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E-commerce in the pharmaceutical industry: threshold of innovation

Rama Prasad Kanungo
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 Biographical Note E-Commerce in the Pharmaceutical
Rama Prasad Kanungo is
Research Co-ordinator
Industry: Threshold of Innovation
AAFBRU, Cardiff
Business School, 31
by Rama Prasad Kanungo
Colum Road, Cardiff,
CF10 3EE. Abstract

In the last two decades application of E-commerce is evolving from technol-

ogy driven to more user driven. Thus E-commerce has become synonymous
with communication, strategy and business practices. E-commerce aids to
exchange information and execute transactions among enterprises and indi-
viduals. It facilitates electronic adaptation of communication for business
process via EDI (Electronic Data Interchange). More often R&D intensive
industries like the pharmaceutical industry implements innovative tech-
nologies to gain competitive advantage in the market. E-commerce provides
the pharmaceutical industry with better mode of transaction to achieve com-
petitive advantage and sustained growth. E-commerce has a considerable
Management Research News 2004.27:98-108.

impact on the business-to-business application, when a diverse group of en-

terprises become involved in the decision making process particularly in the
pharmaceutical industry. This enhances the value of the industry through
key underlying processes such as, high value drug innovation, clinical de-
velopment and trial, project and people management, marketing and sales.
This synchronisation of E-commerce and corporate strategy creates signifi-
cant value for this industry. The achievement of real value through E-
commerce has three major impacts. First, it enhances the value of the latest
clinical developments; second, it increases shareholders value and third, it
successfully reduces the time-cycle of research and application. These
achievements add substantial value to the industry. Therefore, this article
reviews the application of E-commerce and discusses its significance in the
pharmaceutical industry. The theoretical discussion used in previous stud-
ies is also presented and four major aspects are highlighted explaining the
success of E-commerce in the pharmaceutical industry.

Keywords: E-commerce, Strategic importance, Pharmaceutical Industry,

Value creation for Pharmaceutical Industry.

Introduction

The pharmaceutical industry has become a crucial part of our society adding
value to everyday human life. It constantly faces challenges and demands to
provide better services to the community. In the 1980s the pressure was
enormous to develop new strengths for delivering products and services
quickly and at lower cost to rapidly expand their presence while managing
risk and costs through sharing the resources. To achieve these objectives,
the pharmaceutical industry implemented E-commerce in its business pro-
cess. Typically, E-commerce promotes electronic transactions among in-

98 Management Research News

 dustries. This article discusses the application of E-commerce in the
pharmaceutical industry from a conceptual perspective. The purpose of this
essay is to evaluate and emphasise the effect of E-commerce on the pharma- E-Commerce
ceutical industry as an innovative approach. In particular, this article fo- in the
cuses to determine the benefits it has delivered to the industry. Hence this Pharmaceutical
article is arranged into four major sections each highlighting different key Industry
aspects of E-commerce illustrating its achievements in the pharmaceutical
industry.

Commonly the pharmaceutical industry is perceived as a research in-

tensive industry. A study by Betz (1987) emphasises that the pharmaceuti-
cal industry is more driven to gain competitive advantage through
innovative technology. Bullocks (1996) reports that the percentage of total
online revenue generated from for-fee pharmaceutical sites will grow
from near zero in 1995 to almost 30% by the end of year 2000, generating
revenue of over $3.5 billion. Hence in an increasingly competitive pharma-
ceutical market the necessity to improve speed and access the global opera-
tions is supplemented by E-commerce. Mainly business-to-consumer
interface is a crucial aspect of the pharmaceutical industry. E-commerce es-
Management Research News 2004.27:98-108.

sentially provides such facilities through a integrated system commonly

known as, Electronic Data Interchange (EDI) process. Over the years the
pharmaceutical industry has successfully expanded its market presence
since implementing E-commerce in their business process and user relation-
ship.

Strategic Importance of E-commerce in the Pharmaceutical Industry

Mainly E-commerce allows better interaction and effective communication

among industries as well as with the users by reducing time and effort. Lin
and Huarng (2000) suggest that the pharmaceutical industry achieves sig-
nificant tasks by utilising E-commerce to circulate information in order to
build an integrated network for both the industry and the users. So that it can
shrink geographical distances and make timely access to medical informa-
tion and latest biotech knowledge providing better services to the users and
to the pharmaceutical community as a whole. A study by Gagnon (1997)
identifies five key types of web-sites related to the pharmaceutical industry.
He classifies the web sites as, Focused information sites, Corporate identity
sites, Gateway sites, Store fronts and Strip mall. Focused information sites
primarily offer information that is directly useful to the people in the phar-
maceutical professions. www.validate.com is considered to be an excellent
example of such sites.

