Prescription drug industry is an oligopolistic market where a few firms dominate the industry and entry into the market by new firms is generally considered highly unlikely. Entry barriers such as cost structure, pricing pressures, regulatory approval process, patent protection and legal restrictions form the primary sources that make it really hard on new entrants. Heavy spend in Sales, Marketing, R&D and Manufacturing required prescription drug firms to possess significant capital to survive. Patent protection gave these firms an opportunity to maintain monopoly for several years and remain profitable. Spend in R&D, early mover advantage and innovation ensured that the firms entering the industry could not replicate the chemical processes and manufacturing practices easily and cost effectively. Faster and more responsive supply chain also ensured that the firms retained significant competitive advantage.
Genzyme was able to overcome some of the key these barriers by strategically positioning themselves as an industry leader in developing orphan drugs to treat under served diseases. The revenues and margins in this niche market were still big enough and Genzyme
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Also, the potential fragmentation into targeted therapies will also require firms to adapt their processes, investment strategy and rapidly changing environment. Genzyme will have a significant advantage in this ultra orphan drug setting since they have already successfully executed its overall strategy in the orphan drugs segment and can leverage its technology and processes to be successful in the ultra drug segment. Large companies trying to compete in this market will have to adapt their strategy and processes to this new environment and this could prove extremely costly and will take years to