Porter’s Five Force Analysis of the Pharmaceutical Sector

India is the world's top supplier of generic pharmaceuticals. The Indian pharmaceutical
industry supplies more than half of world demand for vaccines, 40% of generic demand in the
United States, and 25% of all pharmaceuticals in the United Kingdom. India is the world's
third-largest producer of pharmaceuticals by volume and the fourteenth-largest producer by
value. A network of 3,000 medicinal businesses and 10,500 manufacturing units make up the
domestic pharmaceutical sector.
Porter's Five Forces analysis is one approach for assessing an industry and a company's
strategic position within it.
The study looks at five competing variables that impact an industry: threat of new entrants,
supplier power, buyer power, alternative availability, and industry competitive rivalry.
The interaction of these five factors gives a good picture of the sector's dynamics and if a
firm is well-positioned to survive in it.
Let’s look at the Five Force Analysis of this sector:
Bargaining Power of Buyer (low and medium): Consumers has no choice but to buy what
the doctor prescribes. Hospitals & other health care organizations buy in bulk quantities and
exert pressure on the pharmaceutical sector to keep prices in check. Patients who have to buy
medicines regularly have lost bargaining power due to price increases in generic drugs. A
medical patient has an absolute lack of power regarding the prices
Bargaining Power of Suppliers (low): The pharmaceutical industry is very competitive and
fragmented. Pharma industries can switch from their suppliers without incurring a very high
cost. The raw materials for manufacturing drugs are commodity products in the chemical
industry, which are available from various sources. Suppliers usually offer multiple products
to the manufacturer which moderates pricing on raw materials and unique equipment.
Rivalry among Competitors(high): The Pharma sector is highly competitive with hundreds
of competitors. Major competitors include Dr Reddy, Sun Pharma, Novartis, Pfizer, Cipla etc.
The huge importance of intellectual property results is cut throat competition for leading
researchers. Any possible new drug's public information is reviewed to see if a similar
medicine may be developed and marketed as a replacement. Corporations combining and
larger enterprises buying smaller firms with promising research or new medications is a
common occurrence in the business.
Threat of substitutes (low): The impact of replacements is determined by the medicine in
question. A license to print billions of dollars has been granted to a new FDA-approved
blockbuster medicine that has patent protection, cures a serious health issue, and is the first to
market in its category. The annual value of developing a breakthrough medicine that cures a
major disease might be in the tens of billions of dollars. However, recouping R&D spending
for the 30th medicine to cure a common ailment might take years. When a medicine's patent
expires, generic pharma companies begin offering knockoff copies at significantly reduced
cost. In addition, counterfeit pharmaceuticals are a serious concern on a global scale. The
greatest of these knockoffs copy a legitimate drug's composition and offer it for less money,
hurting company revenues. The worst counterfeits are constructed using low-grade materials
and have the potential to tarnish authentic products' reputations.

Threat of New Entrants (low): Impeding a new patent will becomes a major barrier to entry
in this sector. Government regulations in terms of quantity and price becomes a hinderance in
establishing new manufacturing operations. The entry barriers are high due to high cost
involved in research and development of the new drugs i.e., years of investment in R&D for a
drug that may or may not be successful. The already existing companies have advantages in
terms of cost involved in new drug formulation, on the other hand it may become difficult for
new entrants to match the economies of scale and R&D capabilities.