Gateway sites are the centralised points of entry into diverse re-
sources of information on the internet. These types of sites usually create a
common channel for exchange of commercial and non-commercial infor-
mation. For example, www.catesource.com is a type of gateway site.
Whereas, Corporate identity sites profile different pharmaceutical compa-

Volume 27 Number 8/9 2004 99

 nies and provide necessary medical information. Store fronts and Strip mall
sites generally focus on the user and retailer relationship. For instance,
E-Commerce Pharma Indonet is a high traffic web where drug information designed for
in the health, the professionals, and consumers can be found. Generally, the phar-
Pharmaceutical maceutical websites use a specific feature such as Biological Data Trans-
Industry port that integrates the basic concepts of science with product and
marketing information. In addition, electronic transaction serves as a poten-
tial marketing tool for the pharmaceutical industry. The pharmaceutical in-
dustry expands its presence by online campaigns providing relevant
information aimed at a specific target audience, attracts new investors en-
hancing mutual relationship, shares company news with the peer groups and
the users. Curtis (1995) states that appropriate positioning of the company
and its products in cyberspace enables companies to reach wider market and
increase their band-width. Though this has certain limitations such as, un-
certainty of the users about the validity and authenticity of products and in-
formation but rightful approaches such as, openness to contact and
discussion, on-line advice by registered professionals often minimise such
problems.
Management Research News 2004.27:98-108.

Electronic transaction instantly provides rich details of products and

services to the users. Moreover, this offers opportunities for faster, more ef-
ficient support activities and qualitative improvement via in-bound and
out-bound logistics, sales and after sales services. Kling and Scachi (1982)
report that infrastructure such as, communication and learning within the
computing network enhances industrys viability in the long term. Elec-
tronic transaction uses specific applications to maintain such infrastructures
through E-mode. Generally E-mode creates and enables support systems for
computer software and hardware. The combination of software, hardware
and people who manage it, generates an underlying process central to the
operation of E-commerce. Kalakota and Whinston (1996) indicate that E-
commerce has a greater impact on the business-to-business application to
gain sustained development through E-mode. More specifically, it has an
important implication when a diverse group of organisation members be-
come involved with the decision making process in the pharmaceutical in-
dustry. They further add that such interesting prospect of E-transactions is
becoming an imperative for the industry. Similarly, Lin (1996) proposes
that currently the pharmaceutical industry uses E-commerce as a holistic ap-
proach with a strategic intent to exchange information and execute transac-
tions among enterprises and individuals. Since the last two decades the
E-business community is expanding phenomenally and serves as a dynamic
forum for this industry. Some important forms of electronic transactions
such as Intranet, EDI (Electronic Data Intra-change), and diagnostics
through virtual simulation have extended E-commerce to different business
practices within the pharmaceutical industry. Overall this has considerable
impact on the business operations and processes of this industry. Thus E-
commerce is often mentioned as a key enabler of the information economy
creating operational and organisational excellence among the industry

100 Management Research News

 groups. In 1998 International Data Corporation reported that worldwide E-
commerce users have increased by 60% from 40 million in 1996 to 100 mil-
lion in 1997 which comprises of 58 million North-Americans, 23 million E-Commerce
Europeans, 15 million Asia-pacific users and three million of other users in the
throughout the world (IDC, 1998). Pharmaceutical
Industry
E-commerce enables pharmaceutical companies to create an elec-
tronic highway to interact with the users, suppliers and professionals. Hence
the pharmaceutical industry uses its core capability by means of E-
commerce to add value for clinical development and channel management,
high value drug innovation, marketing and sales. Coombs and Richards
(1991) observe that such combination of E-commerce and corporate strat-
egy affirms sustained development in the pharmaceutical industry. In the
same way Hanseth and Monteiro (1997) propose that corporate strategy in-
tegrated to information technology, telecommunication technology and any
other form of transactional communication subsequently leads to the appli-
cation of E-commerce. As a whole such process is known as EDI (Electronic
Data Interchange). Such integrated means of application focuses on the in-
Management Research News 2004.27:98-108.

dustry as well as on the users creating a system that will work for tomorrow
not just for today.

