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Background and Business Strategy Section Major firms of the world pharmaceutical industry Pharmaceutical industry is characterized by high level of concentration. There are about dozen of multinational companies that dominate in industry. Most of companies are not widely diversified and more than 50% of revenues come from sales of pharmaceutical products. There are few companies in industry that have other large sources of income, for example Johnson & Johnson. The pharmaceutical industry has two distinct functions: research and development (R&D), and manufacturing.

The largest and best-known pharmaceutical firms do both functions while some small companies do either of them. Another remarkable characteristic of the pharmaceutical industry is its vast investment in R&D to keep product innovation. The high rates of innovation in pharmaceutical industry result from high rates of return on investment in R&D also conversely create the incentives necessary to conduct this research. Consumer is sensitive to drug prices. If generic substitute is available it creates high pressure on pricing of product.

On other side company is able to charge high premium on patented unique drug. As a whole, the industry is highly competitive, but individual products are less so due to the number of products that are substitutes for one another is constraint by different therapeutic classes. What’s more, the threat of new entrants is not significant. As it was discussed above R&D requires large funding and to compete in generic drug production you need large start up capital to reach required economies of scale.

Bigger companies can allow investments in more research and development projects that diversify their future drugs portfolio and make them much more stable. Pfizer: Pfizer is one of the world’s leading research-based biomedical and pharmaceutical companies. Although Pfizer is in the intensive competitive pharmaceutical industry and there are lots of competitors such as Merck & Co. , Inc and Eli Lily, it still has the number one sale in the world. Pfizer has recently grown by mergers.

On January 26, 2009, Pfizer agreed to buy Wyeth for IJS$68 billion, a deal financed with cash, shares and loans. The merger will bring the company with the most diversified companies in the global health care industry, with product offerings in numerous growing herapeutic areas, a strong product pipeline, and leading scientific and manufacturing capabilities. Eli Lilly Company: Eli Lily is a world’s leading pharmaceutical Company which was founded in 1876 by a pharmaceutical chemist, Eli Lilly. Nowadays, Lilly is the world’s largest manufacturer and distributor of psychiatric medications.

In order to reduce such cost, Lilly transformed itself from a fully integrated company to a global collaboration network. Lilly only adopted a prudent diversification strategy. Within the area of human pharmaceuticals, it always evotes itself into innovation which it believes could keep the company develop of the seven largest pharmaceutical companies in the world both by market occupation and revenue. On March 2009, Merck has proposed to merge with Schering-Plough which made Merck be the 2nd largest pharmaceutical company in the world.

Merck’s medicines are good at treating asthmatics and hypertension. Major competitors to Merck include Novartis, Pfizer, and Bristol-Myers Squibb. Merck will seek to expand its pipeline by entering into agreements and cooperation with other companies to develop technologies to expand pipeline of potential future roducts. Wyeth: Wyeth, formerly American Home Products (AHP), has history of continuous acquisitions. The company operates in three segments: Pharmaceuticals business, Consumer Healthcare unit and Fort Dodge Animal Health.

R&D expenses are steady increasing over years. However company faces competition from generic cheaper substitutes. In response company had to launch a cost-cutting program in 2008. This year Pfizer acquisition of Wyeth was announced; deal took place in October 2009. BMS: William McLaren Bristol and John Ripley Myers founded the Bristol, Myers company in 1887. BMS engages in the discovery, development, licensing, manufacture, marketing, distribution, and sale of pharmaceuticals and nutritional products worldwide.

The main competitors of BMS are Merck, Novatis and Pfizer. The BMS’s key productivity initiatives include reducing general and administrative operations by simplifying, standardizing and outsourcing, where appropriate, processes and services, rationalizing the company’s mature brands portfolio, consolidating its global manufacturing network while eliminating complexity and enhancing profitability, simplifying its geographic footprint and mplementing a more efficient go-to-market model.

Abbott Laboratories: Abbott Laboratories is a diversified pharmaceuticals health care company. Abbott Laboratories was founded by Chicago physician Wallace Calvin Abbott in 1888. Abbott has a broad range of drug portfolio, medical devices, diagnostics and immunoassay products as well as nutritional products. Abbott’s main strategy is product differentiation. Its core businesses focus on pharmaceuticals, medical devices and nutritional products, which have been supplemented through several notable acquisitions.

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