General environment: Our book says: “A firm’s external environment consists of all the forces that can affect its potential to gain and sustain a competitive advantage. (Rothearmi, 2013) Analyzing the general environment, we can mitigate threats and leverage opportunities. With current healthcare system under government’s scrutiny to lower healthcare costs, pharmaceutical industry is also greatly affected. Political forces have a major effect on this industry in ways of price control, incentives for competition, introduction of parallel trade, etc. (academia.edu) Economy is also a significant force affecting the pharmaceutical industry in multiple ways. For example: recent global economic crisis lead to diminished spending on healthcare. …show more content…
Higher and higher costs of R&D present significant obstacles for new companies. Increasingly higher capital investment is required at the beginning of the process to produce competitive drugs. Continuous investments into remaining competitive add on to the initial costs of development. In addition to scarce resources, time invested is also a major cost. To develop a product ready for sale it can take up to 15 years. Considering all this, less than one third of all the products that are produced and sold result in breaking even; even less generate profits. In addition to struggles of R&D, government regulations pose also a significant barrier to entry. Pharmaceutical industry is among one of the most highly regulated industries. For those providers hoping to become a global supplier, regulatory policies become even more significant barrier to entry due to the complexity of navigating regulatory policies that vary from country to country. The cost of ensuring compliance with all of the regulations is additional contributor to the barrier of entry. Lastly, considering all the costs, what makes it even harder to enter is the fact that often prices of the products aren’t set by market supply and demand, but by government policies that serve the purpose of perhaps reducing the healthcare burden on people in need. (ibis …show more content…
Inserting this type of demand into pharmaceutical industry, result is quite favorable for the supplier. This issue of lack of bargaining power on the side of the buyer is attempted to be addressed with strategies such as government policies or subsidies to those who cannot afford, tax incentives for companies smaller in operation creating competition, and bulk purchases by organizations such s HMOs and PPOs. (Business Data Insight, 2013) THE BARGAINING POWER OF SUPPLIERS Chemicals suppliers lack the power of bargaining as much as the customers. Chemical entities are almost a commodity; hence their competition is adjusted by price. There are examples however of few chemical companies that have managed to successfully downward integrate; examples include Orchid Chemicals & Pharmaceutical, Dr. Reddy 's Laboratories and Shasun Pharmaceuticals. In recent years there has been evidence of a new sort of supplier. CRO and biotech companies support major pharmaceutical companies through several stages of R&D. Examples of support offered include the existing knowledge in new chemical entities and drug trials. However, this does not present a big threat due to the fact that they do not have significant expertise in many of the essential elements and they are more dependent to pharma companies than pharma companies towards them. (Business Data Insight, 2013) Type of generic industry
Bargaining Power of Buyers. This is the most concerned force because many companies in the drugstore industry start to do the same thing as Walgreens.
In the business of drug production over the years, there have been astronomical gains in the technology of pharmaceutical drugs. More and more drugs are being made for diseases and viruses each day, and there are many more drugs still undergoing research and testing. These "miracle" drugs are expensive, however, and many Americans cannot afford these prices.
An Analysis of GlaxoSmithKline The business that I have done research into is GlaxoSmithKline. This company is a globalised research-based pharmaceutical public limited company. Its ownership structure has changed a great deal since the original company was first established in 1715. Originally a pharmacy, the company has expanded, merged with and taken over other companies over the decades.
Threat of new entrants is relatively high. Companies forming alliances are potential rivals. Even if earlier such company was not considered to be a threat, after merging with some research and development company or forming alliance with another pharmaceutical company it would become a rival to Eli Lilly. The threat is however weakened by significant research and development costs necessary to successfully enter the business. Eli Lilly’s focus on a relatively narrow market of sedatives and antidepressants weakens the threat of new entrants, but other products that form lesser part of company’s sales such as insulin and others are exposed to high threat of new entrants. The need of obtaining certificates and licenses also weakens the threat of new entrants. Discussed above leads to the conclusion that threat of new entrants is medium.
Due to patents, Pfizer and other companies in the pharmaceutical industry are not always competing in a monopolist’s competition. When a business has a patent they are the only manufacturer who can produce the product until the product expires, so it is clear that the firm can act as a monopoly while in control of the patent. As a monopolistic company, the company has market power, giving it the capability to adjust the market price of a good. The main goal for a monopolist and business owner is to maximize their profits, however, there are rules they have to abide by. The monopolistic companies still have to keep up with the market demand curve. The point at which they decide to produce will rest on their own acidities of revenue, risk and effort. The company also needs to know the price elasticity of the curve: the greater the price elasticity, the more a company such as Pfizer will struggle to establish high prices and a high volume.
In recent years’ health reform has been a driving force in the United States political system. If you watch the news, you will understand how citizens, the government, or the economy are or might be affected by some sort of change in medical regulation. One of these hot topic issues is the cost of prescription drugs. Every major drug market besides the United States regulates the price of drugs in some way (Abbott and Vernon). By the United States not doing so, many believe it opens consumers up to being exploited by large pharmaceutical companies.
