Five Forces and Failed Trials: What Michael Porter Can Teach Modern Biotech

I want to talk about a book that was published in 1980 and why it might be the most important thing a biotech founder reads this year. Not a paper on CRISPR. Not a pitch deck template. A book about competitive strategy written by a Harvard professor named Michael Porter.

That might sound strange. Biotech companies live and die on the science. The molecule either works or it doesn't. But here is the thing most people in this industry already know and rarely say out loud: a lot of companies with perfectly good science still fail. They fail because they didn't understand the competitive landscape they were walking into. They didn't understand who had power over them, who could replace them, or what it would actually cost to stay alive long enough to matter.

Porter's book, Competitive Strategy: Techniques for Analyzing Industries and Competitors, provides a framework for thinking about exactly that. And while it was written decades before anyone had heard of a GLP-1 receptor agonist, its core ideas map onto modern biotech with surprising precision.

The Five Forces, Applied to Biotech

Porter's central framework is what he calls the five competitive forces. These are not suggestions or vibes. They are structural realities that determine how profitable an industry can be and how much power any single company within it can actually wield. The five forces are: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and rivalry among existing competitors (Porter, Competitive Strategy, Chapter 1, The Free Press, 1980).

In biotech, these forces are alive and well, just wearing lab coats. Start with the threat of new entrants. You might think barriers to entry are high in this space, and in some ways they are. The cost of bringing a single drug to market has been estimated at anywhere from $985 million to $2.6 billion, depending on who you ask and how they account for failures (Wouters et al., "Estimated Research and Development Investment Needed to Bring a New Medicine to Market, 2009-2018," JAMA, 2020; Tufts CSDD, 2014). That is a massive capital barrier, which Porter identifies as one of the six major sources of barriers to entry (Porter, Chapter 1). But capital is not the only barrier. There is also product differentiation, switching costs for healthcare providers, and the regulatory moat that the FDA approval process creates. These are real structural protections.

But here is where things get uncomfortable. Those barriers are not as sturdy as they look. The rise of platform biotechs, AI-driven drug discovery, and the biosimilar pathway have dramatically lowered the floor for certain types of competitors. According to a Norstella analysis, clinical trial activity has surged in recent years, meaning more entrants and more pipeline congestion than ever before (Norstella, "Why Are Clinical Development Success Rates Falling?," 2025,

norstella.com). More players entering the arena does not automatically mean more winners. It often means more losers and thinner margins for everyone.

Then there is buyer power. In biotech, the "buyers" include insurance companies, pharmacy benefit managers, hospital systems, and increasingly, government payers. These are not passive customers. They negotiate hard, they set formularies, and they can absolutely determine whether your drug, even if it works, actually gets used. Porter writes that buyers are powerful when they purchase in large volumes, face low switching costs, and when the products they are buying are undifferentiated (Porter, Chapter 1). Sound familiar? The biosimilar wave has turned many biologic categories into something approaching commodity markets, where buyer power is immense.

Supplier power matters too, though it plays out differently in biotech. Key suppliers include contract research organizations (CROs), contract development and manufacturing organizations (CDMOs), and the academic institutions that license foundational IP. When there are only a handful of CDMOs capable of manufacturing your cell therapy at scale, they have leverage. Porter would call that a concentrated supplier group with high switching costs for the buyer. And he would be right.

Picking Your Lane: Porter's Generic Strategies

Beyond the five forces, Porter identifies three generic strategies a company can pursue: overall cost leadership, differentiation, and focus (Porter, Chapter 2). He is blunt about this. A company that fails to commit to at least one of these approaches ends up "stuck in the middle," which he describes as "almost guaranteed low profitability" (Porter, Chapter 2). That phrase should haunt every biotech executive reading this.

Most biotech companies, by their nature, are not going to compete on cost leadership. That is the domain of generic manufacturers and large-scale API producers. Where biotechs thrive is in differentiation and focus. Differentiation means creating something that is perceived as genuinely unique, whether that is a novel mechanism of action, a superior delivery method, or a dramatically better safety profile. Porter notes that differentiation creates insulation against competitive rivalry because it builds brand loyalty and reduces price sensitivity (Porter, Chapter 2). In biotech terms, that is the difference between a first-in-class drug and a me-too compound chasing the same target as three other companies.

