PHARMACEUTICAL INDUSTRIES

Pharma is a dynamic industry with rapid growth and high profit potential. Top-selling drugs generate
annual sales in the billions of dollars. A new drug, on the other hand, necessitates millions of dollars
in research and development (R&D) and testing before it can be brought to market. The majority of
new projects are never approved by the Food and Drug Administration (FDA), resulting in large sums
of money being spent just to produce one profitable product.

PORTER’S FIVE FORCES ANALYSIS

1. BARGAINING POWER OF SUPPLIERS

Suppliers have very little bargaining power in the market. Several organic chemicals are used in the
pharmaceutical industry. Because pharma is a well-established industry, a number of suppliers have
limited their ability to influence price through bargaining. Chemicals are treated as a commodity in
the pharmaceutical industry, resulting in a high switching rate between suppliers at a low cost.
Supplies, on the other hand, can pursue forward integration and become a pharmaceutical
company. Forward integrations can be seen in companies like Sahsun chemicals and Orchid
chemicals.

2. BARGAINING POWER OF BUYERS

Pharmaceuticals are unique among industries in that the medical patient has no pricing power.
Ethically, the prescriber of drugs, the physician, is not permitted to profit from the sale of drugs. The
entity that pays for the drugs, the insurance company, has only a say in how much it will pay to the
drug distributor, implying that it has little negotiating power with the drug manufacturers. The
insurer has the option of refusing to pay for treatments that it believes are overpriced.

The only entities with bargaining power are pharmacies and medical institutions that fill
prescriptions for medical patients. Even these entities have little sway over newer drugs that are still
under patent or drugs that have only one manufacturer. Pharmacies are concerned with their profit
margins and have little incentive to provide patients with the lowest possible pricing.

3. THREAT OF SUBSTITUTE PRODUCTS

One of the most significant advantages of the pharmaceutical industry is the availability of substitute
products. Pharmaceutical products are still in high demand, and the industry is thriving.

Because the production of generic products is so inexpensive, the pharmaceutical industry faces
fierce competition in terms of substitute products. If the original product's patent has expired,
customers can find a generic drug to replace it. However, if it is a new medicine, the customer does
not have a choice in the matter. Over the next few years, generic drug manufacturers will have
numerous opportunities to capitalise on utilisation and volume trends. Generic companies are
increasingly focusing on establishing global operations in order to lower supply costs, posing an even
greater threat to non-generic drug manufacturers.
 4. RIVALRY AMONG EXISTING COMPETITORS

Overall, the pharmaceutical industry is extremely competitive due to the potential for extremely
high returns if new drugs can be developed.

Rivalry between various companies in the industry is caused by each company's desire to improve
their market position. The companies' rivalry manifests itself in the form of price competition,
advertising wars, and product introductions.

Since the adoption of a new approach in the pharmaceutical sector, which has to result in a very low
entry barrier, competition between industries has increased. Rivalry can be fierce when companies
compete for market share, but if the overall market is growing or the company's position is
protected by patents, rivalry is less likely to be intense. Weak, small businesses typically go out of
business (bankruptcy) if they do not have a potential "blockbuster" in their future pipeline. Others
with significant research or valuable assets will be purchased by large and powerful pharmaceutical
companies.

5. THREAT OF NEW ENTRANT

The pharmaceutical industry's survival is based on its emphasis on research and development. The
cost of establishing and operating an R&D unit is very high. Along with this, the government's strict
rules and regulations on the approval of new drugs must create a significant barrier in terms of high
capital investment. Aside from all of these challenges, other factors such as developing proper
distribution strategies, selecting the right products to research and invest in, and anticipating
competition, among others, are limiting entry into the pharma industry market.