1) Bargaining power of buyer: LOW

 In modern industry, bargaining power of buyer is very high but Pharma is unique among
industries because the medical patient has an absolute lack of power regarding pricing.
Medicines are products which are used for life saving purpose and no one will prefer cost
over safety in this. i.e. Price sensitivity is less.

 The prescriber of the drugs gives us particular prescription and we never bother to search
for alternatives. Though ethically prescriber should not give preference to a particular
brand just for the sake of commission but that can happen. So the sales can be
manipulated by prescribers but not by buyers. Market is highly fragmented. the buyers
are scattered and they as such does not wield much power in the pricing of the products.
However, government with its policies, plays an important role in regulating pricing.

2) Bargaining power of suppliers: LOW

 Generally suppliers have very little power in the pharmaceutical industry. The raw
materials for manufacturing drugs are commodity products in the chemical industry,
which are available from numerous sources. Most of the equipment used in
manufacturing and research is available from multiple manufacturers. Suppliers usually
offer multiple products to the manufacturer, which moderates pricing on rarer materials
and unique equipment.

 Exceptions can be recent scenario where US banned export of raw material for vaccine to
Serum institute of India in order to cater their own requirements. (Government driven
power).

3) Rivalry among existing competitors: HIGH

 General notion of an industry with high rivalry among existing competitors is also one
where the bargaining power of buyers is high doesn’t holds good for Pharmaceutical
industry. Pharma industry is one of the most competitive industries in the country with as
many as 10,000 different players fighting for the same pie. The rivalry in the industry can
be gauged from the fact that the top player in the country has only 6% market share, and
the top five players together have about 18% market share.
 Thus, the concentration ratio for this industry is very low. High growth prospects make it
attractive for new players to enter in the industry.
 Another major factor that adds to the industry rivalry is the fact that the entry barriers to
pharma industry are very low. The fixed cost requirement is low but the need for working
capital is high. The fixed asset turnover, which is one of the gauges of fixed cost
requirements, tells us that in bigger companies this ratio is in the range of 3.5 to 4 times.
For smaller companies, it would be even higher.
 The product differentiation is one key factor, which gives competitive advantage to the
firms in any industry. However, in pharma industry product differentiation is not possible
since India has followed process patents till date, with laws favoring imitators.

4) Threat of substitute products: LOW

 The effect of substitutes is dependent on the individual drug. A new drug that has patent
protection, treats a major health condition, and is first to market in its category can make
billions of dollars. However, the 30th drug to treat a common condition could take years
to recoup the R&D costs.

 Once a drug loses its patent, generic drugs manufacturers start selling copycat versions at
substantially lower prices. Which can hamper sell of original drug.

 the advances made in the field of biotechnology, can prove to be a threat to the synthetic
pharma industry.

5) Threat of new Entrants: HIGH(but doesn’t have much effect on large firms)

 Pharma industry is one of the most easily accessible industries for an entrepreneur in
India. The capital requirement for the industry is very low, creating a regional
distribution network is easy, since the point of sales is restricted in this industry in India.
 Which lead to a steady flow of new companies being created. A team of researchers with
a hot idea or newly granted patents can find venture capital funds eager to provide
millions in startup funding. These smaller companies pose no serious threat to big
pharma. In fact, one of a startup investor's main exit strategies is to sell out to a big
pharma firm when new products are through the initial development phase.
 However, creating brand awareness and franchisee amongst doctors is the key for long-
term survival. Also, quality regulations by the government may put some hindrance for
establishing new manufacturing operations.
 Going forward, the impending new patent regime will raise the barriers to entry. But it is
unlikely to discourage new entrants, as market for generics will be as huge.