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The next two questions draw on the following hypothetical scenario:
Pills & Co., one of the top-five
pharmaceutical companies globally, is pursuing an ambitious project (the “Gamma Project”). It is essentially an aggressive acquisition program in which Pills & Co. will fully acquire two of its biggest direct rivals within two years. It also plans acquisitions of one large and two mid-sized Pharmacy Benefit Management (PBM) companies. A big part of the Pharmacy Benefit Management business is managing prescription drug costs for health plans and insurers; PBMs do it by buying patented drugs from the drug manufacturers on behalf of the health plans.
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For the purposes of this exam, let’s define the pharmaceutical industry so that it includes all patented pharmaceutical incumbents worldwide, such as Novartis, GlaxoSmithKline, Merck, Pfizer, Eli Lilly, Johnson & Johnson, AstraZeneca, Bristol-Myers Squibb and others like them. They discover new drug targets through extensive R&D, patent them, obtain necessary approvals, manufacture and sell drugs. Most important supplier groups for the industry are workforce (scientists, support staff, manufacturing staff), commodity chemicals producers, laboratory and scientific equipment manufacturers, IT and other professional services suppliers, including marketing agencies. Let’s exclude from the industry definition the companies that mostly manufacture and sell non-patented (generic) medications, like Teva Pharmaceuticals. Please note that you will not need any additional knowledge about the pharmaceutical industry or PBM to answer the next two questions – you should be able to fully answer them using the information contained here, even if you have had no prior familiarity with the industry.
Question 16: If the Gamma Project is fully implemented, how will it affect the industry for the patented pharmaceuticals?
a.It will significantly increase the rivalry
b.It might decrease the bargaining power of the buyers
c.It might decrease the barriers to entry
d.It will dramatically increase the bargaining power of suppliers