Swot Analysis Of Pharmaceutical Industry

Porter’s 5 Forces:

Entry Barriers:

Now we will attempt to find out, what are the entry barriers and attractiveness of the Pharmaceutical industry in order to understand, if the industry is giving enough perks to the new entrants or is not really fruitful. We have considered some barriers and opportunities that would tell us, how the industry is behaving.

• Product differentiation (like Patents, licensing agreements and selective access to natural resources) gives competitive advantage to the existing manufacturers, which new entrants might not have.

• High government regulations (like minimum standard of quality, Pricing, import and exports, specific requirements for factory premises and materials, plants and equipments etc) also act as barriers

Alternative medicine like Ayurveda, Siddha and Unani are still practiced in India. The switching costs are low for the consumers, but the effectiveness of the alternative medicine is not universally accepted. Hence it is not a great threat. Surgery in some cases could be an alternative but the threat due to these alternatives are low. Among pharma drugs the generics and biosimilars act as substitutes for branded drugs. These drugs come at a cheaper price compared to the patented drugs as they spend much less on the clinical trials.

Threat of Competitors

• Pharmaceutical industry in India is highly competitive. The rivalry in the industry can be gauged from the fact that the major players (Abott, Sun Pharma, Cipla, Biochem, Ranbaxy) operating in India have about 25% of the total market capitalization in the industry. Hence, the concentration ratio in the industry is low.

• Barriers to exit are other critical factors in this industry. Since, it makes more difficult for a company to exit the market due to high cost to lay off staff and assets, contractual obligations like rent and loans.

• Entries of International firms into the Indian market, which are capable to produce well equipped high quality products with low cost, have competitive advantage.

• Manufacturers can differentiate their products through patents, licensing agreements, and limited access to selective natural resources that has a great clinical benefit then other competitors.

Till 1970, the pharmaceutical industry was dominated by multi-national companies. The drugs of these companies were patent protected. The industry was a monopoly of the foreign companies which had sophisticated R&D facilities. The MNC firms priced the pharmaceutical drugs at high price. The government of India passed the Indian patent act, 1970 and Drug price control order shifted patents from products to process. This enabled the Indian firms to enter the industry and produce the drugs by reverse engineering. In 2005, Indian government adopted TRIPS agreement (Trade related aspects of intellectual property rights). This meant that the Indian pharmaceutical companies had to pay royalty fee for producing the patented products. Under TRIPS agreement, protection was provided to patented drugs which were discovered after 1995. There have been many patent wars between the low cost generics producing Indian pharma companies and the MNC’s. Indian government has provided substantial support to the local pharma companies helping them gain a stronghold in India and also enter the business globally. Recently, the supreme court of India had rejected the appeal of the Swiss pharma major, Novartis. The court had classified the drug as an incremental innovation done to extend the life of the patent. The political environment in India is perceived