Pharmaceutical Industry Analysis
Industry Analysis Part 1: SUMMARY: Medicine has played a key role in improving the life expectancy of humans. Since the 1900’s medicine has continued to improve exponentially in its effectiveness and quality, making the pharmaceutical industry is one of America’s most profitable industries. One reason of such success is that pharmaceutical sales are not solely affected by economic conditions; instead they are influenced more by government regulations. The Pharmaceutical industry is roughly a $360 billion market, with the U. ... One of the major players in the industry today is Pfizer, with a worldwide market share of 7. ... Competitive position in such an industry will be led by firms with the strength to raise mass quantities of capital (3), maintain the technological edge, and demote much of their resources to R&D. ... The pharmaceutical industry basics represent possible reasons why firms would be attracted to such an opportunistic industry. An in-depth look into the forces working with and against a pharmaceutical firm will further help to understand the competition within the industry. One way to analyze internal industry forces is with the Porters Five Forces model. PORTERS 5: Michael Porter’s Five Forces model helps to analyze competitive forces in an industry by focusing on five areas: the threat of entry, bargaining power of buyers, bargaining power of suppliers, threat of substitutes, and threats of rivalry among competitors. The first force, threat of new entry into the pharmaceutical industry has a low barrier. ... There are so many areas to focus on that firms can come into the industry and practically pick their area of concentration (7). The fact that it is a relatively open industry creates attractiveness because the chance for profits on new drugs is high. This flooding into the industry however can dilute the profits to be reaped from other companies (2). ... Buyers include individual customers, doctors, and healthcare alike, which rely heavily on pharmaceutical producers. ... Low buyer power greatly increases the attractiveness of this industry. ... The threat of suppliers is the third force at work in Porter’s model which also is favorable to an industry competitor. Suppliers of pharmaceutical firms deal primarily with the ingredients that make up a drug’s composition. Luckily for the industry such ingredients are usually cheap and only a fraction of the cost of producing a drug. Therefore the bargaining power of suppliers is also low, giving even more control to the pharmaceutical firm.