The Pharmaceutical Sector

The pharmaceutical sector normally is involved with the development, production, and marketing of drugs used as medications. Players in these industries are authorized to transact brand or generic medical gadgets or medications. However, they are subjected to varied laws as well as regulations concerning testing, patenting drugs safety, and marketing. Trends, forces, and the unforeseen events are some of the external environmental factors that almost all firms’ management cannot control. Similarly, there are both local and global changes that alter companies and industries in distinct ways. Acceleration of environmental instability means a shift from a common production and marketing world to an uncommon world comprising of new competitors and change of consumer attitudes. For an organization to thrive in the dynamic environment challenges and opportunities, it requires major strategies on customer retention and acquisitions, possible business partners, and financial management among others. The pharmaceutical sector has been undergoing numerous serious changes for a long time. Such changes include mergers, downward and upward price changes, and increased competition. Multinational pharmaceutical firms have placed some strategies in order to guarantee them an advantage in profit growths. Success factors are the fundamental strategies that can aid in competing wisely and taking market lead. When identified, firms can inject more resources in a specific area to achieve an earlier advantage over the others. The study applies TEVA’s case study to; appraise its five forces model, evaluate internal competencies and abilities, evaluate leadership role, evaluate its international strategy and organizational structure utilization, and finally offer recommendations.

Pharmaceutical Industries

Firms in this sector research, design develop, and market safe and quality drugs for human and animal diseases. In undertaking these, life’s quality is improved, suffering is alleviated, employment is created, and profits are enjoyed. The 1960’s post-war financial growth led to the issuance of patent right thus compelling companies to carry out research and development (Sampat 2006). Nevertheless, there was the emergence of generic industry in the 1970’s. The physician prescribed drugs for the benefit of their patients. In the consumption of these drugs, there are four parties concerned; the patient, insurers, physician, and the pharmacists. With managed healthcare, the power to prescribe does not solely rest in the physician’s hands but they prescribe the available drugs within the formula.

Several complexities characterize these industries. For example, there are several similar available products only differentiated through name branding. Because the discovery of drugs is a costly and risky venture, and due to patenting of blockbuster and regulations, a majority of companies in this industry have realized the need to merge in order to reach more globally and reduce costs. Such firms include TEVA, Pfizer, and Novartis among others. On the other hand, alliances were formed with biotechnology firms and R&D with the objective that funding such companies, the likelihood of bringing up a blockbuster drug is high.

Five Forces Model for the Generic Pharmaceutical Industry

The internal and external feature influences a firm’s business environment. They include competitors or rivals, customers, and suppliers. The five forces model helps in specifying and analyzing factors affecting the profitability of a company and competitiveness.

Internal Rivalry

Making profits amidst the several existing companies is the key determinant of overall industrial performance and profitability. Also, among the major factors that influence rivalry is the seller ration of concentration where a few big companies dominate. Thus, the competing firms realize their dominance and focus on product development. In order to counter this, aggressive strategies are sought and advertising. As an illustration, Teva acquired Ivax and thus it acquired the greatest geographical reach within the industry.

Related to the above, there were few dominating firms including Teva, Big Pharma, Novartis, and Pfizer (Khanna et al., 2010, p. 2). As a result of this rivalry, Novartis had spent at most $10 billion on gaining of generics while other innovative companies aggressively fought for patents by seeking the legal address. The companies also formed alliances and revived their personal generics arms. Similarly, from the case study when the drugs were approved marketing went on through sales forces. Trained representatives made hospital visits targeting the prescribing physicians as well as making direct consumer advertising (Khanna et al., 2010, p.3). In the U.S., there was 17 to 20 years official protection by trademarks and patent office. In this case study, there is a higher degree of rivalry among the major companies.

The Bargaining Powers of Suppliers

Supplier’s number and size determines the suppliers bargaining power. With the existence of several small suppliers, a firm will have the chance of choosing among them. The best quality and lowest supplier will be the preferred supplier. Initially, Teva limited its markets to Israel and the United States thus maintaining a rigorous low-cost culture hence achieving huge scale advantages in supplies than its rivals (Khanna et al., 2010, p.11).

