Industry Analysis:

Brand Name Pharmaceutical Manufacturing

in the United States
The Fab 5

Industry Analysis: Brand Name Pharmaceutical

Manufacturing

Marketing 305 01
March 27, 2012

The Fab 5
Lauren Miller-Galvin
Andrea Patterson
Sarah Taxdal
Jared Stamper
Chai Thao

Executive Summary
The objective of this report is to describe our research on the Brand Name Pharmaceutical
Industry in the United States with respect to the internal and external factors that will affect
industry growth. The Brand Name Pharmaceutical Manufacturing Industry in the United States
is a $165.2 billion industry that serves primarily to invent, manufacture, and distribute
pharmaceutical drugs and other products to prevent and treat illnesses.
This industry has been resilient to recent economic difficulties because people will always need
pharmaceuticals and medicines to live happy, healthy lives. Although profit margins have
decreased steadily within the past five years, growth is expected to pick up again in the next five
years by 0.4%.
Drugs and medications are becoming more standard in the United States health care system,
and therefore more and more pharmaceuticals are being purchased per capita. However, prices
affect demand for brand name pharmaceuticals and much competition is lost to generic
pharmaceutical manufacturing companies. This can partially be accredited to economic factors
and the recent recession. Regulatory factors from the Federal Drug Administration and
government patent also affect this industry. Along with competition from generic manufacturing
companies who offer similar drugs at lower cost. The brand name industry is moderately
concentrated, with the top four companies bringing in 45.3% of industry revenue.
The pharmaceutical brand name manufacturing industry will continue to be stable due to
peoples basic needs for health care. However, the near future growth of this industry depends
largely on the approval or denial of several pieces of legislation, including the Patient Protection
and Affordable Health Care Act and an improving economy.

Table of Contents
Define the Industry 1
Growth.. 3
Macro Environmental Factors 5
Economy.. 5
Regulatory 5
Technological.. 7
Social/Demographic... 8
Competition. 9

Macro Environmental Factors.. 10

Customer Characteristics 10
Supply Chain. 12
Suppliers & Distributors... 12
Labor... 12

Future.. 13

Define the Industry: Brand Name Pharmaceutical Manufacturing in the US

The Brand Name Pharmaceutical Manufacturing Industry in the United States is defined as
being primarily engaged in the development of innovative prescription and over-the-counter
products that are used to prevent or treat illnesses in humans or animals (IBISWorld, 2011).
The NAICS classification code for this industry is 32541. The broad NAICS category in which
this industry fits is 325, the Chemical Manufacturing Industry. Brand-name drugs are products
with patent protection. The Encyclopedia of American Industries defines this industry as
Pharmaceutical Preparations (SCI 2834). The Brand Name Pharmaceutical Manufacturing
Industry deals primarily with the advertising and distributing of finished goods, manufacturing
ingredients and finished form products, as well as research and development (IBISWorld, 2011).
The major players in the Brand Name Pharmaceutical Manufacturing Industry include Pfizer
Inc., Merck & Co Inc., Johnson & Johnson, GlaxoSmithKline PLC, AstraZeneca PLC, BristolMyers Squibb and Eli Lilly & Company. (See Figure 1). This national industry, which is a part of
a broader Pharmaceutical industry group, includes Generic Pharmaceutical Manufacturing in
the US, Pharmacies and Drug Stores in the US, and Scientific Research in the US. As a mature
industry, The $165.2 billion Brand Name Pharmaceutical Manufacturing industry has proven
resilient to the economic downturn and to threats from generic drugs (IBISWorld, 2011). Data
collected from the Encyclopedia of American Industries shows that the Parmaceutical
Preparations Industry in the United States has most recently reached $145.3 billion, according
to Supplier Relations (Gale Virtual Referance Library, 2008). The change in total revenue can
be linked to the current economic crisis but will prove to be resiliant because medications are a
neccessity.

