Delimitation and Characteristics of the Pharmaceutical Industry
Essay Preview: Delimitation and Characteristics of the Pharmaceutical Industry
Report this essay
Report 1
“Delimitation and Characteristics of the Pharmaceutical Industry”
14th March 2007
Index
Introduction to the Report
Definitions
The Pharmaceutical Industry
Delimitation of the Industry
Characteristics of the Industry
Patents
Marketing
Structure-Conduct-Performance
Structure
Theory:
Case: Pharmaceutical Industry:
Conduct
Theory:
Case: Pharmaceutical Industry
Performance
Theory:
Case: Pharmaceutical Industry
Competition
Porters Five Force Model
Theory
Case: Pharmaceutical Industry
Final Remarks
References
Introduction to the Report
This report is the first of a series of three reports for the course Strategy, Design and Market (41085). The reports analyse a chosen industry with the use of theoretical tools, which will be covered throughout the course. This first report introduced the chosen industry in terms of its delimitations, structure, degree of product differentiation, entry barriers, and strategies.
Definitions
To begin with, the theory behind industrial economics will be introduced, so that a background can be set for this analysis. As opposed to organisations, markets use a price system as the co-ordinating device for exchange transactions. In an ideal market, price is the only deciding factor. The governing laws are those of “Demand and Supply”. These state that, “the total demand of a product will go up if the price goes down” and that “the supply will go up as the price goes up”. This is a very simplified form and the reality is much more complex. This is also due to the fact that the real world does not consist of ideal markets. Industrial economics studies the policies which are present within companies in regards to both their actual/potential competitors and their companies. As we will see, this adds a different perspective to the laws of Demand and Supply.
The Pharmaceutical Industry
The object of study is the pharmaceutical industry. The pharmaceutical companies which comprise this industry are commercial businesses which are licensed to research, develop, market and distribute medication in the context of healthcare.
The largest companies in the industry today were mostly started during the late 19th, early 20th century, where key medical discoveries such as insulin and penicillin were mass-manufactured and distributed. Their development continued throughout the 20th century and the pharmaceutical industry today is said to be the most profitable industry. It has been subject to many criticisms, which will be commented later on in the report.
The US and the UK are the most dominant countries in the industry but important companies are also to be found in Switzerland and France.
Delimitation of the Industry
The pharmaceutical industry covers the whole world in the sense that some few international companies control the industry and distribute their products all over the world. It is difficult to divide the companies geographical due to their “world coverage”. Here is a list of the top ten pharmaceutical companies according to sales for the year 2004.
Rank 2004
Company
Country
Revenue (million $)
(million $)
Net income/ loss (million $)
Employees
Pfizer
52,516
7,684
11,361
115,000
Bristol-Myers Squibb
47,348
5,203
8,509
109,900
GlaxoSmithKline
37,318
5,204
7,886
100,619
Sanofi-Aventis
France-Germany
31,615
4,927
6,526
96,439
Novartis
Switzerland
28,247
4,207
5,767
81,392
Hoffmann-La Roche
Switzerland
25,163
4,098
5,344
64,703
Merck & Co
22,939
4,010
5,813
62,600
AstraZeneca
UK-Sweden
21,427
3,803
3,813
64,200
Abbott Laboratories
19,680
1,697
3,236
50,600
Johnson & Johnson
19,380
2,500
2,388
43,000
These companies sell different types of products. They are:
•
Prescription medication: This medication can only be sold to the patient if a prescription has been written out to that specific patient by their doctor (either general practitioner or specialist).
•
Non-prescription medication: This medication can be sold “over-the-counter” to patients without the need of a prescription. They are used to treat medical conditions which do not require a doctor’s care beforehand.
•
Nutritional supplements, beauty-related products and alternative medicine: These products do not require prescriptions and can be purchased not only in pharmacies but also in different health/beauty stores. They have become more and more popular as people have become more and more health conscious.
Some companies might chose to develop and sell several of the types of products mentioned above whilst others might choose to concentrate