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Essay: US pharmaceutical industry – five forces analysis (Pfizer)

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“The global market for pharmaceuticals is expected to grow at an annual rate of 4.9% to $1.3 trillion by 2020. The U.S market is expected to grow to $320 billion by 2020” (Trade.gov, 2016)

According to Statista, “The U.S. pharmaceutical market is the world’s most important national market. Together with Canada and Mexico, it represents the largest continental pharma market worldwide. The United States alone holds over 45 percent of the global pharmaceutical market”. In the United States alone, around $450 billion is spent on pharmaceutical sales and 6 out of the top 10 pharmaceutical sales companies were based in the United States (Statista, 2016).

The purpose of this section is to apply Porter’s Five Forces Analysis to the pharmaceutical industry to determine the potential profitability of the industry.

1.1.Threat of New Entrants (LOW)

Due to the high barriers and legal implications of pharmaceutical products and their sales, it is difficult to enter this industry. The United States Pharmaceutical industry has a large amount of regulations laid out by the Food and Drug Administration(FDA).

Another large factor involving entry, is brand recognition. People tend to buy based on brand name and reputation so this plays heavily into a company’s success in the pharmaceutical industry (Ellis, 2016).

As Forbes reported in 2012, the average cost of bringing a new drug to market is between $1.3 billion to $4 billion. It can also take up to 10 years for a drug to be approved for prescription and even if a specific brand does not reach market, they are able to patent the drugs during trial (Herper, 2017). Based on these observations, entering this field and industry would take a lot of time, power, and money, so the threat of new entry is low.

1.2. Power of Suppliers (HIGH)

Patents are taken out for name brand or “first out” products which makes it difficult to substitute and create a generic version which would typically be cheaper (Yu, 2014).

The large players in this industry create a tight and competitive playing field. The size of the industries and the low threat of entry are two main reasons that the suppliers have a large amount of power over the industry and its buyers.

1.3. Threat of Substitutes (MEDIUM)

Generics are the main source of substitution in the pharmaceutical industry. Generics are similar or identical drugs released under a different name, typically at a lower price. Patents on these drugs can make it difficult to create generics but they are in such high demand, the generic companies create substitute products whenever possible (Yu, 2014).

1.4.Buyer Power (MEDIUM)

Doctors, hospitals, and other organizations maintain a sort of “checks and balances” relationship with the pharmaceutical industry to regulate and lower prices. Patients and consumers have little to no say in pharmaceutical pricing or sales unless it is the choice between brand name and generic.

There is an increase in demand in emerging economies rather than industrial economies which is one way consumers have power (Nead, 2018). As well as the introduction of generics and demand for them has caused price fluctuations within this industry (Wright, 2016).

1.5.Threat of Rivalry (HIGH)

There is high rivalry among the large players in the pharmaceutical industry which ties back to the difficulty in entering the market, patents, and generics.

1.6. Complements (MEDIUM)

The pharmaceutical industry is complemented by health insurance companies, hospitals, and other healthcare providers (Dou, 2008).

1.7. Key Success Factors and Strategic Issue

Key success factors for the industry include brand recognition, research and development, adapting and utilizing technological advancements, and growing market size (Ellis, 2016).

The key strategic issue is adapting to technological advancements and the growth in outsourcing drugs due to industry reconstruction. There is also high level competition among the key players in the industry. Personalized promotional strategies and no third party vendors are also a threat to this industry (Herper, 2017).

1.8.Concluding Remarks on Five Forces Analysis

Based on the five forces analysis, the pharmaceutical industry’s level of attractiveness is low for a new entry into the market. There are too many challenges present in the industry with increasing development and demands based on the large pool of consumers. There are also a large amount of substitutions being made and consumed within the industry as the creations and usage of generic drugs increases.


The purpose of this section is to perform a SWOT analysis on the United States Pharmaceutical industry.

2.1. Strengths

One of the main strengths within the pharmaceutical industry is their Research and Development departments and their high return on investment on their staff, technology, and equipment (Gross, 2019).

The industry also has steady growth in sales year over year, as well as extensive marketing capabilities due to the revenue incurred (Datamonitor, 2016)

2.2. Weaknesses

Weaknesses within the industry include; high research and development costs, patent approval and expiration, manufacturing issues, as well as limited resources. Economies of scale are also a large factor in the success of the pharmaceutical industry (Gross, 2019)

2.3. Opportunities

The main opportunities within this industry lie within their ability to create drugs to save, enhance, and change peoples lives. Creating new drugs and continuing the manufacturing of current drugs may lead to come outsourcing in the near future which also might make it easier for generics to reach the market (Fendel, 2014).