In the pharmaceutical industry electronic transaction is represented

by four major features, such as E-marketing, E-operation, E-selling and E-
clinical. Mainly the pharmaceutical companies implement these features to
leverage their existing capabilities and learn to minimise the risk of informa-
tion overloads and content redundancy threat. This process of organising,
transferring, and using the information and expertise within an organiza-
tion, supported by people, content, technology and process helps the phar-
maceutical industry to provide an efficient service to the users. At the same
time it adds real value to their industry portfolio. Moreover, this strategic
network builds intimate and ongoing relationships between the users and
the industry. It is noteworthy that the achievement of real value through E-
commerce has remarkable implications on the pharmaceutical companies
creating substantial value for the shareholders. It is forecasted that almost
70% of operational economy will be generated by E-commerce by the end
of year 2005 (Source: Marvin Zonis and Associates). Furthermore, there are
four essential factors, that derive real value for the pharmaceutical industry
through E-commerce (Source: Andersen Group, 1999). First, compelling
business process this allows access to global information, creates signifi-
cant new revenue and formulates new business models for the industry. Sec-
ond, technological mega-developments this expands bandwidth
improving technology and its implementation, synthesises the vast amount
of information contents. Third, favourable regulatory evolution this moni-
tors and provides guidelines for electronic submission, prepares regulations
and preserves intellectual property. Fourth, growing user involvement this
helps to identify consumer action groups, disease information sources, phy-

Volume 27 Number 8/9 2004 101

 sicians intermediation. The pharmaceutical industry strategically uses real
value to get access to new target audience through product and process de-
E-Commerce velopment.
in the
Pharmaceutical
Over the years the pharmaceutical industry has managed to gain sus-
Industry
tainable advantage through E-commerce in comparison to other industry
sectors. Organisations in this industry regularly update and revise their web
pages following quality control mechanism such as Continuous Quality Im-
provement (CQI) procedure, providing current and relevant information,
training materials, idea submission forms, and on-line patient satisfaction
surveys. Frisse (1996) identifies that E-commerce is becoming a vital means
of providing documents to support the administration of medicine and, in
many circumstances, the delivery of patient-specific information. The phar-
maceutical industry provides significant support to the users by advising
and securing access to individual prescription history, also receives consid-
erable back-up by releasing reliable general medical information such as
new drug formulation, clinical breakthrough and availability of further sup-
port. This helps them to attract new users and increase their retail base. Also,
Management Research News 2004.27:98-108.

this allows them to maintain constant communication with doctors/pharma-

cists and interact with the users so that they can provide electronic prescrip-
tions and carry on subsequent follow-ups. Henry (1999) highlights that
E-commerce creates a forum for the users where they can help themselves in
filling and refilling on-line forms, know about their statutory rights and co-
payments charges and able to get direct home delivery services. Therefore,
the strategic importance of E-commerce in the pharmaceutical industry is
significant.

Issues and Application of E-commerce in the Pharmaceutical Industry

In recent years the success of E-commerce has created an impressive trend

in the pharmaceutical industry. The public and community health awareness
has remarkably increased and a great deal of changes has been observed in
our lifestyle. Moreover, it has significantly improved the relationship
among trading and non-trading partners in the pharmaceutical industry.
Rogers (1999) recognises that the main contribution of E-commerce is ac-
ting together by reducing repetition so that trading partners of all kinds can
compete more effectively on the issues that improve productivity and re-
duce costs. The key objectives are to achieve cost reduction, improve pro-
ductivity, simplify communication, maximise profits and utilise human
resources for collective gain. The use of E-commerce, following standard-
ised guidelines establishes a better working relationship between different
partners, suppliers and the users. The uniform practice of such standards
brings wholesalers, manufacturers, group purchasing organisations, drug
chains and claim processors together. However, to maintain and foster such
practices security and privacy are paramount. Security and privacy are two
major concerns in E-commerce, which need effective protection otherwise

