Eli Lilly and Company is a public corporation dealing in the pharmaceutical industry and offering and selling its pharma drugs all over the world. The firm significant achievement is the development of polio vaccine and insulin. Dealing in the pharmaceutical industry, the company was founded in 1876, having its headquarters in Indiana, United States. As of 2019, the firm generated a substantial revenue of 22.319 US billion dollars and has involved an employment figure of almost 33,625 (Lilly, 2019). From the perspective of the global pharmaceutical industry, the assessment of Porter’s five forces would be of great help for developing strategies to better understand the company standing position.
Competitive Rivalry in the Market
The pharmaceutical industry is considered to be one of the most complexed sectors globally in order to cater to the growing population and diseases. As a result of this increase, several companies and institutions have captured the market to cover the need for medicines and drugs and gaining high profits, resulting in fierce competition among established players. Technological advancements have further increased the competition among companies to adopt new ways. Eli Lilly is one of the world’s largest manufacturers and distributors of psychotropic medications and one of the biggest multinational pharmaceutical companies. The company is found to boost revenue of $24.5 US billion dollars in 2020 as per (Statista, 2021). The major competitors of the company are Pfizer, Merck &co. Amgen and Glaxosmith. Therefore, the presence of such big names in the industry makes the competition level more complex.
Threat of Substitutes
The threat of having substitutes is typically low to moderate in the Pharmaceutical Industry because drugs and medications involve a massive amount of capital, investments, and research work, which usually takes years to break through. There is a minor threat of alternative medications and treatments which are given in the form of meditations, herbal medicines, and different therapies. Furthermore, the drug’s use is secured by a patent, and no one can provide a replacement while the time is in effect. Pharmaceutical companies must deal with substitutes for their medicines as the patent has expired. (Song and Han, 2016). Big firms usually have a monopoly due to the longevity of patents. Therefore, the risk of substitutes in the sector is less to medium.
The Threat of New Entrants
The threat of new entrants in the pharmaceutical industry is considered low as there are loads of big pharma firms already operating globally and have maintained the barriers to entry high enough to keep most new entrants away. There are indeed massive costs associated with the initial product setup, distribution networks, and marketing activities. Existing companies in the sector have built an economy of scale, making it more difficult for competitors to gain good market penetration. Moreover, the regulations imposed by the states are challenging to follow as fresher, and the expenses involved in the manufacturing with a lengthy time of research are significant (Bailey and Thomas, 2017). Hence, reducing the way of entry for new firms in the industry.
Bargaining Power of Buyers
The Bargaining power of consumers in the context of the pharmaceutical industry is low to moderate because buyers usually purchase the medicines and drugs that are prescribed to them even though the firm charges a high price for them. Furthermore, big customers like hospitals are somewhat capable of negotiating as they purchase in bulk, but individual customers have very little to none. Consumers’ power increases as they have knowledge about market pricing and ranges (Moreno et al., 2017). But the big firms influence prices and centralize the sector with the use of patents. Keeping in view such a method, buyers’ bargaining power is considered low to moderate in the industry.
Bargaining Power of Suppliers
The Bargaining power of suppliers in the Pharmaceutical industry is low. The industry’s only requires the raw materials for the medicines and the packaging materials necessary for the finished commodity. All of these goods are obtainable from a variety of cooperative manufacturers, putting them in a weak position to negotiate or control prices. Raw material suppliers, labor sources, substance producers, warehouses, dealers, and distribution firms are examples of pharmaceutical industry suppliers. Big corporations are able to show an influence in the industry’s system dynamics and can swing the supply chain (Saluja and Sekhon. 2016). Hence, the bargaining power of suppliers is low in context to the pharmaceutical sector.
References
Lilly, 2019. Annual Report. [online] Investor.lilly.com. Available at: https://investor.lilly.com/static-files/34d71960-241f-4160-bd20-86fb85df4def.
Statista, 2021. Eli Lilly’s total revenue 2007-2020 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/266590/pharmaceutical-company-eli-lilly-revenue-since-2007/.
Song, CH, and Han, J.W., 2016. Patent cliff and strategic switch: exploring strategic design possibilities in the pharmaceutical industry. SpringerPlus, 5(1), pp.1-14.
Bailey, J.B. and Thomas, D.W., 2017. Regulating away the competition: The effect of regulation on entrepreneurship and employment. Journal of Regulatory Economics, 52(3), pp.237-254.
Moreno, F.M., Lafuente, J.G., Carreón, F.Á. and Moreno, S.M., 2017. The characterization of the millennials and their buying behavior. International Journal of Marketing Studies, 9(5), pp.135-144.
Saluja, V. and Sekhon, B.S., 2016. The regulation of pharmaceutical excipients. Journal of Excipients and Food Chemicals, 4(3), p.1049.