Figure 1: Market Share and Segmentation

Source: IBISWorld. (2011). 32541a Brand Name Pharmaceutical Manufacturing in the US.
Retreved February 20, 2012 from IBISWorld: Industry at a Glance: www.ibisworld.com.
Brand name manufacturers benefit from patent protection, but when these patents expire
threats from generic manufactures will threaten potential sales. To oppose threats brand name
pharmaceutical companies are adapting to expiring patents by producing generic medicines,
which includes follow-on biologic drugs or large-molecule pharmaceuticals that are made from
living matter (IBISWorld, 2011). These new types of drugs are approved and protected by a 12year patent period by a fairly new Patient Protection and Affordable Care Act of 2010. In 2014, a
new healthcare reform will give more individuals prescription drug coverage, boosting sales of
brand name manufacturers. With assistance from patent protection and healthcare reform the
forecasted revenue will reach $184 billion in 2016 (IBISWorld, 2011).
Figure 2: Industry at a Glance

Source: IBISWorld. (2011). 32541a Brand Name Pharmaceutical Manufacturing in the US.
Retreved February 22, 2012 from IBISWorld: Industry at a Glance: www.ibisworld.com
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Growth
The Pharmaceutical Manufacturing Industry is a mature industry that had maintained
countercyclical properties despite the recent economic hardships. There have been challenges
because of the economy but will always be a need for new medicine and cures. PhRMA
reported that in 2009 approximately 2,900 medicines were in development in the United States:
750 for cancer, 312 for heart disease and stroke, 150 for diabetes, 109 for HIV/AIDS, and 91 for
Alzheimer's disease and dementia (Gale Virtual Reference Library, 2008). Although there is
constant need for the production and manufacturing of medicines there has been a recent
decline in the growth of the industry to compensate.
In an attempt to maintain profitability, companies within the industry are cutting costs and
consolidating, primarily through employment and research development reductions. Within the
next five years, employment is projected to decrease 0.7% per year to 236,151 employees
(IBISWorld). (See Figure 3).
Figure 3: Revenue and Employment Growth

Source: IBISWorld. (2011). 32541a Brand Name Pharmaceutical Manufacturing in the US.
Retreved March 1, 2012 from IBISWorld: Industry Growth: www.ibisworld.com.

Even though there will continue to be consolidation within this industry, growth is projected over
the next five years. Employment cuts will continue through 2016 in an attempt to cut costs.
Revenue is likely to increase at an average annual rate of 2.2% to $184.0 billion during this time
period. In 2012, about 1.6% growth is forecasted due to improvement in the United States
economy and an aging population (IBISWorld, 2011).
There are have been many changes in the industry in recent years to accommodate a decrease
in revenue. The Brand Name Pharmaceutical Manufacturing industry has benefited from
consolidation, mergers and has relied heavily on efficient methods of research. Healthcare
reform and patent protection within the next five years will also help assist the industry with a
boost in revenue. (See Figure 4). Based on prediction, the industry is expected to remain
profitable, as the need for prescription medication is constant.
Figure 4: Revenue Outlook

Source: IBISWorld. (2011). 32541a Brand Name Pharmaceutical Manufacturing in the US.
Retreved March 1, 2012 from IBISWorld: Industry Growth: www.ibisworld.com.

Macro Environmental Factors

Economy
The Brand Name Pharmaceutical Manufacturing industry is a mature industry and has remained
steady, having countercyclical qualities. Prescription drugs remain an important part of
healthcare in the United States. The industry has seen some hard times during the past five
years; profit margins have decreased from 20.0% of industry revenue in 2006 to 19.3%
(IBISWorld, 2011). (See Figure 5).
Figure 5: Revenue Growth

Source: IBISWorld. (2011). 32541a Brand Name Pharmaceutical Manufacturing in the US.
Retreved March 1, 2012 from IBISWorld: Industry Growth: www.ibisworld.com.

Regulatory
In the Pharmaceutical Manufacturing Industry, there are four phases of process that the FDA
must complete through before the medicine is approved to be distributed. FDA stands for The
Food and Drug Administration and is known in the United States as USFDA and is an agency of
the Health and Human Services Department. The four processes can cause for a long time
lapse between the production and distribution of the drug and are as follows. (See Figure 6).
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Phase I
During this phase, testing is done with small groups of healthy participants. Researchers
observe and record any reactions it has on the human body, how the body processes the drug
and if it is safe for humans. This process can take up to a year to complete.
Phase II
If the drug shows positive results with the participants it is tested for effectiveness with a small
group of patients with the disease the drug targets. During this phase, 100-300 individuals test
and determine if the drug shows any short-term effectsand what the appropriate dosage is. This
process can take up to about two years to complete.
Phase III
Phase III also tests effectiveness and side effects, but with a much larger population range
(about 1000 to 3000 patients). The FDA will review Phase III to check if the drug is safe and
effective before approving it. Besides testing the drug for its viability, the company producing the
drug decides the steps and methods for creating a large amount of the treatment.
Phase VI
When the FDA approves drug will it then be put on the market for the general population.
However, the short and long-term side effects are still observed and any new results are
reported to the FDA.
(FierceBiotech, 2012)