102 Management Research News

 users trust and professional ethics would be at jeopardy, or else violated.
The personal database of patients and professional classification of practi-
tioners would be at risk if monitoring and controlling would not be priori- E-Commerce
tised. in the
Pharmaceutical
Industry
Guengerichs (1997) points out that E-commerce follows the internet
protocol and the guidelines for browsers, web servers which exist beyond
the corporate security fire wall. Hence on the issue of privacy and security, it
should be taken with caution that patients visiting virtual doctors on webs
need to be aware of the implication and information they are sharing with
the others, which might have some repercussion on them. Not only patients
but suppliers, research groups and non-clinical professionals may face detri-
mental consequences without proper privacy and security. So, protective
measures should be enforced in order to retain privacy and security of all the
users as well as professionals. In e-transaction, Secure Socket Layer (SSL)
is a protocol that secures connections to server protecting the information
from stray use. Secure Electronic Transactions (SET) is another protocol for
browsers and credit card control (source-NASSCOM). But these security
Management Research News 2004.27:98-108.

measures do not always restrict information filtering and misuse.

Similarly, legal issues in E-commerce are relative new concepts

which, of course are directly derived from general legal codes and laid out
accordingly to the need of the users. The major legal issues in E-commerce
are security, authentication, liability through regulation of on-line sales and
Rx drugs; privacy, encryption of on-line therapies and electronic contract-
ing between the partners. For security measures government regulations
with statutory effect should be implemented on the practices of the pharma-
ceutical industry. Equally, the authentication of practitioners identity and
validity of web information can be regulated by the respective governments
in their regions. To maintain privacy of users, special rules should be im-
posed with austerity. Moreover, for e-contracts government rules should be
reinforced with strict legislations to restrain spurious information and prac-
titioners. Frook (1998) proposes that such internet enabled pharmaceutical
sites require budget-busting commitments to quality and security infrastruc-
ture similar to on-line brokerages. Generally the legal and legislative issues
in the pharmaceutical industry depends much on commercial versus non-
commercial practices. Proper protection of the users from false or mislead-
ing commercials and regulation on advertising of OTC drugs, dietary sup-
plementary, health care services, medical devices, Rx drugs and
prescriptive practices can provide a better and healthy service to them and
other medical professionals. Equally, the medical professionals need to ad-
here to the framework set by suitable and authenticated authority, so that
proper on-line advice and support can be offered to the users.

Volume 27 Number 8/9 2004 103

 Supply Chain Management and E-commerce

E-Commerce Supply chain management is a crucial aspect of all the industry sectors. Like
in the any other industry the pharmaceutical industry is very much dependent on
Pharmaceutical logistic and supply chain management to reach out to their retailers and the
Industry users. Thomas and Ballard (1995) state that the integration and incorpora-
tion of information and data, personalised to a user or groups of users allow a
customised view of their view and response by creating a type of logistic re-
lationship. From a supplier and user perspective it is known as supply chain
management particularly in the context of electronic transaction. In E-
commerce primarily EDI serves such purpose for both the supplier and the
users. The opportunity to appropriate the benefit of E-commerce lies in de-
veloping the rightful sharing of information, data and process between dif-
ferent trading partners. The partners and supplier set realistic expectations
to achieve their goals by mutually contributing to resources and capabilities.
EDI assists them to allocate the resources in a more time efficient manner
and maintains their relationship in tact. This comprises internal and external
collaboration, marketing joint web sites, supporting business systems and
creating interface with the users. Supply Chain Management (SCM) in this
Management Research News 2004.27:98-108.

framework includes MRP (Material Resource Planning), MRP II (Manu-

facturing Resources Planning), CIM (Computer Integrated Manufacturing),
and ERP (Enterprise Resource Planning). Lawrence (1998) states that basi-
cally this explains the concepts and applications of E-commerce that focus
on getting the right information at the right time to the right place so that the
right people can get the right resources to make the right products at the right
time for it to be delivered rightly to the users. It is essential that the procure-
ment system should be reinvented for this, so that transaction and process-
ing will be automated. Essentially EDI offer excellent opportunity for such
uses and applications. Thus, EDI has evolved a new perspective typically
cutting across the traditional function of customer retention and acquisition
rather differentiating customers by offering them valuable support to ac-
cess, store and sort relevant enterprise-wide information.

