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PORTER'S FIVE FORCES ANALYSIS: PHARMACEUTICAL
Transcript of PORTER'S FIVE FORCES ANALYSIS: PHARMACEUTICAL
1. Threats of entry posed by new or potential competitor (LOW)
• High entry barriers due to costs associated with research & development of new drugs
• Government regulation (i.e. FDA)
• The threat of entry posed by new or potential competitor is a LOW competitive force due to the above entry barriers & regulatory constraints.
2. Degree of rivalry among existing firms (HIGH)
• High rivalry among main companies in the industry.
• The degree of rivalry among existing firms is a HIGH competitive force
The pharmaceutical industry develops, produces, and markets drugs or pharmaceuticals licensed for use as medications. Pharmaceutical companies are allowed to deal in generic or brand medications and medical devices. They are subject to a variety of laws and regulations regarding the patenting, testing and ensuring safety and efficacy and marketing of drugs.
5. Closeness of substitute products (HIGH)
• Demand for generic versus brand name drugs has increased because of the costs
• Generic drug companies do not have the high costs associated with the research & development of new drugs and that allows them to sell at cheaper prices
• The closeness of substitute products is a HIGH competitive force
4. Bargaining power of suppliers
• Sales for the pharmaceutical industry concentrate in a handful of large players and that has decreased the bargaining power of suppliers.
• The bargaining power of suppliers is a LOW competitive force
Porter's Five Forces are
1) Threats of entry posed by new or potential competitors;
2) Degree of rivalry among existing firms;
3) Bargaining power of buyers;
4) Bargaining power of suppliers and
5) Closeness of substitute products.
3. Bargaining power of buyers (MEDIUM)
• Hospitals & other health care organizations buy in bulk quantities and exert pressure on pharmaceutical companies to keep prices in check
• Regular patients have lost bargaining power due to price increases in generic drugs
• The bargaining power of buyers is a MEDIUM competitive force.
Overall and based on the above analysis of Porter’s Five Forces, we can conclude that the pharmaceutical industry is not attractive for new entrants.