According to the IMS Institute for Healthcare Informatics Report (2012), Australian market takes the twelfth place in consumption of pharmaceuticals in the world (as cited in Pharmaceutical Industry Profile): However, Doran and Henry (2008) stated that Australian consumers almost pay lowest cost for medication among OECD nations. Besides, medicines are consumed by approximately 60% of Australian population every period of two-week (Sweeny, 2007). When it comes to Indian pharmaceutical industry, the R&D of multinational firms is on a higher scale in comparison with Indian manufacturers which have mainly produced generic medicines at cheaper price (Löfgren, 2017). The purpose of this report is to study the scope and feasibility of the Indian pharmaceutical firm into the Australian market and carefully analyzing the factors which will have a significant impact on business operations.
Based on the analysis, this report will further go on to recommend the efficient and effective ways to penetrate and target the Australian pharmaceutical market, with the focus on This report is organized into 4 sections and their sub-sections. Section provides the overview of the Australian market with subsections, which analyze the characteristics such as market size, potential buyers, demographic and psychographic characteristics and the level of competition for the new entrant. Further on, in Section 3, this report deals with the uncontrollable factors and their impact on the market entry for the firm. Forces such as price subsidies, advertisement restrictions, intense competition from domestic and specifically US companies, government policies and prevalent diseases in Australia. These factors are analysed which lay the groundwork for the next section. Section 4 offers some recommendations for the firm in dealing with the various factors which will have a significant impact on business. This section provides ideas and framework on how to best tackle the challenges to capture a market share in the growing Australian Pharmaceutical market. This is followed by the final section, which concludes the report on the feasibility of the venture.
According to a reasonably reliable website, Country Focus: Healthcare, Regulatory and Reimbursement Landscape – Australia (2016), Australia’s Pharmaceutical market was valued at $22. 30 billion overall in 2015. At a 2% compound annual rate of growth (CAGR) it is expected to grow to $25. 20 billion by 2020. Around $22. 03 billion were spent on R&D on medical and health science by the Australian government and $3. 53 billion of pharmaceutical products were exported. The latest figures available for imports is of the year 2012-13 from Department of Industry, Innovation and Science website, Australian Government. The website states that the Imports from the Pharmaceutical Industry were valued at $10. 5 billion. As per Global Data, the modest growth in the market size from 2016 to 2020 will be due to the strong market access to pharmaceutical medication, increasing awareness of the need for the early detection of lifestyle and chronic diseases and/or the reduced cost of prescription medicines through the Pharmaceutical Benefits Scheme (PBS). According to the Indian Brand Equity Foundation (2018), the Indian Pharmaceutical industry is the third largest in volume and thirteen largest in value making India a global manufacturer and one of the lowest manufacturing costs in the world. It is lower than that of USA and almost half of Europe It is estimated that by 2020 the Indian pharmaceutical market is expected to grow at a compound annual growth rate (CAGR) of 22. 4% to touch US$ 55 billion. The market in India is dominated by generic drugs which constitutes nearly 70% whereas Over the Counter (OTC) medicines and patented drugs make up to 21% and 9% respectively. For growth in domestic market the companies would want to adjust their product portfolio towards chronic therapies for diseases like cardiovascular, anti-diabetes, antidepressants and anti-cancers.
The Pharmaceutical Industry in Australia can be segmented into distribution channels and types of medicines. Under the distribution channels the markets are comprised of Business to Business which are hospitals and Business to Consumers which are majorly pharmacies. But, the type of medicines can be classified as over-the-counter (OTC) and prescription medicines. The Australia’s Health 2018 report stated that around 90% of all medicines dispensed are prescribed by General Practitioners. Apart from General Practitioners(GPs), it was found that, many other occupational groups also dispensed medicines in Australia. Medical specialists (other than GPs) prescribe Latanoprost and methylphenidate used to treat High pressure inside the eye, due to glaucoma or other eye diseases; Attention Deficit Hyperactivity Disorder and narcolepsy, Dentists prescribe Amoxicillin used for Bacterial infections, Optometrists prescribe Fluorometholone; latanoprost used for Eye conditions due to inflammation or injury; high pressure inside the eye, Nurse practitioners prescribe Atorvastatin and esomeprazole which are used to treat High cholesterol and gastric reflux respectively, and Midwives prescribe Cephalexin used for Bacterial infections. The report also mentioned that among the OTC medicines, Natural Health medicines have seen the most significant growth, amounting to sales of $1. 4 billion in 2015-2016, a growth of over 21% the year before. This is followed by Analgesics ($537 million). Among other major OTC medicines include Cough and Cold, Digestive medicines, first aid and injuries, allergies and so on.
