Glaxo report - Industry structure and key aspects

As the companies within this industry are so huge already (example, glaxo merging with welcome and then with there biggest u.k competitor smithkline) this must mean great econmies of scale example bulk buying ingredients giving edge of smaller companies.

There is also legislation that greatly raises barriers in the pharmaceutical industry. The fact that patent-protection of drugs means that no other organisation can market or produce the drug unless through in-licensing or out-sourcing. This limits if not stops the threat of substitutes and creates a monopoly on the market until the patent runs out. (example zantac, this will be talked about later)survived through diversification into otc market of zantac.

Distribution channels are obviously dominated by the huge global companies adding to entry requirements alomg with the cost independent advantages such as establishment of brand image and knowledge of the industry

2)Suppliers to the organisations within the  pharmaceutical industry have extremely little bargaining power. The amount of ingredient needed to make the drugs is low and as such the suppliers are the ones competing for the custom of the larger companies such as glaxo. Other aspects are the fragmented sources of supply as other companies other the same products and there is not high switching costs between suppliers.there is little chance of forward intgration by the suppliers and the product they supply has no real brad value. All further reducing the power of the supplier.

3)The threat of substitutes, was touched on earlier, when discussing patenting. This is probably the key aspect of the industry along with the R & D costs. If the r and d pays off and a drug is patented then there is little or no substitution. The company has full power to exploit the drugs 18+ year patent meaning a monopoly and an obvious competitive advantage.(zantac accounted for over 30%of the companies income). However it is also a fact that the company cant stop its r& D as when the patent runs out and the drug becomes generic the companies profits will be hit. (zantac sells dopped by 55%)as other companies can now produce it.Glaxo replied to this by diversifying ino otc zantac which helped.

4)The buyer or end user has little or no bargaining power on price with the pharmaceutical giants. There are clear differences between the industry in different countries here. In America the price of drugs is bargained by the insurance companies with no great effect and this demograph accounts for a high percent of business and profit. It has been made political how high the prices were but this was mentioned in the pestel earlier. In the u.k the government or more directly the nhs try to bargain the price of drugs down. Here we are less profitable and account for only 3%of the market. And with changes to the nhs always it is an area where buissness could always be improved.

5)Clearly the competition amongst the main competitors within the pharmaceutical industry is extremely intense. This is fuelled by the differing companies racing to launch  and patent there products before there rivals produce the same or similar products.Patent ensures monopoly. Then it is for the company to exploit there drug so that they can recover all the outlay on r and d and then move into profitability. Then once these patents are up profits are hit and there must be another one or more innotive products ready to market to keep a competitive advantage.