In the scholarly book, “TRIPS, Pharmaceutical Patents and Access to Essential Medicines: Seattle, Doha and Beyond”, Hoen describes the need and uses of patents in the pharmaceutical industry. The World Trade Organization and Trade-Related Aspects of Intellectual Property Rights Agreement help facilitate the ever growing industry. In order to protect intellectual property, these organizations set out patents to these companies. The article states that there are many drawbacks such as how patents increase the price of these drugs and limiting its consumers ability to acquire them. The source is outdated, as it was published in 2006, but it was helpful in understanding the way patents are incorporated in this industry. The insight from the pharmaceutical patents book allowed me to understanding the next book about the business aspect of the pharmaceutical industry. In the book, “Pricing, Profits, and Technological Progress in the Pharmaceutical Industry”, Scherer discusses the business of pharmaceuticals in the United States. The necessity of medicines throughout the world is a driving force of this sustaining industry. The U.S. health care costs in 2013 was 17.1% of the gross domestic product. The significance of this is that it is the second highest only to Tuvalu, which only has a population of 9,876. This high cost of pharmaceuticals leaves the people of the United States with an economic burden. Although being a country that is a world leader, the U.S. continues to struggle in the ability to provide sufficient medication to everyone in need of them. In the book, “International Pharmaceuticals,” Gary Banks delves into the factors of the international pharmaceutical industry. He discusses the roles of g...
Merck & Co. has to be aware of the economy as with any industry. Within the recession, more and more were looking towards generic substitutes. This can at times not be a problem with patents. However, once a patent is up, a competitor who develops generic versions of Merck’s products becomes a low-cost competitor. However, during the recession from 2008 – 2009, Merck didn’t see any drop in sales. Actually, they were able to keep a continual increase in sales and net income.
PROBLEM STATEMENT Teva Pharmaceuticals, the first multinational pharmaceutical company in Israel, has become a successful global giant in the industry of generic drugs. After experiencing a long period of success and growth in the generic drug industry against some big western pharmaceuticals, the company had acquired many well known pharmaceutical companies and had achieved its goal of $1 billion. theory seemed to be in trouble in building a new strategy and vision to compete with the rapidly growing generic industry. They confronted two big issues as key hurdles in their way.
Since its humble beginning as a small drugstore, Merck has placed a large amount of importance on improving the health and well-being of its customers. As drug patents expire and genetic forms of their top products become available, Merck’s strategy is to do the unexpected; instead of raising the price of their older products in favor of patent protected new drugs, Merck focuses on reducing their cost in order to better compete with their generic counterparts. Additionally, Merck’s plan for growth now encompasses a much more aggressive pursuit of new drugs in their pipeline through extensive research. Merck became the second largest health care company in the world after the merger with Schering-Plough in 2009 and has contributed great discoveries like the first cervical cancer vaccine and great resources like the Merck Manuals which are utilized as a source of information to doctors, scientists and consumers worldwide .
The Indian Pharmaceutical Industry today is considered highly progressive industry among India's science-based industries with wide ranging capabilities in the field of drug manufacture and technology. India is considered to be global powerhouse of generic drugs. However, it is now witnessing regulatory challenges like delays in clinical trial approvals, uncertainties over the FDI policy, a uniform code for sales and marketing practices and compulsory licensing (M. Janodia, 2007).
Porter’s five forces is a framework for analyzing an industry and business strategy development. It looks at forces that determine the competitive intensity of an industry and hence the overall attractiveness of that industry. The configuration of the five forces differs by industry. Understanding the competitive forces and their underlying causes reveals the roots of an industry’s current profitability while providing a framework for anticipating and influencing competition over time.
Recently, Biocon has been compelled to move various Indian projects to the US and Europe. The situation only makes the process more cumbersome but also results in a 10-20 times hike in the cost of drug development. In the past two years, companies like Piramal Enterprises and Lupin were also forced to go abroad for conducting clinical trials, due to slow and uncertain approval processes in India with the matter being challenged in court.
Indian formulation industry along with its counterpart pharmaceutical industry has been booming in recent years. Both, India and China have been major players in pharmaceutical sector in Asian as well as global market. Pharmaceutical sector is generating considerable revenue for the economy of both the countries. India is famous for the number of patents in pharmaceutical industry it has and its formulation industry while china is known for its economical price and ready availability of the supplies in any quantity. Chinese manufacturers are facing issues with patent infringements while Indian sector lack bulk manufacturers.
Australia’s pharmaceutical is a knowledge-based, technology-intensive industry that its aim is to develop and commercialise the outcomes of Australia’s long-term investment in medical research (AGDI 2014). It undertakes the development, production and supply of pharmaceutical products domestically and internationally (ALRC 2014).