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Porter’s five force pharmaceutical industry analysis

Analyzing the global pharmaceutical industry through Porter's five forces

Lukas Gaudl

on 25 January 2013

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Transcript of Porter’s five force pharmaceutical industry analysis

Lukas Gaudl & Andrea Maresova Industry overview high profit margins
profitability exceeding costs
the richest companies in the world Porter’s framework Major players Pfizer $57,747
Novartis $47,935
Sanofi $42,779
Merck $41,289
GlaxoSmithKline $35,594
AstraZeneca $32,981 Threat of New Entrants Ethical companies Porter's five force pharmaceutical industry analysis LOW
economies of scale - manufacturing, R&D, marketing, sales, distribution.
lengthy approval process
product differentiation - established products, brands and relationships
access to distribution channels: preferred arrangements
regulatory policy: patents, regulatory standards
switching costs - employee retraining, new equipment, technical assistance Power of Suppliers Porter’s model looks at the competitive arena in which businesses operates and describes five basic competitive forces that directly impact on how successfully a business unit operates. Threat of New Entrants Generic companies MEDIUM
Financial requirements (to buy license)
Access to distribution channels: preferred arrangements (as long as the formula of the drug is identical with other companies it is necessary to have good relationships with customers who choose the supplier based on other aspects than formula itself). LOW
raw materials and intermediates
manufacturing and production plants
finished product
third party suppliers anywhere along the supply chain Bargaining power of customers Ethical companies Generic companies Large customers > significant leverage (high volume purchases) Individual buyers > little bargaining power (no choice) Following ethical companies Brand name > less power Bargaining power of customers Important influences Force summary Consider who is responsible for the sales Technological shift > higher information access Important force in the pharmaceutical industry Depending on circumstances > very high to medium Threat of substitute products Ethical vs. Generics Expensive/unique medication > no substitutes 'Softer' medication alternatives Alternative medicine Shift towards healthy lifestyle Medium/low force depending on circumstances Competitive rivalry within the industry Ethical companies - very high rivalry 2. Wave of mergers and acquisitions > overlapping 1. Not much room for error 3. Biotechs and Generics > smaller market share for Ethicals Competitive rivalry within the industry Generic companies - also high rivalry, different cause Brand name disadvantage In comparison to ethicals low entry barriers Competing with shadow economy in the global market constant pressure & drive to innovation > SUMMARY One of the richest and most attractive sectors Hard to access and hard to compete in > Threat of new entrants > Low/Medium Bargaining power of suppliers > Low Bargaining power of customers > High/Medium Threat of substitute products > Medium/Low Competitive rivalry within the industry > High
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