Implementation of the Quantitative SWOT Analysis Method in the Research on the Contemporary State and Prospects of Consistent Development of the Pharmaceutical Branch

 

Svitlana Moroz¹, Rita Sahaidak-Nikitiuk², Diana Zoidze³

¹Department of Organization and Economics of Pharmacy, National University of Pharmacy, 53, Pushkinska Str., Kharkiv, 61002, Ukraine

²Department of Processes and Equipment of Chemical and Pharmaceutical Production, 53, Pushkinska Str., Kharkiv, 61002, Ukraine

³Department of Management and Administration, 53, Pushkinska Str., Kharkiv, 61002, Ukraine

 

ABSTRACT:

The aim of the current paper is the research on the contemporary state of the pharmaceutical branch in Ukraine and determination of strategic directions of its consistent development using the quantitative SWOT analysis method. Results. The current paper depicts the research on the contemporary state and revealing of prospects and possible strategic directions of the consistent development of the pharmaceutical branch in Ukraine using the SWOT analysis, taken on a quantitative basis. SWOT analysis was conducted in several stages: revealing and selection of the most prominent factors of the internal and external environment of Ukrainian pharmacy; polling pharmacy specialists as to the level of impact of the factors on the development of the branch using questionnaires; creation of the interrelation diagram of elements of the pharmaceutical branch internal environment; quantitative calculation of the factors’ impact and revealing the key ones; construction of SWOT matrix and the vector of the development direction of Ukrainian pharmacy. The strengths of the internal environment were found to substantially prevail over the weaknesses, while the threats of the external environment though insignificantly but exceed the capabilities of the pharmaceutical branch. In general, despite all the unfavorable circumstances, Ukrainian pharmacy has a powerful inner potential for the further development and resistance to threats. In this case, the concentrated growth strategy is recommended. Conclusion. Proceeding from the SWOT analysis carried out, the principal strategic directions of the consistent development of the pharmaceutical branch are related to the powerful pharmaceutical industry. The top-priority ones are: the capacity increase of medicinal products production, expansion of nomenclature of medicinal products by domestic production, new substances development, creation of import-substituting pharmaceutical and biotechnological manufacturing facilities, etc.

 

 

 

INTRODUCTION:

The pharmaceutical branch (PhB) of Ukraine has shown extremely high development rate over the past decade. The pharmaceutical market of the country (despite the crisis in 2014-2015) increases a yearly average of 15-18% in monetary terms and of 4% – in commodity ones¹.

 

Thus, pharmacy as a branch seems profitable, prospective and dynamically developing at first glance. On the one hand, this corresponds to reality: pharmacy as a business area demonstrates consistent growth indicators both by profitability and by share in GDP. However, this is explained first of all by the specific character of medicinal products (MP) as a kind of goods the demand for which is not dependent on political and sometimes even economic factors. The demand for medicines is directly related to the human health and life, which results in the high social priority of medicines that determines the features of their demand and supply formation¹. The pharmaceutical branch in developed countries belongs to the most dynamic and profitable, but at the same time is a specific market segment, which is regulated by state authorities, as well as controlled by the insurance medicine².

 

The challenges of pharmacy are in the area related to the providing population with affordable and high-quality MP and their rational administration. Thus, it is essential to assess the current state of PhB, its potential concerning the possibility of strategic changes; to measure the weaknesses and threats with real opportunities and strengths of the branch; to process and analyze the data obtained and determine the key strategic development factors. Traditionally implement this approach allows SWOT-analysis, a technique which worked on the basis of the work of many scientists and customized for our needs^3-9. The main purpose of the SWOT analysis is the research on the internal and external environment, within the limits of which the studied object is functioning, provision of the structured description of the situation on which the decision is to be made, defining the development scenario. SWOT analysis is basically the diagnosis of the initial conditions for the development of the branch. In such case, the object of the SWOT analysis can be an enterprise, as well as an economic branch, regions, an entire country.

 

MATERIALS AND METHODS:

During the research the content analysis in determination of the key factors of consistent development of PhB, methods of questionnaires and expert assessment during the polling tour, SWOT analysis in the evaluation of the current state and revealing the strategic directions of consistent development of PhB were used.    

 

RESULTS AND DISCUSSION:

The purpose of conducting SWOT analysis was the research into the current development state of PhB by determining the critical factors that restrain the consistent development of the branch, as well as determining the groups of strengths, weaknesses, opportunities and threats for its further development¹⁰. The PhB SWOT analysis was conducted on a quantitative basis and was held in several stages (Fig. 1).