There are approximately 700 public hospitals and over 600 private hospital in Australia. Most of them are located in populated places. Public hospitals are funded by Australian government while fund of private hospitals is coming from profit or non-profit organization. For individual consumers, Indian pharmaceutical is concentrating on people aged 45 and over with middle income because they make up one-third of population in Australia as well as majority of medicines are consumed by this group of age. However, in Australia, all citizens are provided free prescribed drugs, so this targeted population can afford all treatments which are subsidized.
It was found that half of Australians have at least one chronic condition while a quarter have two or more with the most common combination being Arthritis and Cardiovascular Diseases, seen mostly among the age groups of 45 years and above (Australia’s Health,2018). The report suggested that a gradient across society was observed according to which the life expectancy increased with how rich the person was and the area they lived in. Children living in poor areas who experience problems with education, housing and connectedness were most likely to die before they reached 15 years from potentially preventable or treatable causes. The most glaring inequity is the 10-year life gap between Aboriginal and Torres Strait Islander Australians and others.
Wholesalers and manufacturers are two main suppliers of hospitals, and pharmaceutical products from manufacturers accounted for one-third of hospital demand. All medicines are purchased by public hospital must be under list of Pharmaceutical Benefit Scheme while some pharmaceutical products bought by private hospital can be out of this listFor individual consumers, decision making of this segmentation based on advice from doctors and pharmacist. Other factors influencing the purchase of medicines are safe to use, experience, prior awareness and friends advise. Besides, according to Webb et al. (2016), Arthritis, Cardiovascular, Back pain are common diseases for this population.
In Australia the major pharmaceutical players are subsidiaries of multinational corporations from North America and Europe. The major businesses are Pfizer, AstraZeneca, Novartis, Sanofi, MSD, AbbVie, Apotex, Janssen, GSK, etc. which take from the first place to tenth place respectively (Fact book, 2015). The free trade agreement between the U. S and Australia, time for holding patent increases more 20 years giving tremendous advantage for the U. S companies making them the biggest competitors. These companies position themselves as high quality products suppliers. Besides, Sweeny (2007) found that in wholesaling, there are 3 major players in market which are Symbion Health with 33%, Sigma with 29% and API with 27%. Two of them also are owned by an American corporation.
The major barriers for an Indian Company entering the Australian Pharmaceutical Market include Government Price subsidies, Consumer Protection Rules, Promotion control of Pharmaceutical products and Intense competition from overseas companies.
According to Faunce (2015), the role of PBS is to make sure that pharmaceuticals in Australia are affordable, safe and effective. The Australian government checks the quality of the products against an International benchmark (Doran and Henry, 2008). The Government sets the prices of PBS medicines at the time of listing, without any adjustment for potential increase in manufacturing and distribution costs, until the government decides to decrease them. According to the current policies, the drug prices on F1, which implies a single patented brand, are usually stable and ‘protected’ from price reduction. However, under this act, after reaching the fifth year on PBS, there is a price cut of 5% (The Pharmaceutical Benefits Scheme in Australia, 2018). With the increased cost of production due to product registration, import duties and price subsidies by the Government, the profit margin for a foreign company will be adversely affected, when entering the Australian market.
According to the Therapeutic Goods Acts, advertisement of any therapeutic products must be compliant with the guidelines of TGA along with The Competition and Consumer Act 2010. The aim is to guarantee that any kind of marketing or advertising is done in a responsible manner, which emphasizes on the impact of the product for the consumers. Any promotional material should not misguide or betray the consumer (Therapeutic Goods Administration, 2011). As per part 5 of the Act, under Division 2, approval is required to advertise certain therapeutic goods. While advertising of prescription medicine directly to customers is prohibited by the Act, promotion to health professionals is permitted by Medicines Australia, under the self-regulatory scheme (the Office of Legislative Drafting and Publishing, 2011). The advertising for most non-prescription medicines, however, is allowed for both consumers and health professionals. This includes pharmacist-only medicines. Specific types of promotion, like for example Broadcast media, Print media, Outdoor media (including billboards etc. ) or cinema films, have to be approved first by a Delegate of the Secretary of the Department of Health and Ageing (Therapeutic Goods Administration, 2011). These Restrictions make public promotion of products almost impossible for any Pharmaceutical Company in the market.