Figure 6: Regulatory Phases

Source: New York Academy of Sciences. (2010). From Bench to Market. Retrieved March 3,
2012 from: http://www.nyas.org/Publications/Ebriefings/Detail.aspx?
Testing new drugs is a long and expensive process. It could take up to 7-10 years until the FDA
can approve. During the testing process, most patients will have already found a substitute
treatment for the cure. Most drugs cost billions of dollars to produce and are too expensive to
target low and middle class people. It has been noted that the lengthy FDA testing process and
high risk of compound failure leads to inevitably high costs for the companies and public
(Looney, 2011).

Technological
Technology is one of the leading factors of success for pharmaceutical companies. This is the
secret to mass production and timely completion of drugs. This is an advantage against other
competitors but the process is expensive. For years in the Health and Human Service
Department, Biotechnology has been known as one of the most successful technologies in the
Pharmaceutical Manufacturing Industry. Biotechnology is a technology used to study and test
on the human bio-organisms. It is one of the most popular technologies used by the brand name
pharmaceutical manufacturers. In the article of New Jersey Economic Development, Melanie
Hill, said pharmaceutical and medical technology had created $29.3 billion boost to the
economy has led to the hiring of 131,000 employees, which it boosted our economy
dramatically. The advanced research methods use bio-organisms rather than chemicals, which
sets them apart from generic pharmaceutical companies (Hill, 2011).
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Social & Demographic

Pharmaceutical Manufacturing targets everyone who takes or needs medication. This industry
appeals to all classes and ages. These customers are not in just one location, but all over the
world. These factors have helped maintain revenue in this industry during the past couple of
years. Pharmaceutical Manufacturing is one of the top industries that targets a large audience
and also help raise the unemployment rate creating more jobs, especially with new research
methods. The industry is driven by the needs of the public and with an aging and unhealthy
population there will always be a need for the production of drugs.
The current economy has had an effect on the industry, primarily with the employment rates. To
combat the current economic hardships the governments are trying to open up the
pharmaceutical sector to foreign markets. In many foreign companies the government
purchases over 45% of drugs. (See Figure 7). However, political and government regulations
become important factors to maintain compliance with World Health Organization requirements.
The future of the industry may open up to foreign markets if patents and rules are being
adhered to (IBISWorld, 2011).
Figure 7: Globalization

Source: IBISWorld. (2011). 32541a Brand Name Pharmaceutical Manufacturing in the US.
Retreved March 1, 2012 from IBISWorld: Competitive Landscape: www.ibisworld.com.

Competition
Competitors of the Brand Name Pharmaceutical Manufacturing Industry in the United States
include Pfizer Inc, Merck & Co Inc, Johnson & Johnson, GlaxoSmithKline PLC, AstraZeneca
PLC, Bristol-Myers Squibb, and Eli Lily & Company. The market share is distributed as follows:
Pfizer Inc 16.7%, Merck & Co Inc 14.6%, Johnson & Johnson 11.7%, GlaxoSmithKline PLC
11.0%, AstraZeneca PLC 8.4%, Bristol Myers-Squibb 8.0%, and Eli Lily & Company 7.0%.
NetAdvantage also mentions Abbott Laboratories as an industry leader. (Gale Virtual Reference
Library, 2008). (See Figure 1). This industry is highly competitive and that trend is growing. The
basis of competition depends in part on whether a company's product is still in patent. It also
depends on whether the product is a new, innovative pharmaceutical for which there is no
reasonable alternative or a "me-too" pharmaceutical for which there are therapeutic alternatives
(IBISWorld, 2011). The basis of competition varies between over-the-counter and
complementary products and is also dependent upon how heavily regulated the prices of
products are. If a companys product is still under patent, the competition is largely based on
product innovation (differentiation). If the product is no longer under patent, many companies
focus on brand recognition and loyalty (service) or cost-cutting tactics (price).
Competition is not only high within the Brand Name Pharmaceutical Manufacturing industry, but
also with outside competitors in closely related industries. The Generic Pharmaceutical
Manufacturing Industry in the US (IBIS World code 32541b) competes heavily with brand name
pharmaceuticals. Generics are produced and distributed without patent protection, to provide
people and animals with medications, usually at a lower price. Top manufacturers of generic
pharmaceuticals that are in competition with brand name manufacturers are Teva
Pharmaceutical Industries Ltd., Mylan Inc. and Sandoz Ltd. In 2008, figures from
Pharmaceutical Research and Manufacturers of America (PhRMA) showed that 72% of sales
were from generic drugs. (Gale Virtual Reference Library, 2008). Another closely related
industry that may at times compete with brand name pharmaceuticals is the Vitamin &
Supplement Manufacturing Industry in the United States (IBIS World code 32541d). This
industry manufactures vitamins and dietary supplements that are not intended to treat or cure
illnesses. Some people prefer vitamins, supplements, and natural remedies to pharmaceuticals
and thus these types of products compete with both generic and brand-name medicines.
(IBISWorld, 2011).

