Case Solution on the Pharmaceutical Industry

1510 Words Sep 7th, 2013 7 Pages
Q3. What are the prospects for the industry going forward?

1.Though the average level of profitability in the pharmaceutical industry has been declining over time (In 2002, the average ROIC in the industry was 21.6%; by 2006, it had fallen to 14.5%), historically, the pharmaceutical industry has been a profitable one. Because-

Name of industry | Average ROIC(Between 2002 and 2006) | Pharmaceuticals | 16.45%(large) | computer hardware | 12.76% | Electronics | 3.88% |

2. The prospect for the industry for going forward is very positive. Because the demand for pharmaceuticals has been strong and has grown for decades. Between 1990 and 2003, there was a 12.5% annual increase in spending on prescription drugs in the United
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Develop unique molecule: Develop unique molecule that cures better than other drugs so that any company can charge premium price for their drugs.
2. Develop new drugs for intractable medical conditions: Develop new drugs that treat some of the most intractable medical conditions, including cancer, heart disease, stroke, and AIDS. They can replace revenues from drugs going off patent by these new drugs.
3. Before launching a drugs prescribed for curing one kind of disease, companies can test the new drags carefully so that the new drags will not be a reason for other diseases

Q2. After 2002, the profitability of the industry, measuredby ROIC, started to decline. Why do you think thisoccurred?

the average level of profitability in the pharmaceutical industry has been declining over time(In 2002, the average ROIC in the industry was 21.6%; by 2006, it had fallen to 14.5%).

Reasons for declining:
1. Lose of patent protection: twelve of the thirty-five top-selling drugs in the industry were to lose their patent protection between 2006 and 2009. So the companies have to develop enough new drugs in their pipelines to replace revenues from drugs going off patent.So investment in R&D will have to increase.It’svery difficult because Only very large companies can shoulderthe costs and risks of doing R&D. and most importantly Out of every 5,000 compounds tested in the laboratoryby a drug company, only five enter
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