3. Leading science and technology in
healthcare.
World's oldest pharmaceutical company.
High profit margin.
Profitability exceeding costs.
4.
5. Looks at the competitive arena in which
business operates.
Describes five basic competitive forces which
directly impact on how successfully a
business unit operates.
6. 1-Supplier Power (Low)
Depends on several organic chemicals.
Chemicals are largely a commodity.
Many suppliers and the switching cost is low.
They do not have much power to drive up prices.
e.g: For patent drug, the cost of materials relative
to selling price of the product is very low since
cost of the drug is mostly coming from R&D.
For generic drug, raw material cost constitutes
more than 50% of the total expenses. Merck has
economies of scale that can lower the bargaining
power of suppliers.
7. 2-Buyer Power (Low to Moderate)
End consumers are not very sensitive to price
movements.
No bargaining power for end consumers.
Health care insurance company has the
bargaining power to lower the price.
Brand identity exists in the hand of medical
practitioners.
Highly fragmented market thus buyer
concentration within the industry is relatively
low.
8. 3-Competitive Rivalry (High)
Highly competitive industry with many players.
Trend for merger and acquisitions in recent years.
Weak and small companies hardly survive without
potential blockbuster drugs in pipeline.
It is common for small companies with great
potential drugs to be bought by big Pharma.
9. 4-Threat of Substitution (Moderate/Low)
------Patent drugs, substitution generally is
minimal to non-existent.
However, for expired patent, threat from
generic competition is high.
Generic companies are increasingly focused on
global operations to minimize the cost, which is
posing more threat to non-generic
pharmaceutical companies.
Biotechnology is also a threat to traditional
synthetic pharmaceutical products
10. 5-Threat of New Entry (Low)
Barriers to new entry are high.
Industry is highly regulated and the new drug
approval process takes a long time.
Requires high working capital and need to invest
heavily on R&D and marketing to receive high
returns.
Patent protection act as entry barriers for new
firms to enter.
Creating brand awareness among
medical practitioners is the key for long-term
survival.
11. One of the richest and attractive sector.
Hard to access and compete in.
Supplier Power > (Low)
Buyer Power > (High / Low)
Competitive Rivalry > (High)
Threat of Substitution > (Medium/Low)
Threat of New Entry > (Low)