chain, e.g. for providing pedigrees, tackling recall issues or fighting counterfeiting activities; • Monitoring the production process to meet requirements for product quality; • Providing information to customers and raising customer awareness, e.g. by sponsoring or running health portals on the internet. Rivalry in the market During the past years the rivalry in the pharma market has increased mainly due to the increasing importance of generics. 67 The consulting company Frost & Sullivan, for instance, expects that the generics and biogenerics market in Europe will double from $10.9 billion in 2003 to $21 billion in 2010, where generics show a 20-80% price advantage compared to patent-expired brands. 68 In several European countries – e.g. the UK (20%) or Germany (27%) – the market share of generics is already significant today. 69 Drivers for this development are more cost-containment measures carried out by government institutions than new ICT or e-business developments. ICT, however, may help pharma companies to deal with the increased rivalry in the market. Research-based pharma companies, for example, may use ICT to increase the R&D efficiency. By having more (patented) drugs in the pipeline, companies become less vulnerable to competition from producers of generics. But the use of ICT to streamline internal processes can also help pharma companies to tackle the increased cost pressure coming from stronger competition. 66 67 68 69 See case studies presented on the Portum website: www.portum.com (February 2005). "Generics" are typically understood as pharmaceuticals produced by a manufacturer different from the inventor of the original product and are marketed when intellectual property rights are exhausted. See EFPIA (2004): “The pharmaceutical industry in figures 2004 edition”, Report, EFPIA 2004 (www.efpia.org). Frost & Sullivan (2004): “Cost cutting measures and patent expiration to propel the European generics and biogenerics market”, Press Release, 19. 10.2004. See EFPIA (2004): “The pharmaceutical industry in figures 2004 edition”, Report, EFPIA 2004 (www.efpia.org). 101
The European E-Business Report 2005 Exhibit 2.4-4: Anticipated impact of e-business on the pharmaceutical industry Forces shaping industry structure New entrants Substitution of products / services Negotiation power of suppliers Negotiation power of customers Rivalry in the market General importance in the sector Low: There are large entry barriers to the core pharma market. Entry barriers are lower in related sub-sectors like cosmetics or pharma retailing. Medium: Patient-specific treatments, based on developments in biotechnology, might change the pharma market in the future. Low: Competition in supplier industries is high, ICT is strengthening the negotiation power of pharma manufacturers. High: Regulation authorities and public health institutions as representatives of consumers have an outstanding position in the pharma market. Impact of e-business Main arguments •• • Use of websites may become the basis for the establishment of niche markets. • Internet as distribution channel enabled the establishment of online pharmacies. ••• • Powerful ICT infrastructure and specific e-business applications are the basis for biopharmaceutical developments. • ICT and e-business technologies are needed to manage more sophisticated supply chain processes. • • Specific e-business tools like online auctions may help to increase negotiation power of pharma companies. • A widespread use of online auctions and negotiation tools, particularly among SMEs, is unlikely. ••• • E-business issues have less impact on the negotiation power of customers. • Regulation authorities and government institutions can drive or influence the use of ICT and e-business technologies. High: Competitive pressure has increased mainly due to the rising importance of •••• • ICT and e-business may be used by research-based pharma to increase the R&D efficiency and, thereby, to lower the competitive pressure. generics. • The use of ICT and e-business technologies to streamline company processes (R&D, production, marketing) helps reducing the cost pressure. Impact of ICT and e-business: • = low; •••• = high 102
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