In this context, E-commerce has three integrative aspects, such as, in-
formation transaction through electronic highway, institutionalisation of in-
termediaries and evaluation of the network system. These aspects help to
develop sites and procure data. At the same time these provide data safety,
quality and assurance; maintain sites for the patients saving their time,
money and urgency on priority basis. Such applications include entire on-
line trials, medical registration, access to personal data, laboratory practice,
dispensing, query solution and adverse events reporting. Colon (1999) re-
ports these practices reduce the exorbitant cost of large trials with a zero de-
fect result which in future proves to be more environment friendly and
establish the innovative aspect of the clinical trials. In addition, he proposes
that these practices should be closely monitored for more effective results.
Such integrated network created by E-commerce makes the supply chain
system more efficient for the pharmaceutical industry.

104 Management Research News

 People and the Users: A New Orientation

The integration of E-commerce with the pharmaceutical industry has cre- E-Commerce
ated an appropriate forum for the selection and the employment of compe- in the
tent professionals. Moreover, professionals attain considerable skills Pharmaceutical
through E-commerce to enhance their expertise and render efficient service Industry
to the users. Often professionals in the pharmaceutical industry need organ-
ised work place, less clinical trial time and quicker user response, which is
now accomplished by electronic transaction of resources, data, on-line con-
ferencing, etc. In recent years medical professionals require much more rig-
orous training to perform multi-task functions than in the last twenty years.
This system has undergone through a radical change of multi-disciplinary
and in-house training to provide effective consultation techniques and diag-
nostic prescription. The prospective medical and para-medical profession-
als have on-line submission formats available for the recruitment process.
Some recruitment process can be entirely conducted by electronic commu-
nication, which includes taking entry tests, on-line interviewing and interac-
tive diagnosis. In this context the internal benefit of E-commerce is to attract
more skilled people to the pharmaceutical industries offering them the right
Management Research News 2004.27:98-108.

opportunities. This promotes a new trend of the right people at the right
place at the right time. Lin (2000) affirms that a new community of medical
IT people is now sharing space in the traditional set up of the pharmaceutical
industry. Examining the benefit derived from E-commerce, Roche (1995)
says that the part of the excitement of E-commerce stems from it making
possible many types of services that either have not previously been avail-
able or have been based on closed systems that never took off to saturate
markets.

The pharmaceutical industry constantly strives to make significant

differences in our lifecycle and lifestyle. So far our life has been better to a
large extent by the contribution of the pharmaceutical industry. Brian
(1992) proposes that the relative status of E-commerce in managing lifecy-
cle portfolio changes as the application of e-transaction changes. In essence,
through the e-contracts the pharmaceutical industry obtains business analy-
sis, design, development, implementation and maintenance of their prod-
ucts and services. Subsequently, these products and services contribute
effectively to our lifecycle and lifestyle. It is reported that the e-contract
sales have increased from 50% to 80% in the pharmaceutical industry which
owes a great deal to lifecycle portfolio management (Source: PhRMA An-
nual Survey, 1997). This is perceived as user oriented and value adding for
both the users and the industry.

Usually different electronic formats are extensively available for the

e-contracting. The e-contracting is classified into two types: first, contract
between the pharmaceutical companies and their buyers; second, contract
between the pharmaceutical companies and the users. Such contracts pro-
mote e-marketing by the means of interactive media and channels. E-

Volume 27 Number 8/9 2004 105

 marketing is primarily based on a direct-to-consumer campaign. These
campaigns enhance value for the industry and make people more interested
E-Commerce in their products and services. Coppola (1999) states that different e-
in the contracts manage as well as influence lifecycle leading to better user percep-
Pharmaceutical tion about the industry.
Industry
Conclusion
E-commerce in the pharmaceutical industry has started a new age both in
terms of its users and applications. By that the pharmaceutical industry has
offered a significant service to humankind. The underneath rationale is to
serve the whole human race as a collective fraternity achieving mutual bene-
fits. So that the benefits can be shared among the users, professionals and the
industry not only for today but for a better tomorrow. The change in the
pharmaceutical industry through E-commerce is an on-going process. As
technology is developing everyday, the prospect of new achievements and
success is becoming more assured. Hence, it can be argued that E-commerce
has served the pharmaceutical industry with substantial success.
Management Research News 2004.27:98-108.

106 Management Research News

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108 Management Research News

 This article has been cited by:

1. Calin Gurau. 2005. Pharmaceutical marketing on the internet: marketing techniques and customer profile. Journal of
Consumer Marketing 22:7, 421-428. [Abstract] [Full Text] [PDF]
Management Research News 2004.27:98-108.