 

Fig. 1. The algorithm of the PhB analysis procedure using quantitative SWOT analysis  

The method of expert assessment – determination of quantitative characteristics of features by questioning the pharmacy specialists of high qualification – was used in the polling tour. The expert poll included 100 PhB experts, the majority of which was represented by the heads of pharmacies (60%), clinical pharmacists (20%), top-management of pharmaceutical factories-the MP producers (20%) expressing their ideas. The respondents put relevant points for the questions in the questionnaire concerning the factors of external and internal environment that influence the PhB consistent development. The summative assessment of the factors was calculated as the product of the estimated by experts points for the importance of a factor and the possibility of its occurrence. The assessment of opportunities and threats of the PhB external environment is given in the Table 1.

 

Table 1: External environment: the PhB opportunities and threats evaluation

Opportunities (О)	Summative assessment of the factor	Rank	Threats (T)	Summative assessment of the factor	Rank
1. Implementation of the MP reimbursement system functioning	2,76	2	1. Absence of the medical insurance system in Ukraine	1,95	4
2. The Ministry of Health has developed a series of legislative proposals on the PhB functioning improvement	1,83	3	2. Low purchasing power of the population	2,52	2
3. Export capacity (opportunities to reach new markets) resulting from the transition to the GMP standard by many local MP producers	1,62	4	3. Functioning of pharmacy institutions exclusively as business entities	2,16	3
4. Creation of the systems of overseeing the MP safety during their medical administration (pharmacovigilance)	0,82	8	4. Absence of detailed harmonized and approved national strategy of the PhB development	1,3	8
5. Advancing the formulary system and implementation of the treatment protocols	1,54	6	5. Low level of foreign direct investment in the local PhB	1,36	6
6. Development of the responsible self-medication	0,73	9	6. Ineffectiveness of the existing model of pharmaceutical provision for the population	1,32	7
7. Continued implementation of the quality assurance system within the whole MP turnover cycle by fulfilling the requirements of the GхP standards	1,46	7	7. Outdated system of funding for scientific research	3,2	1
8. Improving public access to publicly important information concerning MP	1,56	5	8. Ineffective State regulation of the branch, complicated and improper management of regulatory procedures	1,54	5
9. Production of new generic medicines upon expiration of the validity of patents on the original MP	0,8	10
10. Dynamic development of the pharmaceutical market	3,12	1

 

Ranking the external environment factors and choosing the most important ones with the rank 1-3 has shown the high growth rate of the pharmaceutical market to be the greatest opportunity of the external environment. This is confirmed by indices: as a result of 2018 the sales volume in Ukraine has increased by 22,5% in monetary terms and by 4% in physical terms compared to 2017. The increase in morbidity due to the increasing impact of technogenic factors and ecological status degradation contribute to the growth of pharmaceutical market. The population ageing is also a contributing factor, which requires effective medicines to support the health, as well as the income of the population growth that makes the administration of more expensive and high-quality medicines available¹¹.

 

 

According to the expert opinion, the high potential of the PhB opportunities is due to the MP value reimbursement system implementation in 2017. In fact, this is an effective mechanism of pharmaceutical provision for the population. The list of medicines included into the reimbursement system comprises 23 INN and 257 trade names by now. The administration of reimbursed MP has increased by 36% in 2018 compared to 2017¹². The reimbursement system has helped to make medicines more affordable and has led to the price reduction for medicines that take part in it.

 

Essential opportunities for the PhB development from the part of external environment may open due to the adoption of laws and other regulatory legal acts that would improve the branch functioning. The following legislative proposals are among the most important ones to date: draft law “On medicinal products”, legislative proposal “On amendments being made to the Law of Ukraine “On medicinal products” concerning the economic competition and patient advocacy in the context of medicinal products retail trade”, draft ordinance of the Cabinet of Ministers of Ukraine “On approval of the Concept of the State policy on prevention of medicinal products falsification implementation”, etc. 

 

The number one threat of the external environment as a result of polling, processing and further ranking is the outdated system of funding for scientific research. Under the conditions of unstable micro- and macroeconomic development funding the short-term inventions, in particular, generic MP, or mastering the completed ones with proven economic expediency is cost-effective for pharmaceutical companies. There is scarcely any development of novel original MP and technologies of their production in Ukraine, first of all, due to the absence of an institutional purchaser for the MP scientific research results¹³.

 

A major threat is the low purchasing power of the population in Ukraine. The level of per capita MP administration in Ukraine remains low compared to European countries. Expenses for medicines comprise about 62 USD per year. According to the research data, in 2018 under the current pricing pattern in retail network the consumption in packaging slumps after the cost of 70 UAH per packaging as the population has no such purchasing power. Thus, the medicines affordability limit for the population at large is up to 70 UAH per unit¹⁴. This images an urgent social problem – the low level of economic affordability of medicines for the population and insignificant state programs for medicines reimbursement.  

