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Porter’s Five Forces of Biogen

Biogen Inc. is an American multinational biotechnology company based in Cambridge, Massachusetts. The company was founded in 1978, and it is one of the oldest independent biotechnology companies globally (Biogen, 2021). Biogen specializes in the development and delivery of treatments for neurological diseases.

Biogen has developed medications for multiple sclerosis, plaque psoriasis, spinal muscular atrophy, and leukemia and has research programs focused on neuroimmunology, Alzheimer’s disease and dementia, neuromuscular disorders, and neuropathic pain. The company has a world-class research facility Research Triangle Park in North Carolina, USA. Porter’s five forces model is a useful tool for assessing the threat and opportunities Biogen faces and proactively adapting to the dynamic market changes.

Biogen – Competitive Rivalry in the Market

There is a highly competitive rivalry among competitors to acquire and retain customers. Therefore, companies keep their research a tightly guarded secret due to its potential to give them a competitive advantage. The industry has a dynamic nature, and firms need to be innovative in their solutions in terms of effectiveness to remain competitive. Biogen’s major competitors are Novartis, Pfizer, and Johnson and Johnson (J&J). In 2020, Biogen had reported a revenue of $13.4 billion in March 2021, a 12.61% decline year-over-year (Statista, 2021). Novartis recorded $48.6 billion in the same fiscal year with a profit of $8.1 billion (Fortune, 2021).

Pfizer reported a profit and revenue of $9.6 billion $47.6 billion, respectively, in 2020 (Fortune, 2021). J&J is the fourth largest US pharmaceutical company based on revenue; it earned $14.7 billion and reported $82.6 billion in 2020 (Fortune, 2021). The pharmaceutical industry is highly competitive.

Biogen – Threat of Substitutes

The products which differ from the existing product available but do the same function are substitute products. According to Luenendonk (2019), Substitute products offer customers different choices and allow them options within the industry and beyond it to products that may fulfill a similar need. The main substitutes are homeopathic, and other alternative medicines; these products exist in different forms worldwide. Allopathic medicines are the modern miracle and are an essential part of the modern healthcare infrastructure, and their non-existence is impossible to think about.

However, alternative medicines have existed for centuries and are a steppingstone, but accepting these alternative treatments comes down to regional preferences and personal beliefs. Despite all the benefits, allopathic medicines are the prevalent form of drugs used for treatments. As of now, the threat of substitutes remains low to moderate.

Biogen – The Threat of New Entrants

The threat of new entrants is low at the current moment. However, there are major hindrances to enter the pharmaceutical industry. The most important is the strict regulatory compliance; the drugs have to go through phased trials and a cumbersome approval process. It also requires strict adherence to testing and manufacturing standards before a new drug can be used in the general population (Dickson & Gagnon, 2009). The initial capital investment and high research and development (R&D) cost is another major hindrance.

The newcomer must develop a better product while the return on investment takes a long time. For example, Biogen spent $3.9 B on research and development in 2020 (Statista, 2021). Moreover, companies may need to acquire new technology and incur costs to stay competitive. Therefore, despite the competition, the threat of new entrants remains low.

Biogen – Bargaining Power of Buyers

Consumers are perceived to have moderate bargaining power in the pharmaceutical industry. The consumer holds power when there is plenty of available options in the market, and they can switch easily. (Martin, 2019). There is high competition; a patient can buy medicines from any company; however, generally, patients are reluctant to buy medicines from different brands.

This makes the doctor, the medicine prescriber, indirect consumer for the pharmaceutical companies. Their prescription of certain drugs gives the consumer confidence and satisfaction. Therefore, mild brand loyalty exists in the industry, and it can be capitalized by ensuring drugs quality. Considering the above factors, consumers have moderate to high bargaining power depending upon circumstances.

Biogen – Bargaining Power of Suppliers

Suppliers have moderate bargaining power in the pharmaceutical industry. The main suppliers are specialized equipment providers, raw materials, and human resources. The supplier can exert its power if its future is integrated with the company and other options are available for its supplies (Porter, 1979). The required raw material is a commodity in the chemical industry and is easily accessible.

The raw material suppliers are available easily in every part of the world. The availability of multiple sources reduces the dependency on a single source, and it is an effective strategy to do so (Tomlin, 2009). The experts such as specialized researchers and innovators are not in high supply, and their unavailability can disrupt the whole operations; therefore, they can exercise high bargaining power. Overall, suppliers hold low to moderate bargaining power.

References

Biogen (2021). History Overview. Available at: https://www.biogen.com/en_us/history-overview.html
Dickson, M., & Gagnon, J. P. (2009). The cost of new drug discovery and development. Discovery medicine, 4(22), 172-179.
Fortune. (2021). Johnson & Johnson (JNJ). Available at: https://www.forbes.com/companies/johnson-johnson/?sh=252c74f34f91
Fortune. (2021). Novartis. Available at: https://www.forbes.com/companies/novartis/?sh=2d1d544c3b80
Fortune. (2021). Pfizer (PFE). Available at: https://www.forbes.com/companies/pfizer/?sh=435c75072d6b
Luenendonk. M. (2019). Threat Of Substitutes – Porter’s Five Forces Model. Available at: https://www.cleverism.com/threat-of-substitutes-porters-five-forces-model/
Martin., M (2019) How Porter’s Five Forces Can Help Small Businesses Analyze the Competition. Available at: https://www.businessnewsdaily.com/5446-porters-five-forces.html
Porter., E. M (1979) How Competitive Forces Shape Strategy. Available at: https://hbr.org/1979/03/how-competitive-forces-shape-strategy
Statista (2021). Biogen’s revenue from 2007 to 2020. Available at: https://www.statista.com/statistics/274272/revenue-and-net-income-of-biogen-idec/
Statista. (2021). Biogen’s spending on research and development from 2006 to 2020. Available at: https://www.statista.com/statistics/274274/biogen-idecs-spending-on-research-and-development/
Tomlin, B. (2009). Impact of supply learning when suppliers are unreliable. Manufacturing & Service Operations Management, 11(2), 192– 209.

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