Focus, in Porter's framework, means targeting a narrow segment and serving it exceptionally well. Think orphan diseases. Think rare genetic conditions with patient populations in the low thousands. The focus strategy works because it allows a company to achieve either differentiation or cost advantages within a specific niche. This is exactly why orphan drug designations have become so attractive. They offer both regulatory incentives and a competitive moat in markets too small for the big players to bother with.

The failure rate data makes this strategic clarity even more urgent. A 2025 analysis by Norstella found that Phase I success rates have dropped from over 75% in the 2006-2008 period to below 40% in recent years (Norstella, 2025). A separate study in Clinical Leader reported that the overall success rate for Phase 1 drugs hit just 6.7% in 2024, down from 10% a decade ago (Chancellor, "Biopharma R&D Faces Productivity and Attrition Challenges in 2025," Clinical Leader, clinicalleader.com). When nine out of ten drugs entering trials will never reach a patient, strategic positioning is not a luxury. It is survival.

Where Competitive Intelligence Meets IP Strategy

Porter himself writes that "knowledge of these underlying sources of competitive pressure highlights the critical strengths and weaknesses of the company" and "clarifies the areas where strategic changes may yield the greatest payoff" (Porter, Chapter 1). That knowledge does not come from guessing. It comes from research.

This is where a tool like Paseo AI becomes relevant. Paseo's platform runs a 360-degree analysis on an invention by comparing it against over 200 million patents, journal articles, and publications. It identifies novelty, maps prior art, assesses obviousness, and generates competitive landscapes, all in under ten minutes. For a biotech company trying to figure out whether its drug candidate actually occupies differentiated intellectual property space, or whether it is about to walk into a crowded patent thicket, that kind of analysis is not optional. It is the due diligence that Porter's framework demands.

Consider the prior art landscape feature. Paseo compares an idea against existing patents on both a concept and feature basis, assigning similarity scores and flagging white spaces where no one has yet staked a claim. Those white spaces are, in Porter's language, the areas with the weakest competitive forces. The places where you can build a defensible position. The heat maps Paseo generates are essentially a visual rendering of Porter's five forces analysis applied to intellectual property: where is the congestion, where is the open territory, and where can you build a moat?

Similarly, the obviousness analysis that Paseo performs maps directly onto the question of differentiation. If your proposed invention is merely a combination of features already present in existing patents, it will likely be rejected by the USPTO on the basis of multi-feature obviousness. But it will also be strategically weak by Porter's standards. A product that is an obvious extension of what already exists is not differentiated. It is stuck in the middle.

The Bottom Line

I am not going to pretend that reading a strategy book from 1980 will solve the replication crisis or fix your Phase III enrollment timelines. It won't. But Porter's frameworks offer something that most biotech founders and R&D leaders badly need: a structured way to think about competition that goes beyond "our molecule is better." Because sometimes your molecule is better, and you still lose. You lose because you didn't understand the bargaining power of your buyers, or the threat of substitutes in your therapeutic area, or the fact that six other companies were converging on the same target with more capital and a faster timeline.

The biotech companies that survive and thrive will be the ones that pair their scientific rigor with competitive intelligence. That means understanding industry structure. That means knowing your IP landscape inside and out before you commit hundreds of millions of dollars to a clinical program. And that means using every available tool, from Porter's five forces to Paseo's AI-powered analyses, to make sure you are not just building a better drug, but building a better position.

Sources and Further Reading

Porter, Michael E. Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press, 1980. Chapters 1-2.

Wouters, Olivier J. et al. "Estimated Research and Development Investment Needed to Bring a New Medicine to Market, 2009-2018." JAMA, 2020. pubmed.ncbi.nlm.nih.gov/32125404

Norstella. "Why Are Clinical Development Success Rates Falling?" September 2025. norstella.com

Chancellor, Daniel. "Biopharma R&D Faces Productivity and Attrition Challenges in 2025." Clinical Leader. clinicalleader.com

UpCounsel. "Patent Filing Costs Explained: Fees, Factors & Savings." upcounsel.com/how-much-does-a-patent-cost

PatentPC. "The Cost of Patent Litigation: Key Statistics." December 2025. patentpc.com