2.4. Threats

Competition within the market as well as pricing are two of the most significant threats within the Pharmaceutical Industry (Datamonitor, 2016).


The purpose of this section is to perform a company analysis for Pfizer, The World’s Largest Pharmaceutical Company (Ellis, 2018). This analysis will touch on Pfizer’s capabilities and resources, and how Pfizer has used those capabilities and resources to establish a competitive advantage within the pharmaceutical industry. Pfizer’s extensive R&D programs and active adaptation to new medical and scientific advancements will be highlighted in this section as well.

3.1. Capabilities and Resources

Pfizer currently has more than 90,00 employees in 125 countries at over 58 manufacturing sites. They utilize their employees and current revenue to do as much research and development as possible to accomplish their mission of having a life changing impact on their consumers and patients. Their team of scientists and production workers focus on making advancements through use of current and new technologies (Pfizer, 2017).

3.2. Strategy

Pfizer’s current strategy is focusing on recovering revenue loss from exclusivity of certain brands in 2017, growing in emerging markets, and expanding their portfolio for sterile injectables and anti-infective.

3.3. Culture and Structure

The company currently has over 90,000 employees and they value innovation and adaptation in the industry. Their mission is to change lives and make the world a better and healthier place.


Pfizer’s current strategy had held them above their other competitors for years, even after the revenue loss due to exclusivity of certain brands and product shortages. Working through those issues and maintaining such a well-developed company has created a very healthy and growing company. Continuing with Research and Development, prescription approvals, and focus on productivity and efficiency will keep Pfizer on top (Pfizer, 2017).


Pfizer currently sits in a very mature but large industry which has competitive key players, high supplier power, medium buyer and substitute forces, and low threat of entry. This mix of forces puts Pfizer in a good position to stay on top.

4.1.Pfizer’s Competitors: An Integrative Analysis

Pfizer’s main competitors are Roche, Sanofi, and Johnson & Johnson. They all bring in revenue of about $36-52 billion (Ellis, 2018). Pfizer leads in sales by around $8 billion compared to their closest competitor Roche (Statista, 2019)

4.2. Pfizer’s Resources and Capabilities

The pharmaceutical industry relies heavily on extensive Research & Development, adaptation to science and technology, and expansion. Pfizer currently spends roughly around 15% of their revenue for R&D (Pfizer, 2017). They are able to do all of this by utilizing their employees, spending more money on research and development, focusing on new types of medicine and science, and solidifying their strategies in the industry.

4.3. Growth inside the Pharmaceutical Industry

Pharmaceutical companies can grow from Research & Development, mergers and acquisitions, investments into larger firms, growing in emerging markets, and acquire more drug patents, purchases, pharmaceutical deals, and prescription approvals.


Pfizer’s main strategic issue is maintaining position and power over an industry with tough competition and intense rivalry for market share. Pfizer is also working to rebuild their company after a series of penalties from 2012-215 which cost them around $976 million (Statista, 2019).

6. Pfizer’s Alternative Courses of Action

In response to the strategic issue facing Pfizer, three potential courses of action are recommended; a stability strategy (option 1), a concentration strategy focused on horizontal integration in the domestic market (option 2), and an international growth strategy (option 3).

In response to the strategic issue facing Pfizer

three potential courses of action are recommended; a research & development strategy (option 1), a growth strategy focused on mergers, acquisitions, and investment in other firms (option 2), and an adaptive strategy based on the field’s needs (option 3).

6.1.Option 1: Research Strategy

Maintaining and strengthening the Research and Development pipeline is the main way for a company to be successful in the pharmaceutical industry.

6.2.Option 2: Growth Strategy

Mergers, acquisitions, and investing in larger firms are ways to reach new consumers and new markets. This can be international growth or growth within the United States depending on market attractiveness and growth predictions.

6.3.Option 3: Adaptive Strategy

Responding to trends, anticipating potential regulatory decisions, improving productivity and efficiency, utilizing new technology and continuing with current developments are ways that Pfizer is able to adapt to the changing medical field and pharmaceutical industry.


The preferred course of action would be the research strategy because it can incorporate the 3 strategies into one. Pfizer should maintain and strengthen their research & development pipeline by investing more time and money. Pfizer is currently using around 15% of their revenue towards research and development, ideally it would be around 20-25% (Pfizer, 2017). This research and development could lead to new cures, drugs, patents, prescription approval, and much more. This course of action works well with where the company is at currently and touches on their mission of having a life changing impact on their consumers and patients.


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