Closeness and/or Availability of substitute products

The demand for generic drugs has increased as compared to the branded name drugs due to the costs. The low-cost companies from Europe and India scaled their games in order to compete with market leaders. The United States and the global market continued to grow because the aging population and the increasing health care costs generated pressure in favour of low-cost alternatives to costly drugs (Khanna et al., 2010, p.2). Generic drug firms usually do not experience the increased costs due to research and development of latest drugs. This allows them to sell at lowered prices. The availability of close substitutes is a representation of a highly competitive force. A substitute threat is dependent on price statute versus performance satisfaction. An available substitute in the market means an intensified competition as seen in the case study.

Entry threat

Potential competitors tend to be a factor that determines the intended industrial profit. A new market entrant means divided product demand hence intense rivalry. A threat to enter a market is analyzed by barriers to entry. New entrants are obliged to establish a blockbuster creating a brand loyalty. For example, Teva chose the United States market because Europe had a lot of price control and regulation. Similarly, many physicians and patients perceived the generics to be of an inferior quality.

Bargaining Power of Buyers

Buyers bargaining power allows the customers to negotiate prices. Information access in regard to seller’s costs and prices is an additional negotiation power. Buyers are price sensitive especially when the product purchased is undifferentiated and of a standard. Hospitals and healthcare institutions purchase in quantities and pressure are exerted on pharmaceutical firms to maintain prices. As seen, the generic drug price increase has lost patients bargaining strength.

Teva’s Internal Competencies and Capabilities

To realize Tevas competencies, it is paramount to know their resources and capability. The firm has several tangible resources essential for success in the pharmaceutical industry. Their monetary resources enhance their ability to generate finances as well as capitalize on the economic systems or the advantages of operating on a large scale. They have unrivalled generic physical possessions which means they have the potential of bringing more as compared to other generic pharmaceutical companies. I.e. their plants can manufacture more than others thus acquiring raw materials at a cheaper price. Teva is an established company with technological resources which guarantees their ability to bring as much as required.

Through strategic determinations and ventures, it acquired other companies giving them the advantage to introduce, gain, and hold a reputation for a long time in the generic market. For example, as stated in the case study (Khanna et al., 2010, p.11), in 2003, Sicor was acquired by Teva and in 2005, Ivax was acquired by Teva. The economic capability has helped in cutting down the costs which means more market share. The organizational resources have enabled them to enjoy an advantage in the regulative laws. As an example, setting up of the ANDA factory allowed them to become the leader and win more of 180-day exclusivities. Due to Teva’s organizational capability, they were able to consolidate and utilize human resources, procurance, and the technological development. Additionally, their acquisition enhanced their technological capability which expensive to imitate. Thus, their focus in future is on niche innovative and biosimilars generics.

As acknowledged, their initial focus was a business level approach bearing low R&D costs affiliated with innovations. Thus, this leadership made them succeed for years. Additionally, they utilized their highly knowledgeable staff together with their good relations with several universities in Israel to facilitate the smooth running of operations. A continuous improvement was made on their supply chain. The sales force was small but prices set generated volumes.

Leadership / Management Team’s Role in Vision Development and Implementation

Teva’s was visionary in becoming the world leaders in the provision of affordable drugs. In addition, the company was determined by using the scientific infrastructures available in Israel so as to provide solutions to the unmet medical needs. To realize this, the company designed a new strategy, as well as a business model whereby the management and marketing were, was localized in all regions (Khanna et al., 2010, p.12). The strategy to be applied was that of profitable growth aiming at generating shareholders value supported by leadership and globalized strategies. The leadership decided to take a global approach on a back-end using supply chain.

In the development of any company’s vision, its leadership must be committed to the development of its employees. First, leaders must understand their company’s vision. Secondly, the vision must be communicated, aim at building bridges between the current and future, and establish an excellent standard. In Teva pharmaceutical, a positive reputation for successful merging and employee’s fair treatment was created (Khanna et al., 2010, p.11). Having the vision in his mind, Hurvitz organized a meeting and went around to all executive team members. His asking of personal growth goals within the next one to five years by then was a proof that the vision is well communicated.

