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The pharmaceutical industry has been around for millennia, but it’s only within the last century that we’ve been able to understand and treat the majority of health ailments. While the pharmaceutical industry is extremely profitable for those involved, it’s future outlook is mixed. Despite an aging population and growing obesity rates, the industry is held back by pricing pressures from governments and a new trend towards being healthy. In this PESTLE analysis, we’ll look at the Political, Economic, Sociocultural, Technological, Legal, and Environmental factors that will decide this industry’s future.

Political

Here are the Political factors affecting the pharmaceutical industry:

Regulatory Frameworks

In almost every country, the pharmaceutical industry has a strict regulatory framework to follow. This regulatory framework, consisting of numerous governmental agencies and various drug-related laws, lays out crucial rules for operating within the pharmaceutical industry. In most cases, this relates to the health and safety of medications. It may also affect how medications can be advertised and where they can be sold. In any case, this complex regulatory framework is a serious barrier to entry for new competitors in the pharmaceutical industry, meaning that established drug manufacturers and distributors have it a lot easier.

Pricing Pressure

In the United States, pharmaceutical companies are free to price medications however they want. In recent years, this has caused significant outrage, as many drug manufacturers choose to sell their drugs at hugely marked-up prices. When these drugs — such as diabetes treatments — are crucial to another human being’s survival, it seems incredibly unethical to price them so highly. As such, governments are starting to take interest in limiting the prices drugs can be sold at. Ultimately, this would mean that pharmaceutical companies are left with less profit after all things are considered.

Economic

Here are the Economic factors affecting the pharmaceutical industry:

Growing Healthcare Spend

Overall, there’s an upward trend in household healthcare spending. That’s to say that the average individual spends more and more money on healthcare — including medication — every year. Regardless of the reasons for this, it can only mean greater revenue for the pharmaceutical industry.

Sociocultural

Here are the Sociocultural factors affecting the pharmaceutical industry:

Aging Population

As healthcare around the world has rapidly improved, we now face the issue of an aging population. This means that the average person is now older than ever before. Older individuals typically have more serious health problems — and more of them — than younger individuals. Thus, the aging population means we have more health issues to tackle. This creates greater demand for pharmaceutical products, and will lead to more revenue for the pharmaceutical industry.

Growing Obesity Rates

While the rates of diseases of poverty — such as malaria or AIDS — have severely declined in recent years, diseases of affluence are ever more prevalent. While not a “disease” per se, obesity is a serious health issue in developed countries. Worst of all, the rates of obesity are quickly rising. There are a number of secondary health issues associated with obesity, and many of these require pharmaceutical treatment. As a result, growing obesity rates are actually driving more sales of some drugs, thereby increasing the overall revenue of the pharmaceutical industry.

Health Trend

Despite an aging population and growing rates of obesity, there’s a trend towards being more health conscious, especially in developed countries. Among young and middle-aged adults, it’s becoming fashionable to lead a healthy life. From partaking in regular exercise to eating well and even practicing mindfulness, healthy choices are definitely hot right now. If this trend continues, and influences more people to lead healthier lifestyles, it might reduce the need for pharmaceutical products in the long term.

Technological

Here are the Technological factors affecting the pharmaceutical industry:

Growing Biotechnology Industry

Biotechnology is the study of using living organisms to improve our lives, in areas such as agriculture, food science, and medicine. In particular, it’s the role of biotechnology in medicine that might impact the pharmaceutical industry. As new medications are created from various biological sources, pharmaceutical companies might have a wider range of drugs to produce and distribute, generating additional revenue. On the other hand, if biotechnology is used to produce healthier food options, it might take away from the pharmaceutical industry. For instance, various meat alternatives are being developed from plant sources; since meat is believed to be a major source of health problems, this might reduce the need for pharmaceutical treatment of those problems. 

Direct Advertising

Businesses in all industries have a unique opportunity to market directly to their customers nowadays. This is made possible by technology; in particular, it’s the sophisticated advertisement systems that allow brands to interact with users on their favorite portals that can greatly improve advertising potential. By advertising direct to consumers, businesses will be able to lower their customer acquisition costs and gain more customers as a result. This should help the industry grow, as clever marketing professionals attract new individuals to purchasing various medications.

Legal

We couldn’t find any significant Legal factors affecting the pharmaceutical industry. However, as always, there’s some overlap between the Political and Legal categories in PESTLE analysis. As such, you may wish to interpret the regulatory frameworks of the pharmaceutical industry as a Legal matter, and not a Political one.

Environmental

We couldn’t find any significant Environmental factors affecting the pharmaceutical industry. Of course, pharmaceutical companies need to be conscious of pollution; however, the development and production of pharmaceutical products is said to have much less environmental impact than that of other industries (such as the automotive industry).

PESTLE Analysis of the Pharmaceutical Industry: Final Thoughts

As you’ve seen, the pharmaceutical industry is sure to stick around. An aging population with growing obesity numbers will always need some kind of medication, and the tough regulatory framework ensures the market isn’t disturbed too soon. Furthermore, for whatever reasons, average healthcare spend is also rising. However, various pricing pressures, health trends, and biotechnology advancements might hold pharmaceutical companies back from achieving maximal profitability in the future.

Image by Steve Buissinne