The dominance of companies from the United States and EU can be observed in the Australian Pharmaceutical market due to the presence of the Trade Agreements between the countries accounting for around 60% imports from EU and 13% imports from US. The EU mainly sells manufactured goods to Australia, which includes pharmaceuticals, amounting to about 86 percent of the total exports. The preferential tariff arrangement, under the Australia-US Free Trade Agreement (AUSFTA), makes 99% of US-origin goods enter Australia duty free, with the importer being responsible for applicable GST payments. According to Sainsbury (2013), Faunce et al. (2010) and Christie et al. (2013), patent extension increases the cost of drugs in Australia. Therefore, this help American firms not only make more profit but also result in high barriers for other generic manufacturers as well as makes pharmaceutical products from countries which do not have trade agreement with Australia less competitive.
The Australian Government and State and Territory Governments work together to regulate health system in the country to provide quality medicines to the public (Australia’s Health, 2018). The Therapeutic Goods Administration (TGA) in Australia regulates the quality standards for manufacturing of medicines through firstly through an on-site inspection of manufacturers and compliance verification which is paper based assessment. Secondly, Australian and overseas manufacturers are assessed prior to supply of goods and are reviewed regularly. Thirdly, inspections are done against the relevant code of good manufacturing practice (GMP) or Standard (for devices) that describes the range of conditions that are required for safe, sterile production of goods (Therapeutic Goods Administration, 2013). The TGA regulates the quality of products manufactured while the state and territory government administer public hospitals, regulate and license private hospitals, license pharmacies, and regulate, inspect, license and monitor health premises. Another regulation by the Health Department of Australia along with the state and territory government is The Australian Commission on Safety and Quality in Health Care which aims for safety and quality standards to improve the quality of health care in Australia. (Australia’s Health, 2018). These regulations impact the manufacturing of products as the company would have to meet up with the TGA standards, and thus pose as a possible entry barrier for foreign companies.
Based on Australian Institute of Health and Welfare’s Australia’s Health 2018 report, the major causes of ill health and death in Australia were found to be Chronic conditions. In 2016, the leading cause of death for males was found to be as Coronary heart disease while for females it was dementia and Alzheimer’s diseaseIt was found that 1 out of 2 Australians have at least one of common chronic conditions like arthritis, asthma, back pain and problems, cancer, cardiovascular disease, chronic obstructive pulmonary disease, diabetes, and mental health conditions, which accounted for around 61% of the total disease burden in 2011 and 87% of death in 2015. Most of these diseases have a common treatment which is provided by NSAIDS (non-steroidal anti- inflammatory drugs) combined with their specific drugs. NSAIDS includes medicines like pain killers, antipyretic and analgesics like paracetamol, ibuprofen, combiflam, etc. , which are utilized as OTC and are prescribed by physicians depending upon the dose of the drugs.
Considering the price subsidies, for the PBS listed medicines, imposed by the government regulations, as an Indian Pharmaceutical Company, preference for distribution would be given to the medicines that provide a reasonable profit margin in the Australian Pharmaceutical market. The limitation on promotional activities of products also restricts their marketing opportunities, leaving out options like medical seminars, accessory distribution to doctors with brand name embossed on them and health campaign for healthier lifestyle. Knowing that other occupational groups, other than general practitioners, also prescribe many medicines, used for other conditions, could be taken into consideration in market selection. The selection of products for distribution would also depend on the medicines in demand based on the prevalent diseases and seasonal trends. Since a majority of the Australian population is vulnerable to chronic diseases, and this have a common treatment provided by NSAIDS (non-steroidal anti-inflammatory drugs) combined with their specific drugs, distribution of NSAIDS can be considered as a promising opportunity in the Australian Pharmaceutical Market. The high demand for medicines used in the treatment of Cholesterol, Gastric Reflux, Antibiotic, Blood Pressure and Diabetes as well as the interest in Natural Health products also can be taken into consideration when deciding in products to distribute in the Australian Pharmaceutical Market. With the high competition present in the market and the majority of population present in the 5 major cities, a competitive advantage could be achieved only by identifying and focusing on medium or small sector clinics and pharmacies which have not been targeted by the major players in the market.
Based upon the evaluation of the various factors affecting the entry of the Indian pharmaceutical into the Australian market which is intensive competition, this report concludes that there is a high potential for growth. As the Australian population is expanding and with the elongated life expectancy, the base of the target buyers including hospitals and individual consumers increases. The Australian market has uncontrollable factors that lays down restriction on the Indian pharmaceutical firms through the price control regulation under PBS, restriction to advertise the products under Therapeutic Goods Act, 1989 and TGA control and regulations to meet its standards for manufacturing and quality use of medicine available to consumers in Australia. Therefore, to enter this market, Indian firm need to keep a strategy of low profit, comply Government regulation about quality as well as communication and focus on generic medicine market.
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