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Q1: Drawing on the five forces model, clarify why the pharmaceutical sector has traditionally been a very profitable sector. Entry of potential opponents: It is not easy for any new business to enter in the pharmaceutical market because:
вћў They have to make investments lots of money in R& D, advertising and sales promo.
вћў There are expense & risks associated with developing a new drug & delivering it to advertise as from every five thousand chemical substances tested in the laboratory by a drug business, only one of these ultimately achieve the market.
вћў They have to invest huge amount of capital which in turn only very large companies can easily bear.
вћў There is a low success rate in pharmaceutical market as in the final 20 years simply two corporations successfully enter the market.
Competition among existing companies:
вћў In Pharmaceutic industry there are only handful of companies that can pose good competition. It's easy to compete against few instead of more firms.
вћў Obvious protected treatments allows practicing monopoly.
Bargaining power of purchaser: Buyers negotiating power is low, mainly because:
вћў Marketplace leader get pleasure from monopoly costs.
вћў Medications are crisis drugs therefore they have to employ.
Bargaining power of supplier: Because the amounts of firms in the pharmaceutical industry are minimal the suppliers have much less bargaining electric power. They have to satisfy the manufacturers and compete with various other suppliers to stay in the industry.
Risk of alternatives:
вћў As most medicines are protected by simply patent law, competitors will produce drugs because effective because original one particular lowering the chance of better alternative.
вћў It is quite costly to introduce a new medicine.
Q-2: After 2002, the profitability of the sector, measured by simply ROIC, did start to decline. Why do you think this kind of occurred?
Ans: The pharmaceutical drug industry has been historically a profitable sector. Its level of returning on invested capital (ROIC) was relatively high than others like computer hardware industry, grocers, digital industry & so on. Though it was a rewarding sector, the profitability has become declining recently. Reasons behind this are given bellow:
вћў Customers have become more conscious about the side effect of medicine, hence they use herbal medications: Since there are some side effects in a few medicines, persons now a days use herbal prescription drugs that are considered to be free from side effects.
вћў Anti-American, Europe advertising campaign: In 2003 during War war there was a demonstration in applying American merchandise.
вћў Failure to innovate new drugs: We know it takes nearly 10 to 15 years to present a new medication, during these extended period parasitic organisms create a protection mechanism against older prescription drugs making them ineffective so they gradually shed their market.
вћў Not able to match consumers' needs: Now a day's customers need drugs that take action quickly.
вћў Patent expiration: Market leaders reduce their business as their patent expired.
вћў People have become resistant to all those drugs that they have frequently used.
Q-3: What are the prospects pertaining to the sector in the future? Precisely what are the possibilities? What are the threats? What must pharmaceutical firms perform to exploit the opportunities & counter the threats?
As time goes on pharmaceutical market is supposed to increase its profitability. The reason why behind this are as follows:
вћў Innovating new drugs as peoples' average life span, demand for better life is elevating.
вћў Elevating research in medical technology accelerated the probability of introducing fresh medicine.
вћў Increasing expense on biomedical research.
вћў New technology opens the door to introduce fresh drugs. using new solutions the firms can decrease the cost and thereby increase profits.
вћў Drugs for most diseases like Alzheimer, Tumor, heart conditions, & HELPS are not invented yet. The pharmaceutical companies can...