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Pfizer Case Study

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In the 1970s and 80s the average profit margin of the Fortune 500 pharmaceutical companies was two times larger than the median for all industries in the Fortune 500. Each drug that came out successfully made approximately 36 million dollars more for their investors than was needed to pay off the costs of developing the drug. The pharmaceutical company remained at the top of the industry for two straight decades and the reason can be explained through a five forces analysis.
First off, the threat of entry was extremely low because of the high entry barriers. One main barrier to this industry is the high fixed costs they included intellectual property protection. There is also a heavy expenditure on research and development of drug discovery and the process to develop a drug is extremely time-consuming and expensive. “During the 1980s, it took an average of 12 years and 194 million dollars to bring a drug to market” (Mullins). After this long process and money spent, there is still no guarantee that the drug will produce results. Half of the products, after going through this process, did not even reach the market. The size of an investment like this with an uncertainty of payout became the most powerful barrier for those who desired to inter this market. Along with all of those costs, there is also the cost to sale and market the products. If the drug passes inspection, the company would still have to spend millions of dollars annually to sale and promote their drug. Another barrier in this industry is the use of patents for new drugs. Drug companies would obtain patents to hold the right to prohibit others to produce, offer or use the medicine commercially. This was a major protector from rivals even though the patent was limited to 20 years. If an organization were able to break this high entry barrier, it served them well by protecting their ventures once they were in the industry.
Next is the supplier power, which is almost nonexistent. Pharmaceutical...

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