Some people say that the pharmaceutical industry is the root of all evil. Others believe it saves lives. No matter how you deal with these controversies, drug companies play an important role in the contemporary world. And, what does it look like from a pure business perspective? We will get some insight on the basis of Pfizer’s SWOT analysis.
The pharmaceutical industry, through its origins from production and distribution of botanical drugs in pre-industrial times, is now one of the most innovative and competitive industries. Pharmaceutical companies deal with production and distribution of so-called generic and brand name medications, for example, discovered by Pfizer, Sildenafil is a generic, while Viagra is its brand name.
Pfizer is a well-known drugs and supplements producer and distributor with its branches around the world. The company established in 1849 in New York City, is one of the biggest in the industry with total revenue of over $53 billion (2016). Pfizer is responsible for over 240 medicaments only in the USA.
The most valuable drugs are those discovered and developed by the company itself. However, you have to keep in mind that eventually patents will expire. It will happen with Viagra by 2020 when other companies will gain the right to produce generic Sildenafil (but Pfizer will keep the right to use the brand name Viagra). Pharmaceutical companies constantly work on new drugs and treatments. To compete in this innovative market, Pfizer spends over $7bn, but competitors spend more. To judge it, you must take into account that most discovered and developed substances will never become drugs and will not enter the market. It results in a cost of developing a new drug estimated at about $1.3 billion. As a result, pharmaceutical companies across the world spend tens of billions of dollars each year on Research&Development.
On the other hand, some drugs can be used to help in situations they were not meant for. A good example is Sildenafil, originally developed by Pfizer’s scientists to support people with cardiovascular disorders. However, it appears that it helps men with erectile dysfunction as well (and hamsters suffering from jet lag).
The constant pursuit of innovation may be both an opportunity, and a threat. As you can see in our SWOT analysis, everyone has a chance to discover new, miraculous medicament, but it also increases expenses that all players must bear in order to keep up. And this fact leads us to fierce competition, which definitely is a threat.
Competition and cooperation
Production and distribution of over 240 medications are not enough. People demand new, better and more complex solutions, and treatments to many diseases still need to be found. Despite being the producer and distributor of one of the most popular drugs whose name is well known in almost every place in the world, Pfizer must keep up with its competitors, who spend more money on R&D. On one hand, it is a big weakness of Pfizer, but it also constitutes a dangerous threat. This is why Pfizer works with smaller companies and start-ups working on innovative medicaments and new treatments. Pfizer not only opened new HUB in the UK, but also launched a contest in which aspiring companies can win $70000 investment as well as professional consultancy. I see it as a strength that may help companies overcome threats mentioned before. The company knows that with high-end technology access, big data computing and a little bit of luck, smaller companies can support giants like Pfizer with new ideas or even developed products. It is even more important, as Pfizer tends to miss its opportunities while trying to cut the expenses. The company tends to withdraw from the development of new drug or treatment and lets its people put (with their know-how, of course) with conviction, that it’s a dead end. Pretty often, it comes out that a new treatment is effective, but it belongs to the new company that is already working with Pfizer’s competitors (for example Ziarco- company dealing with inflammatory diseases founded by Pfizer ex-scientist, now owned by Novartis). What can be surprising is the fact that in this highly competitive market, biggest competitors work together (for example, Pfizer and Merck work together on immunotherapy). It is also a way to decrease the impact of threats like the high cost of innovations.
Huge spendings on R&D, stringent safety regulations, and fierce competition result in high entry barriers. Therefore, it’s unlikely that some new company would threaten the positions of the biggest companies like Pfizer. However, competition within the industry does not make it easier. Pfizer’s 6,36% net margin is low, as for this industry (high entry barriers enable higher margins), but fighting for profitability does not always pays off. In 2016, the company was fined by the British government with $106 million for increasing the price of the anti-epilepsy drug by 2600% overnight ($3.56 to $84.98). Bad impact on the brand’s image will not help even in a more conscious society, especially when it’s not the first Pfizer’s legal issue. Even though its brand is well known all around the world, Pfizer must keep in (metaphorical) mind that bad press may reduce positive impact of the company’s strengths and opportunities on the market.
Together with other pharmaceutical companies, Pfizer can count on the constantly growing market. Aging western societies will need more medical treatment than before. Over 1 billion of Europeans and Americans will need a lot of medications. With life expectancy reaching 80 years we will need more and more medical support to preserve the quality of life we are used to. Moreover, societies of countries like India or China are getting richer. As people gain wealth, they tend to spend more money on health. On the other hand, is it profitable to enter a market where patent rules are not as strict as in the European Union or the USA?
What can revolutionize the industry as a whole, are new scientific discoveries. Gene therapy, programmed viruses, and bacteria, constant work on the decoding of the human genome, advanced robotics or remote diagnostics, are only a few trends in the modern medical industry. We hear about breakthroughs on an everyday basis and it seems an only matter of time when we will hear about effective cancer or HIV treatment. But will we hear about it from Pfizer? And what should the company do to benefit from its assets and market opportunities to make it possible? Check out our library for Pfizer’s SWOT analysis, and let us know what you think.