Analysis Of The Pharmaceutical Industry

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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. (
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.
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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
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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)
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
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