Going global can immensely facilitate the realization of the economies of scale and widen the market of products from a specific company. In implementing the model, the leadership had to determine the strategy to adopt and finally how to execute. In applying the model, Biogal the Hungarian drug firm was chosen which by then was being sold. Makov entitled in overseeing these said that the transaction was tough and complex but at the end, the company was received. Even though in Debrecen Biogal had been the biggest manufacturer, it had an outdated process that needed streamlining. Thus, an agreement had to be reached by the management and the government. After the agreement, Teva leadership and the labour relationship had to enter into negotiations.

Use of International Strategy and Organizational Structure in Competing Globally

An international strategy, especially in business, means the guiding principles on commercial transactions that take place between different entities in different nations. For example the goals of increasing profits. In competing globally, there are several strategies applied. To start with, companies undertake research for reliability and market entry. From the case study (Khanna et al., 2010, p.14), Teva used a consolidated and development budget to undertake research in order to bring drugs into the market. However, the original research was left to external institutions while building research franchises in areas demanding less marketing both to the family physicians and the general public.

In organizational structures, firms with divisional structures usually allocate small groups of different functions to a specific single division. Such divisions may be divided by production lines or geographically divided such as continentally or per states. In such a structure, each specialty is familiarised with the product and the market it serves. From the Teva’s case study, its chain of supply was handled by several centers that were globally located taking the advantages of distinct labour skills and costs, regulations and tax provisions. For example, the APIs division a third party was among its world’s largest supplier. After production, the manufacturing facilities in different locations received them and later supplied the United States, a proof that good structures are placed.

As part of the organizational structure, Teva acquired Ivax and modernized the internal operations. Thereafter, a separate specialty division was set up with an objective of focusing on niche biosimilars and niche products. In regard to optimizing the product portfolio globally, Teva pharmaceutical had a mixed product profitability profile. As a result of experiencing pricing pressure in certain markets, the company realized the purpose of portfolio optimization. Taking into consideration the product wise analysis, the company aims at protecting its margins through profit-sharing agreements with innovative companies while concentrating on less competitive niche drugs (Khanna et al., 2010, p.6).

Conclusion

Fulfilling a strategic plan is the most crucial thing for any organization. Formulating and executing a strategy allows the establishment of foundations upon which firms can create, evaluate, and assess their success. The five model forces that influence a business internal and external environment should be studied well. Finally, to achieve a competitive advantage against others, a firm must have a well-formulated vision with the leadership committed to implementing it. Similarly, a working international strategy and organizational structure are vital.

Recommendations

To thrive in the current competitive markets, Teva should continuously produce/develop new drugs i.e. launch a blockbuster drug. Similarly, it should be quick to adopt the emerging new production, administration, and financial technologies. The early technology adopters are usually contracted service providers. Therefore, it is vital to use contract research organizations and chief marketing officers as a quicker way of accessing the latest technologies to facilitate outsourcing.

Taking a position in the market and having an influence is important. Teva is faced with several chances but must make a decision. Secondly, they may either decide to remain superiorly influential in the US or venture into other nations but it is advisable to venture in other markets that are profitable such as Japan or/and Germany. Similarly, because of their financial capabilities and their ambitions they should diversify their business into the production of niche drugs or biosimilars, or do both. Even with diversification into different drugs and countries, they should still maintain their operations in the United States because it has carried out most of its operation there for a long time.

Thirdly, the United States is an established market participant. Teva can remain in the United States generic market if it feels uneasy in venturing into new risky markets. E.g. markets with a lot of regulations and stiff competition. However, if the company got to their current position through an expensive inquiry (taking over the United States generic market) which was a complex and tough undertaking, they should be prepared to venture into another global generic market.

Finally, it should seek more joint ventures/mergers. A merger with international companies enhances a voice and influence in a foreign land. A partnership or merger with a home-based firm results to better control and grants an entry into foreign local markets. When international companies join, they are able to compete in the global markets and enjoy the economies of scale. Also, industries are protected from collapsing when unable to compete.

References

Khanna, T., Palepu, K.R.I.S.H.N.A. and Madras, C.L.A.U.D.I.N.E., 2010. Teva Pharmaceutical Industries, Ltd. Harvard Business School.

Sampat, B.N., 2006. Patenting and US academic research in the 20th century: The world before and after Bayh-Dole. Research Policy, 35(6), pp.772-789.