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If you’ve ever listened to Warren Buffett talk about investing, you’ve heard him mention the idea of a company’s moat. The moat is a simple way of describing a company's competitive advantages. Company's with a strong competitive advantage have large moats, and therefore higher profit margins.

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

And investors should always be concerned with profit margins.

This article looks at a methodology called the Porter’s Five Forces Analysis. In his book Competitive Strategy, Harvard professor Michael Porter describes five forces affecting the profitability of companies. These are the five for

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

ces he noted:

Intensity of rivalry amongst existing competitors
Threat of entry by new competitors
Pressure from substitute products
Bargaining power of buyers (customers)
Bargaining power of suppliers

These five forces, taken together, give us insight into

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

a company's competitive position, and its profitability.

Rivals

Rivals are competitors within an industry. Rivalry in the industry can be weak, with few competitors that don’t compete very aggressively. Or it can be intense, with many competitors fighting in a cut-throat environment.

Factors

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

affecting the intensity of rivalry are:

Number of firms – more firms will lead to increased competition.
Fixed costs – with high fixed costs as a percentage of total cost, companies must sell more products to cover those costs, increasing market competition.
Product differen

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

tiation – Products that are relatively the same will compete based on price. Brand identification can reduce rivalry.

New Entrants

One of the defining characteristics of competitive advantage is the industry’s barrier to entry. Industries with high barriers to entry are usually too exp

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

ensive for new firms to enter. Industries with low barriers to entry, are relatively cheap for new firms to enter.

The threat of new entrants rises as the barrier to entry is reduced in a marketplace. As more firms enter a market, you will see rivalry increase, and profitability will fall (the

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

oretically) to the point where there is no incentive for new firms to enter the industry.

Here are some common barriers to entry:

Patents – patented technology can be a huge barrier preventing other firms from joining the market.
High cost of entry – the more it will cost to get

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

started in an industry, the higher the barrier to entry.

Brand loyalty – when brand loyalty is strong within an industry, it can be difficult and expensive to enter the market with a new product.

Substitute Products

This is probably the most overlooked, and therefore most damaging,

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

element of strategic decision making. It’s imperative that business owners (us) not only look at what the company’s direct competitors are doing, but what other types of products people could buy instead.

When switching costs (the costs a customer incurs to switch to a new product) are low the

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

hreat of substitutes is high. As is the case when dealing with new entrants, companies may aggressively price their products to keep people from switching. When the threat of substitutes is high, profit margins will tend to be low.

Buyer Power

There are two types of buyer power. The first is

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

related to the customer’s price sensitivity. If each brand of a product is similar to all the others, then the buyer will base the purchase decision mainly on price. This will increase the competitive rivalry, resulting in lower prices, and lower profitability.

The other type of buyer power r

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

elates to negotiating power. Larger buyers tend to have more leverage with the firm, and can negotiate lower prices. When there are many small buyers of a product, all other things remaining equal, the company supplying the product will have higher prices and higher margins. Conversely, if a c

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

ompany sells to a few large buyers, those buyers will have significant leverage to negotiate better pricing.

Some factors affecting buyer power are:

Size of buyer – larger buyers will have more power over suppliers.
Number of buyers – when there are a small number of buyers, they

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

will tend to have more power over suppliers. The Department of Defense is an example of a single buyer with a lot of power over suppliers.

Purchase quantity – When a customer purchases a large quantity of a suppliers output, it will exercise more power over the supplier.

Supplier P

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

ower

Buyer power looks at the relative power a company’s customers has over it. When multiple suppliers are producing a commoditized product, the company will make its purchase decision based mainly on price, which tends to lower costs. On the other hand, if a single supplier is producing some

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

thing the company has to have, the company will have little leverage to negotiate a better price.

Size plays a factor here as well. If the company is much larger than its suppliers, and purchases in large quantities, then the supplier will have very little power to negotiate. Using Wal-Mart as

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

an example, we find that suppliers have no power because Wal-Mart purchases in such large quantities.

A few factors that determine supplier power include:

Supplier concentration – The fewer the number of suppliers for a given product, the more power they will have over the company.

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

Switching costs – suppliers become more powerful as the cost to change to another supplier increases.

Uniqueness of product – suppliers that produce products specifically for a company will have more power than commodity suppliers.

It’s important to analyze these five forces and

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

their affect on companies we want to invest in. The Porter Five Forces Analysis will give you a good explanation for the profitability of an industry, and the firms within it. If you want to know why a company is able, or unable, to make a decent profit, this is the first analysis you should do

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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Does your organization have a clear purpose? Do the people you serve see you as important to their business or to their lives? Does every customer and every employee clearly understand your purpose? The purpose of an organization is clarified in the mission, vision, and operating principles. I call this grouping the core message of an organization.

Although there is much negative press over networking marketing, there are some distinct advantages that you should think about.

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