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A Recent History Of The Pharmaceutical Industry - Based On All Five Forces

August 2007 (The New Business Road Test) ProductionIntellectual PropertyCompetitionMarketsBusiness ModelPorters 5 Forces.

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This highly favourable competitive environment, in which drug companies obtained patents to protect them from rivals, meant that competitors were effectively blocked from manufacturing and marketing drugs with the same chemical composition for 17 years, which equates to between eight and 12 years once the drug actually gets to market.

The result? In terms of threat of entry, the picture of the pharmaceutical industry in the 1980s was clear. Entry barriers were extremely high, resulting in little threat of entry, a very favourable condition for industry incumbents and for new pharmaceutical startups that could find a way to enter.

Supplier power

Pharmaceutical companies were flooded with raw material suppliers anxious to sell to such a strong and profitable industry. In 1982, there were over 12,000 chemical companies in the USA alone. Their products had long shelf lives, were readily available from numerous sources, and were bought largely on the basis of price and delivery. These conditions left the chemical suppliers with little power to set the terms and conditions under which their raw chemicals were sold to the drug companies. From the drug companies’ point of view, supplier power was virtually nonexistent.

Buyer power

How would you like to be in an industry where your buyers are uninformed about your product and almost 100 per cent
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