Micro Environmental
Customer Characteristics
The level of health of an individual determines how often pharmaceutical drugs are used. In
2011 the number of purchased prescription drugs increased at a rate of nearly seven times
faster than the rate of population growth. This results in the average number of retail
prescriptions per capita to increase dramatically (IBISWorld, 2011). The age of a population
has a lot to do with how pharmaceutical drugs are purchased and generally the older population
tends to have a higher demand for them. The fifty five and up age group accounts for roughly
2/3rds of total United States health care expenditure and this portion will increase in the next
five years (IBISWorld, 2011). The aging U.S. population is also causing an increase in the
demand for drugs and medications that enable patients to take a more active role in sustaining
their well-being. The elderly tend to spend more money on pharmaceutical drugs, making up
40% of the nearly $219.1 billion dollars spent yearly on these products. (See Figure 7).
Figure 7: Market Segmentation

Source: IBISWorld. (2011). 32541a Brand Name Pharmaceutical Manufacturing in the US.
Retreved March 1, 2012 from IBISWorld: Market Segmentation: www.ibisworld.com.

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The price of the pharmaceutical drugs affects the demand. There are generic drugs being
produced as substitutes for the more expensive brand name drugs. The lower price of the
generic drugs makes them more accessible to the public and they are a significant profit boost
for most drug channel stores (pharmacies). The introduction of these generic drugs has slowed
the fast progression of pharmaceutical prices. The average brand name prescription price in
2011 is expected to be more than three times the average generic brands (IBISWorld, 2011).
This creates an incentive for drug channel stores to compete for lower prices of generic drugs.
This results in happier customers who need pharmaceutical drugs.
The payment for these pharmaceuticals usually involves a third party payer, which is usually the
government through private insurance companies, private employers, or health maintenance
organizations or Medicaid and Medicare agencies. This means that the consumer will pay for a
portion while the third party pays the remainder. Customers are more likely to purchase
pharmaceutical drugs if they only have to pay a portion. Customer spending also increases
when new drugs enter the market such as if the new drug treats a condition not previously
treated with drug therapy (IBISWorld, 2011). Advertising of these new drugs can influence the
customers preference from TV commercials to radio announcements.

Market segment is referring to the aggregating of prospective buyers into groups (segments)
that have common needs and will respond similarly to a marketing action (Investopedia). There
are market segments in this industry, for instance Lipitor is a cholesterol lowering drug, so this
drug is going to be marketed to customers who are at risk, or have had a heart attack. There is
three accepted requirements that can be used to identify different market segments:
homogeneity (common needs within segment), distinction (unique from other groups), and
reaction (similar response to market). In terms of name brand pharmaceuticals, the marketing
segments are defined by the customer because they are the ones who are seeking a certain
product. This is because the product is determined by the customers health, which in some
cases is something the consumer cannot control.

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Supply Chain:
Suppliers and Distributors
The goods and services that are produced by this industry are medications. These medications
are produced by the following industries. As stated above the key companies in the brand name
pharmaceutical manufacturing industry are; Pfizer, Merck and Co, Johnson and Johnson,
GlaxoSmithKline PLC, AstroZeneca PLC, Bristol-Myers Squibb, and Eli Lilly & Company.
(IBISWorld, 2011). The supply chain in brand name pharmaceuticals goes as following; the
manufactures manage the actual distribution of the drugs from the manufacturing facilities to the
drug wholesalers. There are cases where the manufacture deals directly with a retail pharmacy
chains, mail-orders, specialty pharmacies, hospital chains, and some health plans. Name brand
pharmaceuticals also distribute their product to or directly to government purchasers. (Kaiser,
2005).

