Porter's Five Force in relation to Eli Lilly Threat of New Entrants 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. Bargaining Power of Buyers It tends to be high in pharmaceutical business as main sales are done using whole sales. Institutions that purchase drugs in large quantities are considering the discounts that drug producers are willing to give and therefore are able to influence price. As long as Eli Lilly have competitors with similar products it is obvious that bargaining power of buyers is high for the industry. Buyers with smaller volumes of purchases do not influence price policy, but such buyers are outnumbered by wholesale buyers. It is also important that people purchasing drugs for themselves are usually covered by healthcare insurance and therefore are not interested in pulling price down. Yet the volumes of sales to such buyers are not significant. Bargaining Power of Suppliers It is relatively not high. There exi... ... middle of paper ... ...emand for prescription drugs over the next 25 years. The number of people between 45 and 64 years old will increase 41% by 2015. Given the rise in age population and life expectancy rates around the world and the level of pharmaceutical use by aging individuals, growth in the industry should remain in an upward trend. The pharmaceutical industry is relatively immune from the effects of economic cycles. Demand for the industry's product remains constant in up and down economic cycles as market demand is a function of the overall health of the population. However the globalization of the pharmaceutical industry increases the risk associated with foreign investments and exchange rates. The firms in this industry seek to minimize risks by using hedging practices such as foreign currency forward-exchange contracts, borrowing in foreign markets, and using currency swaps.
For years, the price of drugs have been held in congress because the cost of pharmaceutical drugs is the most controversial aspect of this industry. Stuart Schweitzer, a professor of health policy and management at the University of California Los Angeles, author of Pharmaceutical Economics and Policy, comments on this topic. According to Schweitzer, consumers are more sensitive to drug prices more than the price other health services. Schweitzer states, “Consumers are more likely to complain about a $50 bottle of tablets than a $500 radiology procedure, or a $5000 hospital stay”. This may be due the fact that these procedure and hospital stays are less frequent than taking prescription medication that is needed continuous. Most patients are seeing multiple doctors and nurses, that is accounting for the cost. Whereas at a pharmacy, they only see the pharmacist for a consultation and then the patient goes home to take their medication. Consumers may expect this to be cheaper because they are not receiving extensive care. To bring a new drug onto the market in the 1990s, it costed $359 million compared to $1.7 billion in 2003. Pricing of most products is usually based on marginal cost, which is the change in the total cost that comes from producing one extra item. However, this is not the case with the pharmaceutical industry because if prices were based on marginal cost, drugs would be a lot more
Pfizer is one of the largest pharmaceutical companies in the world, its headquarter locates in the US. Pfizer financial report of its fourth-quarter claim a 3% decline in sales diverted to $13.12 billion from Q4 2013 and recording a 4% decline in adjusted profit per share to $0.54 [35]. The challenges that Pfizer face can be generalized to an industrial challenge and the global economic environment challenge [29]. For intellectual rights, Pfizer products, including BeneFIX, ReFacto, Xyntha and Enbrel will have to compete biosimilars (also referred to as follow-on biologics) in the future just when competitors obtain marketing approval for biosimilars or when patent expiated [29]. There are other challenges that put Pfizer
In America, it has become a battle to earn a high paying job to cope with the expenses of a typical American. It has become even more of a battle for some people to afford medical prescriptions to keep healthy. Health becomes a crucial issue when discussed among people. No matter what, at one point or another, everyone is going to stand as a victim of the pharmaceutical industry. The bottom line is Americans are paying excessive amounts of money for medical prescriptions. Health-Care spending in the U.S. rose a stunning 9.3% in 2002, which is the greatest increase for the past eleven years. (Steele 46) Many pharmaceutical companies are robbing their clients by charging extreme rates for their products.
Main Issue In 2000, Rich Kender, Vice President of Financial Evaluation and Analysis at Merck & Company was discussing the opportunity of investing in licensing, manufacturing and marketing of Davanrik, a drug originally developed to treat depression by LAB Pharmaceuticals. LAB proposed to sell the rights of all the future profits made from the successful launch of Davanrik at the cost of an initial fee, royalty payments and additional payments as the drug completed each stage of the approval process. Merck & Company's organizational goal is to constantly refresh its drug development portfolio and reach as many customers as possible during the patented period. So there was not only the potential of financial gain or quantitative aspect of the offer, but also the qualitative value which will be added by getting better positioning in the risky pharmaceutical industry.
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.
Although monopolies appear damaging at times, there are arguments that they are an advantage to society. Monopolies in the pharmaceutical industry drive companies to pursue research and development (R&D) efforts to gain new patents. According to a 1992 study, among the 24 US. Industry groups, pharmaceuticals dedicated 16.6% of their amounts to basic research, while all other industries averaged at 5.3% (Sherer 1307). This fact validates the incentive pharmaceutical companies have to get a patent and acquire more power. Pfizer encourages R&D because of the incentives and a want to obtain patents to receive more profit. Pfizer has to promote itself to be successful, creating a good brand image that consumers will trust. If the company can advertise successfully, more consumers will purc...