 

Another significant threat for the consistent PhB development is the functioning of pharmacy institutions exclusively as business entities (3^rd place in the rating). A pharmacy is, first of all, a healthcare institution, but nowadays increasingly alarming processes occur, when a pharmacy becomes a shop for selling medicines and the primary goal for such activity is the income maximizing by increasing the bill size. In addition, it is not uncommon for the pharmacist’s function to be fulfilled by a person without pharmaceutical education, and such worker costs less for the employer than a qualified pharmacist^15,16. This, in turn, leads to the profession of a pharmacist devaluation and the decrease of the quality of pharmaceutical service.

 

The next step was the formation of the list of the PhB internal environment factors and their assessment by the experts. In this case, the constituent of the summative assessment of the factors was the number of their outgoing connections and the level of impact on other factors. In this regard, a scheme of the interrelation of PhB factors was created (Fig. 2). The evaluation of the strengths and weaknesses of the PhB internal environment is shown in the table 3.

 

Table 3: Quantitative evaluation of the PhB internal environment factors

Factors	Number of connections		Level of impact on other factors	Оцінка поточного стану		Summative assessment of the factor
	in	out		state	point
1. The power of Ukrainian pharmaceutical industry	4	4	0,57	good	3,24	1,84
2. Almost complete transition of industrial enterprises of the pharmaceutical branch to the GМP standards	0	3	0,43	good	3,04	1,31
3. Prices for MP of local production compared to the imported analogues	5	0	0	good	3,32	0
4. The education system of the pharmacy specialists	2	2	0,29	good	3,16	0,92
5. Innovativeness of the pharmaceutical branch	2	3	0,43	good	3,2	1,38
6. High technologies in the pharmaceutical branch	1	7	1,0	good	3,24	3,24
7. Qualification of workers of the pharmaceutical branch	3	2	0,29	good	3,28	0,95
8. Dependence of Ukrainian pharmacy on the import of MP and healthcare products	4	1	0,14	bad	-2,8	-0,39
9. Dependence of Ukrainian pharmacy on the import of substances (raw material)	2	1	0,14	very bad	-3,16	-0,44
10. Nomenclature of medicines approved for the Ukrainian market compared to the countries with developed economy (absence of about 30% of molecules, which are present in the British formulary)	5	2	0,29	bad	-2,56	-0,74
11. Assortment policy of many Ukrainian producers	6	4	0,57	bad	-2,36	-1,34
12. Ukrainian research on MP development	1	7	1,0	bad	-2,72	-2,72
13. Environmental pollution by discharge to the atmosphere, process water and solid waste made by pharmaceutical industry	6	0	0	bad	-2,72	0
14. Concealed monopolization in the PhB retail segment	1	2	0,29	very bad	-3,0	-0,87

 

According to the expert assessment and the quantity of outgoing connections, the most prominent PhB strength is its being a high-tech one. Pharmacy is traditionally listed amongst the high-tech industries; in addition, pharmaceutical and bioengineering branches are among the main high-tech directions for Ukraine¹⁷.

 

The power of the domestic pharmaceutical industry has an estimated 2nd rank among the strengths of the industry. Nowadays there are 108 enterprises with a license for MP production in Ukraine. Local pharmaceutical companies try to diversify the assortment to meet the requirements of purchasers by improving the quality and assortment of the products with each passing year. The majority of production areas of Ukrainian producers are attested in compliance with the GMP standard. However, the worldwide tendency at the pharmaceutical market related to the processes of consolidation and takeover is worth mentioning. This process is carried out by companies for business expansion and entry into new markets, as well as the search for new technologies of MP development and research^{18, 19}.

 

Fig. 2. Internal environment of the pharmaceutical branch. Element interrelation diagram

 

The PhB innovativeness is among the strengths. Capital investment in the pharmaceutical production comprised 1.8 billion UAH in 2017. Pharmaceutical industry shows higher rate of capital investment growth compared to the general ones. The investment growth in recessionary 2014–2015 is indicative of economic reliability and stability of this sector.

 

 

The weakness of absence of Ukrainian research on MP development according to the expert assessment and the quantity of outgoing connections is the most significant (1^st place in the rating). Stimulation of scientific development, fundamental and applied scientific research, as well as industrial implementation of the new ones are the important steps in the system of the population supply with MP, which requires additional regulation at the legislative level. The main problems that provide for the necessity of operative research, clinical research, research on the MP development are: limited funding; lack of technical and human resources; introduction of novel expensive technologies; presence of subjectivity while planning the MP research and evaluating the data received; lack of proper regulation of ethical principles for biomedical research at the legislative level, etc²⁰.

