Competitive Rivalry in the Pharmaceutical Industry
Understanding competitive rivalry in the pharmaceutical industry is very important because this industry is one of the sectors that make great contribution to the economy. A lot of income and revenue comes from the pharmaceutical industry. The pharmaceutical industry comprises of the companies that develop, produce and market pharmaceuticals or drugs that are used as medications. These companies can deal in brand or generic medications as well as medical devices. On the other hand, competitive rivalry is the competition that exists between companies as they attempt to increase their share of the market. In the pharmaceutical industry, competitive rivalry can be seen in different ways.
How competitive rivalry in the pharmaceutical industry is exhibited
Competitive rivalry in this industry is about how drug manufacturers compete. This industry has a quite transparent competition. This competition is exhibited in the following ways.
- Generic competition
Manufacturers of generic drugs depend on the substitution laws of the state to generate more sales than branded drugs’ manufacturers. When several generic versions of a drug exist, pharmacies and wholesalers determine the generic version that can be substituted by the branded version. As such, generics are incentives to the provision of price discounts to pharmacies and wholesalers directly so that pharmacy shelves can stock their version. It is apparent that there is always a decrease in prices with the entry of more generic competitors. Since a portion of the lower prices is passed on to PBMs and insurers, they encourage continued generic substitution. To do this, they set low co-payments for the branded drugs after the entry of generic versions. Co-payments can increase the brand whose generic version is the equivalent and other banded medications in the same category.
- Brand prices competition
Price competition for branded drugs is seen at the PBMs and insurers’ level. These entities drive buying behavior using drug formularies. A drug formulary refers to a list of prescription drugs that have been approved and that can be reimbursed to the pharmacy and/or patient. In the pharmaceutical industry, three-tier formularies are very common. The co-payments for drugs that are in Tier 1 are the lowest while the co-payments for drugs that are in Tier 3 are the highest. Manufacturers of branded drugs compete on the basis of the prices that patients and insurers pay by giving insurers rebates in exchange for favorable formulary placement.
- Growth competition
Competitive rivalry is seen in the pharmaceutical industry as competitors look for growth opportunities that enable them to capture potential clients or to attract customers. In most cases, rivalry has increased between reputable pharmaceutical firms. There has been a high number of the direct competitors from the time new prescription drugs or medications were introduced and the advancement of medical technologies. Pharmaceutical companies are always trying to increase medical products. This enables them to keep loyal clients because they are not easy to lure with low prices from the competitors. Additionally, this has made the market for pharmaceutical products always attractive because these firms are not always trying to compete with others aggressively since they know the position that each company holds in the industry.
Why it is important to understand the competitive rivalry in the pharmaceutical industry
The pharmaceutical industry is among the major knowledge-driven sectors of the economy. This industry is always in a dynamic transition state. There are numerous diversities in diseases and life forms that pose a challenge that require a targeted and specific solution to be designed. The pharmaceutical industry is responsible for designing solutions to these challenges. Since companies are also in this industry to make profit, it is important to understand the existing competitive rivalry so that they can re-assess themselves and the marketplace as it may deem necessary. This is the only way that companies in the pharmaceutical industry can come up with operation and marketing strategies that will enable them to perform their functions while remaining competitive.
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Sources
https://www.ic.gc.ca/eic/site/lsg-pdsv.nsf/eng/h_hn01703.html
http://articles.extension.org/pages/30417/rivalry-among-existing-competitors-in-the-industry
https://www.cornerstone.com/GetAttachment/5f41372f-11ac-4f45-9f27-45b1dad16444/Analyzing-Competition-in-the-Pharmaceutical-Indust.pdf
http://www.researchandmarkets.com/reports/585573/canadas_pharmaceutical_industry_porters_five