It will allow more opportunities for the Merck & Co. to innovate from. Not all great ideas are being generated within Merck and this strategy will allow us access to those other great ideas. Open innovation will help Merck jump back in the lead of developing the larger number of new pharmaceutical drugs. They have already dipped their toe in with the “reverse-merger” with Schering-Plough which was great way to introduce the idea to the organization and culture within Merck. This course of action is the most ethical because it allows the company to maintain its core strategy of differentiation. It will also help continue the reputation of being innovative by supplying more ideas to work with within the R&D department. It will create more possible drug choices for consumers and profits for the company to enjoy, especially shareholders. An external idea could help produce the next Nobel Prize for the R&D
There are three issues when it comes to the health care cost rising. The first is the rising cost in prescription drugs. The second area of rising cost is the increased technologies when it comes to the medical industry. The third problem is the aging population. Prescription drugs are the area of the fastest growing health care expense, and it is projected to grow at 20 to 30 percent each year over the next several years. There are many newer, more expensive drugs on the market, and the use of these prescriptions is exploding. In addition, with so much television advertising, many consumers ask their doctors for expensive, brand name drugs when there may actually be a generic drug that works just as well.
Pfizer is the largest American pharmaceutical company and one of the largest pharmaceutical companies in the world. It competes with Merck and Glaxo, and markets such well-known medications as Celebrex and Viagra. However, the pharmaceutical industry as a whole has undergone changes in recent years with significant consolidation taking place and with increased scrutiny regarding the ways in which drugs are developed, tested and marketed. In addition, recent controversies have erupted regarding Merck's drug Vioxx, and Pfizer has been the target of unwanted publicity regarding its painkiller Celebrex. This research considers the strategic position of Pfizer, including its strengths and weaknesses as well as the opportunities and threats that it faces, its strategic priorities and the acquisition strategy that it might follow.
With the low success rated private firms invest millions into several produces. When a drug does make it too market and is successful companies need to make-up money spent in development as well as the cost of drugs which did not make it to market. After all investments are taken care of there is still the need for profit. Some are concerned if the United States government implements control over prescription drug cost then private firms will be less motivated to invest in pharmaceuticals development of our fear they would not make their investment back. This would supply pharmaceutical companies with less finances for the research and development process. According to the information collected by Abbott and Vernon a drop in the price of pharmaceuticals would result in significant loss in investment of research and development (Abbott and Vernon). If drug cost were to drop 40-45% the amount of a drug to move from animal testing to human clinics would decrease by 50-60% (Abbott and Vernon). With such high risk and low reward pharmaceutical companies will likely stop or slow research on new technologies and compounds. In 1969 Canada imposed regulations on drug prices (Weidenbaum). After the regulations were imposed there was a decline in new drugs being created (Weidenbaum). This change in the pharmaceutical
10. Collis, David, and Troy Smith. "Strategy in the Twenty-First Century Pharmaceutical Industry:Merck&Co. and Pfizer Inc." Harvard Business School, 2007: 8-12.
Prescription drug prices rose three times faster than inflation in the decade between 1981 and 1991, making the pharmaceutical industry the nation's most profitable business. Prescription drugs even exceeded the rapidly rising inflation rate for all other medical services. They now represent at least 10% of all the medical costs in the United States.1
The case under analysis, Eli Lilly & Company, will be covering the positives and negatives with regards to the business situation and strategy of Eli Lilly. One of the major pharmaceutical and health care companies in its industry, Lilly focused its efforts on the areas of "drug research, development, and marketed to the following areas: neuroscience, endocrinology, oncology, cardiovascular disease, and women's health." Having made a strong comeback in the 1990's due to its remarkably successful antidepressant Prozac, was now facing a potential loss in profits with its patent soon to expire. The problem was not only the soon to expire patent on Prozac, but the fact that Prozac accounted for as much as 30% of total revenue was the reality Eli Lilly now faced. (Pearce & Robinson, 34-1)
Janssen is a division of Johnson and Johnsons that primarily focus on diseases that can help develop new strategies in improving prevention as well as developing vaccines and its accessibility to the world. The pharmaceutical company of J&J invests large amounts of money in research and development of its products. The competitive environment of Johnson and Johnson is very high for pharmaceutical companies due to which that many companies are releasing drug products and other devices. However, this company does not face any potential competitors due to which that it is a large company that provides a wide range of opportunities such as finances, and experiences. This leads to advantages compared to other competitors due to whom the pharmaceutical companies creates a barrier because of the high cost in research and development in medicine. In addition, Johnson and Johnson have to make sure that it has many suppliers for different categories for their products especially in medicine if one supplier causes shortages. Although suppliers do not bargain for the price values of its products, it still influences the price in the market in different countries. In addition, finding
Zott, C., Amit, R. And Massa, L. (2011) ‘The Business Model: Recent Developments and Future Research’, Journal of Management, vol.37, no.4 pp.1019-42 [Online]. Available at http://jom.sagepub.com/content/37/4/1019 [Accessed 24th November 2013]