Novo Nordisk is a Danish Pharmaceutical company that is headquartered in Bagsværd, Denmark. It was incorporated in 1923 and had a long presence in the global pharmaceutical sphere. Although Novo Nordisk has been among the top international brands, it has been at 15th place in the rankings. Novo Nordisk manufactures and produces digital devices and medications specifically related to diabetes. Moreover, it also has a research wing involved with hemostasis, growth hormone therapy and hormone replacement therapy.
Novo Nordisk markets products under various brands, including Levemir, Tresiba, and NovoLog. It is using innovative, medically safe treatment techniques to cater for patients with chronic illnesses. Novo Nordisk produces 50% supply of the world’s insulin, and 32 million people are using the company’s diabetic care products (Novo Nordisk, 2021). Porter’s five forces model is a valuable tool for assessing the threat and opportunities Novo Nordisk faces and adapting to the dynamic market changes proactively.
Novo Nordisk – Competitive Rivalry in The Market
The pharmaceutical industry highly competitive, and Novo Nordisk leads the anti-diabetic segment of the industry. As of 2017, Novo Nordisk was the top global anti-diabetic revenue generator with over 13.7 billion U.S. dollars in revenue for that year; they are projected to make about 21 billion U.S. dollars in anti-diabetic pharmaceuticals revenue in the year 2024 (Mikulic, 2019).
Its biggest industry rivals are Bristol-Meyers Squibb (BMS), Pfizer and Novartis. Novo Nordisk has reported $19.4 billion in revenues and earned $6.4 billion (Forbes, 2021). BMS reported $42.5 billion in revenues, with an annual change of 62.6% in 2020 (Fortune, 2021). Pfizer reported a profit and revenue of $9.6 billion $47.6 billion, respectively, in 2020 (Forbes, 2021). Novartis recorded revenue of $48.6 billion in the same fiscal year with a profit of $8.1 billion (Forbes, 2021). The pharmaceutical industry is highly competitive.
Novo Nordisk – Threat of Substitutes
The threat of substitute is moderate to low in the pharmaceutical industry. Among many alternatives available for the products offered by the industry, the primary replacements are homoeopathic and other alternative medicines; these products exist in different form throughout the world. Allopathic medicines are the scientific miracle of modern healthcare as their existence is vital for treating significant ailments. However, alternative drugs are available in all parts of the world, and their acceptance varies region by region.
The acceptance of these alternative treatments comes down to regional preferences and personal beliefs. Surprisingly, Complementary and Alternative medicines are increasingly accepted in Western countries (Coulter & Willis, 2004). Despite the benefits on offer, allopathic medicines are the preferred choice for the treatment. Therefore, the threat of substitutes remains low to moderate.
Novo Nordisk – Threat of New Entrants
The threat of new entrants is assessed as moderate in the pharmaceutical industry. However, there are industry-specific limitations associated with the sector. The vital factors those limit the new entrants are regulatory compliance, high sunk cost, and high technological cost. The industry is even criticized for being overly regulated; there are stringent compliance framework and long-lasting drug approval processes.
The drug approval process is rigorous and layered; therefore, new entrants are discouraged by higher than optimal drug approval standards (Ward, 1992). In addition, the new company need to spend a significant amount on research and development (R&D); this high outlay is traded as a sunk cost, and one has to pay this amount to proceed further. Moreover, companies may need to acquire new technology and incur cost to stay competitive. Therefore, the threat of new entrants remains low.
Novo Nordisk – Bargaining Power of Buyers
Buyers have moderate bargaining power in the pharmaceutical industry; however, the buyers’ bargaining ability depends upon the following factors competition in the market, brand loyalty and switching cost. Patients, significant consumers, have ample options to buy from any brand, but they are usually reluctant to buy medicine from other brands without the prescriber’s advice.
There is mild brand loyalty after the initial purchase given if the patient is satisfied. Therefore, soft brand loyalty exists, which provide companies leverage. They can capitalize on that by ensuring the quality of drugs. In addition, low switching cost can also be countered by brand loyalty. Companies need to create brand equity in the competitive market, and these factors affect brand equity: brand loyalty, brand awareness, and perceived quality parameters (Panchal et al., 2012). Therefore, patients have moderate bargaining power.
Novo Nordisk – Bargaining Power of Suppliers
Suppliers have moderate bargaining power in the pharmaceutical industry. The vital supplies for the business are raw material, manufacturing equipment and domain expert human resources. The raw material is a commodity in another sector and can be readily available from multiple sources. As for equipment, companies can acquire equipment globally.
The availability of various 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. Considering the factors mentioned above, overall, suppliers hold low to moderate bargaining power.
References
Novo Nordisk. (2021). About. What We Do. Available at: https://www.novonordisk.com/about/what-we-do.html
Mikulic, M. (2019). Global anti-diabetic revenue by top ten pharmaceutical companies 2017 and 2024. Available at: https://www.statista.com/statistics/309727/-anti-diabetic-revenue-by-top-ten-pharmaceutical-companies-worldwide/
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
Fortune. (2021). Bristol-Meyers Squibb. Available at: https://fortune.com/company/bristol-myers-squibb/fortune500/
Forbes. (2021). Novo Nordisk. Available at: https://www.forbes.com/companies/novo-nordisk/?sh=6178c23b1960
Coulter, I. D., & Willis, E. M. (2004). The rise and rise of complementary and alternative medicine: a sociological perspective. Medical Journal of Australia, 180(11), 587-589.
Ward, M. R. (1992). Drug approval overregaultion. Regulation, 15, 47.
Panchal, S. K., Khan, B. M., & Ramesh, S. (2012). Importance of ‘brand loyalty, brand awareness and perceived quality parameters’ in building brand equity in the Indian pharmaceutical industry. Journal of Medical Marketing, 12(2), 81
Tomlin, B. (2009). Impact of supply learning when suppliers are unreliable. Manufacturing & Service Operations Management, 11(2), 192– 209.