 

The 2^nd place in the rating of internal weaknesses is the assortment policy of many Ukrainian producers, which is narrow and old-fashioned. There is a great number of pharmaceutical enterprises that carry out the processing of medicinal plant raw material and traditional therapeutic and prophylactic MP in Ukraine. At the same time the native innovations are absent. Nowadays Ukrainian pharmaceutical industry produces almost 1400 out of 3000 medicines sold in Ukraine. As of 2017, MP that correspond to 823 INN were not produced in Ukraine. The most threatening situation is with antitumor and immune-modulating medicines (105 INN are not produced), medicines for infectious diseases treatment (99 INN are not produced), MP of limited administration for the treatment of orphan diseases²¹. The medicines for cardiovascular disorders treatment comprise a problematic group: out of 1650 registered ones in Ukraine only 445 (27%) are produced domestically. This indicates the low physical availability of a range of important MP in Ukraine compared to other countries.

 

Another weakness for the moment is the concealed monopolization in the PhB retail segment. Nowadays the legislated or regulated criteria for a pharmacy opening advisability are almost absent in Ukraine. Large pharmacy chains operate under a principle of their enrichment, income and business; expensive medicines are of the top priority since the profit from them is way higher than from the cheap analogues. A large pharmacy chain is, in fact, a possibility to dictate terms of purchase prices for distributors. The pharmacy owners and producers are currently build relationships in a way that up to 40-45% of MP extra cost appears, which is refunded exclusively by a patient ²².

 

In general, according to the expert assessment, the threats of the external environment, although insignificantly, but prevail over the PhB opportunities. The strengths of the internal environment greatly prevail over the weaknesses (table 3).

 

Table 3: Summary SWOT-matrix and the direction vector

External environment		Internal environment
Opportunities (О)	2,57	Strengths (S)	6,46
Threats (Т)	-2,77	Weaknesses (W)	-4,93
Opportunities + Threats = Х	-0,2	Strengths + Weaknesses = Y	1,53
Vector of the development direction (-0,2; 1,53)

The rectangular coordinate system is built: Х axis – the PhB external environment (OT); Y axis – the PhB internal environment (SW) and a polygon of SWOT matrix (Fig. 3). The coordinates of the direction vector are calculated (-0,2; 1,53).

 

Vector of the PhB development direction is in the ST (strengths-threats) quadrant. This means that despite all the unfavorable circumstances of the external environment Ukrainian pharmacy has a great inner potential for the further development and resistance to threats. In classical view the concentrated growth strategy is recommended, which provides the increasing production of an available product on an existing market or the search for the new market for an available product. Such strategy is called the intensive growth strategy.

 

According to the SWOT analysis conducted, the following can be concluded:

1    The PhB weaknesses do not allow for taking advantage of positive opportunities of the external environment, such as dynamic market development, reimbursement implementation, presence of many legislative proposals.

2    The PhB strengths are primarily related to the MP production, which has the highest potential for the Ukrainian PhB. Thus, the power of Ukrainian pharmaceutical industry should not be decreased, and it should be used as the levers of influence over the weaknesses.

3    Such weakness as the concealed monopolization in the PhB retail segment somehow neutralizes the potent pharmaceutical industry since the chains have an interest in selling more expensive MP, as well as can drive up the price for the medicines of domestic production.

4    The key factor of the internal environment is the almost complete transition of industrial enterprises of the pharmaceutical branch to the GМP standards (zero quantity of incoming connections on the scheme).

5    Such factors as “Prices for MP of local production compared to the imported analogues” and “Environmental pollution made by pharmaceutical industry” are terminal (no outgoing connections). They result from the activity of the rest of the evaluated factors of the internal environment.

 

Fig. 3. The PhB SWOT matrix

 

CONCLUSIONS:

Proceeding from the strengths present, which are mostly related to the MP production, and the opportunities, which are of top-priority for the pharmacy, the following strategic directions can be determined: the increasing production of MP, including the capacity increase by creating corporate enterprises with leading foreign pharmaceutical companies, expansion of nomenclature of medicinal products by domestic production; participation in new substances development (collaboratively with the EU pharmaceutical companies); creation of import-substituting pharmaceutical and biotechnological manufacturing facilities, development of biotechnological, antitumor, antidiabetic, ant asthmatic medicines and drugs for orphan diseases treatment, etc.; registration of new INN; state stimulating and funding the generic medicines production; optimization of the legal and regulatory framework of the PhB enterprises activity, state assistance in domestic pharmaceutical products promotion to the markets of other countries; the MP reimbursement functioning not as a local separated program with a limited medicines nomenclature but as an integral part of the general system of compulsory health insurance formation.

 

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Received on 27.04.2019           Modified on 30.05.2019

Accepted on 29.06.2019         © RJPT All right reserved