Labor
In the brand name pharmaceutical industry there are no labor unions. The employees in this
industry are well paid and have employee healthcare benefits. The reason for having good
heath care benefits is to entice employees to work at your company rather than having them
work for a competitor.

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Future of the Industry

The Pharmaceutical Manufacturing Industry in the United States is expected to grow within the
next five years, partly due to the improving economy. Revenue is expected to increase at an
annual rate of 2.2% to $184.0 billion during that period. However, the number of industry
employees is projected to decrease at an annual rate of 0.7% to 236,151 people. (IBISWorld,
2011). Within the next five years, many significant pharmaceutical patents will expire in an event
coined the patent cliff. This will cause a decrease in sales for this industry. In order to raise
funding for research and development of new pharmaceuticals and industry companies will
have to come up with new ways to create revenue. Specialty (injectable and expensive
treatments for chronic and often rare illnesses) and biologic (a substance that is made from a
living organism or its products) pharmaceuticals will remain important in shaping the industry's
future with new technologies driving demand. (IBISWorld, 2011). Technological advances in
this field are currently emerging and will help companies manufacture a wider and more
complex range of medicines, distribute them and also speed the interface with the patient.
(IBISWorld, 2011).
The future of this industry largely depends on the future Supreme Court decision on the PPACA
- the Patient Protection and Affordable Care Act. It was passed in 2010 under the Obama
Administration and under it, the Brand Name Pharmaceutical Industry would potentially gain
millions of new customers through increased healthcare coverage and Medicare and Medicaid
benefits, (IBISWorld, 2011). Sales would subsequently increase within the next five years.
However, the Acts constitutionality is currently being challenged in the Supreme Court.
In the long run, the Brand Name Pharmaceutical Industry in the United States will always be a
stable industry, because people will always have a need for medicines and pharmaceutical
treatments.

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Appendix
References
Gale Virtual Reference Library. (2008). Industry Snapshot. Retrieved from:
http://go.galegroup.com/ps/retrieve.do?inPS=true&prodId=GVRL&userGroupName=csu
chico&tabID=&contentSet=GALE&docId=GALE|CX1930400193&isETOC=true#p898.
IBISWorld. (2011). 32541a Brand Name Pharmaceutical Manufacturing in the US. Retrieved
February 20, 2012 from IBISWorld: Industry at a Glance: www.ibisworld.com.
IBISWorld. (2011). 32541a Brand Name Pharmaceutical Manufacturing in the US. Retrieved
March 1, 2012 from IBISWorld: Industry Growth: www.ibisworld.com.
IBISWorld. (2011). 32541a Brand Name Pharmaceutical Manufacturing in the US. Retrieved
March 1, 2012 from IBISWorld: Competitive Landscape: www.ibisworld.com.
IBISWorld. (2011). 32541a Brand Name Pharmaceutical Manufacturing in the US. Retreved
March 1, 2012 from IBISWorld: Market Segmentation: www.ibisworld.com.
Investopedia. (2012). Market Segmentation. Retrieved from:
http://www.investopedia.com/terms/m/marketsegmentation.asp.
Kaiser, H. (2005, March). www.kkf.org. Retrieved from http://www.kff.org/rxdrugs/upload/FollowThe-Pill-Understanding-the-U-S-Commercial-Pharmaceutical-Supply-Chain-Report.pdf
Looney, W. (2011). R&D Costs: It's Industry's Problem. Pharmaceutical Executive.
Melanie, H. (2011). New Jersey economic development. Retrieved from
http://businessclimate.com/new-jersey-economic-development/new-jerseypharmaceuticals-industry-writes-prescription-growth
NAICS. (2007). North American Industry Classification Code. Retrieved from
http://www.census.gov/cgibin/sssd/naics/naicsrch?code=32541&search=2007%20NAIC.

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New Jersey Economic development. (2012). Retrieved from

http://www.fiercebiotech.com/topics/fda_approval_process.asp
New York Academy of Sciences. (2010). From Bench to Market. Retrieved March 3, 2012
from: http://www.nyas.org/Publications/Ebriefings/Detail.aspx
Pearce, L. Encyclopedia of American References. (2011). SIC 2834: Pharmaceutical. Detroit:
Gale Cengage Learning. Retrieved from
http://go.galegroup.com/ps/retrieve.do?sgHitCountType=None&isETOC=true&inPS=true
&prodId=GVRL&userGroupName=csuchico&resultListType=RELATED_DOCUMENT&c
ontentSegment=&docId=GALE|CX1930400193

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