Topics: Pharmacology, Pharmaceutical industry, Drug development, Generic drug, Drug discovery / Pages: 14 (3312 words) / Published: Jun 19th, 2013


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A Recent History Of The Pharmaceutical Industry - Based On All Five Forces

August 2007 (The New Business Road Test) ProductionIntellectual PropertyCompetitionMarketsBusiness ModelPorters 5 Forces.

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In the 1970s and 1980s, the average profit margin (as a percentage of revenues) of the Fortune 500 pharmaceutical companies was two times greater than the median for all industries in the Fortune 500. Each drug introduced between 1981 and 1983 ‘made at least $36 million more for its investors, after taxes, than was needed to pay off the costs to develop it . . . Such profitability was two to three percentage points greater than for comparable industries, even after factoring in the risks of new drug development’. Nearly two decades later, in 1999, the industry was still a star. The pharmaceutical industry ranked at the top in all three of Fortune magazine’s measures of profitability: return on sales, return on assets and return on equity. What made the global pharmaceutical industry so profitable for so long? Why has its profitability remained so strong, and will the industry remain so attractive?

Threat of entry

For an entrepreneur, high barriers to entry make it more difficult to launch a venture. But

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