EXTERNAL ENVIRONMENT (General Environment)
A company like Teva Pharmaceuticals is subject to all of the factors of the external environment given the nature of its business and global expansion. Pharmaceuticals is an industry where high profits can be achieved, but it is also an extremely challenging business when one considers all of the political/legal aspects involving government regulation and patents. Every country has strict regulation and testing requirements for drugs that affect companies differently depending on their position in the market. Originally, innovative pharmaceutical companies had to obtain patent protection and FDA approval but this would translate to years of protection from the generic competition. Once the Hatch-Waxman Act was put into effect in the United States, this opened the door for generic pharmaceutical companies to legally challenge patented drugs. Generic drugs have an easier time getting FDA approval and under “Paragraph IV” of the act, the first company to file an Abbreviated New Drug Application would enjoy a 6 month exclusivity period where the only two competitors in the market would be the first-mover generic company and the innovative firm. A liberalized market, like in the United States, is much more attractive to the generic pharmaceutical firms because they required less marketing and sales expense as well as no government price regulation.
The legal aspect of the pharmaceutical industry ultimately dictates the type of competition that exists within the market. Innovative firms must do a good job of protecting their accomplishments while strategizing in order to deal with the repercussions of the Hatch-Waxman Act. The generic companies on the other hand now have to be vigilant in order to be the first-movers with respect to ANDA, and must be capable of competing with the branded firm and its possible “authorized generic,” along with any other generics companies that are able to compete after the 180-day exclusivity period. This allows for fierce competition that translates to lower prices for consumers which is important considering these are health care products but that also amounts to a market flood of competition following the expiration of the 180-day duopoly. The legal battles created by government laws between the innovative and the generic industries also play a huge role in the strategic planning of a business. Both innovative and generic companies must make sure anything they get involved in will be profitable considering all legal aspects seeing as pharmaceutical legal battles don’t come cheap. INDUSTRY ATTRACTIVENESS
It’s no secret that the pharmaceutical industry is not an easy one to penetrate. Using Porter’s famous five forces one can gauge the attractiveness of an industry. The industries outlined in the text were innovative pharmaceuticals, generic pharmaceuticals and biosimilars and each of these industries are affected by these forces. Initially it is important to consider the barriers to entry of an industry to determine if it is easy for other firms to penetrate the industry. For an innovative firm, capital requirements, government policy and expected retaliation are the most significant factors. An innovative firm needs a lot of initial capital in order to invest in the research and development necessary to take a drug from the lab to the market. This type of firm is also required to vigorously protect its invented drugs against other generic firms waiting to take advantage of the Hatch-Waxman Act. Government regulation also makes drug development a long process considering all the clinical trials and government approval needed. A generic firm does not need as much initial capital because it does not have to recuperate initial R&D costs as well as big marketing and sales expenses. A generic firm is primarily concerned with economies of scale and taking advantage of the Hatch-Waxman Act. If the firm is able to achieve high economies of scale like...
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