Case Study the Pharmaceutical Industry
1. Drawing on the five forces model, explain why the pharmaceutical industry has historically been a very profitable?
a. Rivalry among competing firms
i. Patent protected medicine allows prating monopoly ii. In pharmaceutical industry they have several strong competition compete again few rather than more companies
b. Threat of substitute product
i. Very costly to introduce a new drugs ii. So many medicines protect by patent law, all competitors can make countertrend drugs who have almost some quality
c. Bargaining power of buyer ( low bargaining power of buyers)
i. Market leader enjoy monopoly pricing ii. Medicine emergency drugs they have to use
d. Bargaining power of suppliers
i. They have to satisfy the manufactured and compete with other supplier to remain in the industry because they are bargaining power
e. Threat of new entrants
i. There are high cost and risks associated with developing new drugs and bringing it to market as out of every 5000 compounds tested in the laboratory by a drug company, only one of these ultimately make it to the market.
2. After 2002, profitability of the industry, measured by ROIC , started to decline. Why do you think this occurred?
The many aspects contribute to the decrease in profit of the drug industry , firstly politicians are trying to put price control on prescriptions drug which affect the profit of the drug producing industry. Secondly , it s the loss to “generic drug “ company when their drug patent expired. The creator company will no longer be the only one produces the drug, and have to compete with generic version drug which similar formula but offered at much cheaper price. For example, Pfizer is the company who holds a 20 years patent protection of Lipitor , a very high demand ,popular drug that generate them great profit . With the patent, Pfizer is the only company who allowed to produce it and can sell at high price. Once their patent expired , which in 2010 ,other company and firm will
a. Rivalry among competing firms
i. Patent protected medicine allows prating monopoly ii. In pharmaceutical industry they have several strong competition compete again few rather than more companies
b. Threat of substitute product
i. Very costly to introduce a new drugs ii. So many medicines protect by patent law, all competitors can make countertrend drugs who have almost some quality
c. Bargaining power of buyer ( low bargaining power of buyers)
i. Market leader enjoy monopoly pricing ii. Medicine emergency drugs they have to use
d. Bargaining power of suppliers
i. They have to satisfy the manufactured and compete with other supplier to remain in the industry because they are bargaining power
e. Threat of new entrants
i. There are high cost and risks associated with developing new drugs and bringing it to market as out of every 5000 compounds tested in the laboratory by a drug company, only one of these ultimately make it to the market.
2. After 2002, profitability of the industry, measured by ROIC , started to decline. Why do you think this occurred?
The many aspects contribute to the decrease in profit of the drug industry , firstly politicians are trying to put price control on prescriptions drug which affect the profit of the drug producing industry. Secondly , it s the loss to “generic drug “ company when their drug patent expired. The creator company will no longer be the only one produces the drug, and have to compete with generic version drug which similar formula but offered at much cheaper price. For example, Pfizer is the company who holds a 20 years patent protection of Lipitor , a very high demand ,popular drug that generate them great profit . With the patent, Pfizer is the only company who allowed to produce it and can sell at high price. Once their patent expired , which in 2010 ,other company and firm will