The Pharmaceutical Industry : A Competitive Environment

The pharmaceuticals industry is one of the most profitable business sectors. The implications of this business can be observed on individual, corporate, and national level. The actions that companies make determine significant effects on different categories of stakeholders.

According to Lockhart, Babar, Carswell & Garg the main reason for decrease in success rate of the drug industry are huge R&D costs, big competition between the companies and lots of investment in the manufacturing. It leads to the financial and technical risk for a company because it takes lots of time, nearly about 20 years to get all funds back which are invested.

Moreover, the pharmaceutical industry is increasing the profit margin yearly, when the growth is steady and the intellectual property rights are really favorable for the industry in order to maintain the performance.

When the company has patent protection or a government market restriction such as orphan drug status, the company functions like a monopoly. Because no other company can manufacture the drug while these barriers are in place, they are the only supplier. They face a rather inelastic demand curve because sick people are likely to purchase the drug no matter the price. In the long run, after the patents and barriers to entry have expired, drug companies function like monopolistic competitors. Because the formula to manufacture the drug is no longer secret, other companies will produce generic versions of the drug. This means the supply will increase and the market will reach a more efficient, lower price of equilibrium. However, because the drug company will spend money on advertising to differentiate the drug from generic brands the company will act like monopolistic competitors not pure

The biopharmaceutical industry has historically been dominated by large companies. The threat of new entrants is low, but not impossible. The main path for entry into this market is through development of novel new drugs. New entrants are limited to this method of entry due to patent thickets surrounding incumbent drugs. The largest barrier to entry for companies attempting to enter the biopharmaceutical industry is high research and development costs. Not only must new firms develop and test new therapies, but they must also obtain approval from regulators in order to bring their products to market. Approval of a new drug requires highly capital intensive clinical test in addition to navigating a heavily bureaucratic approval process. The process is time consuming and

Pharmaceutical Manufacturers (companies are allowed to set the prices of their new products, and they usually do so based on the perceived value to the consumer rather than production costs) “(Office of Economic and Demographic Research, 2015)

The U.S. pharmaceutical industry is continuously growing and profiting. How these industries profit and grow in the current status of the American business is caused by various factors such as demand of the citizens, change in marketing and competition. To understand how the factors added to the increase in profit and growth of the pharmaceutical industries, we need to know how it was founded and industrialized.

government has avoided to regulate lower prices. The American Government is also taking advantage of their citizens by supporting these companies. They supply them with their support because they make so much off taxes from the desperate people purchasing drugs. (…too much influence, web)

The pharmaceutical market is said to grow at a CAGR of 2.7% from 2011-2016 which will plummet the market to a value of 299.5 US billion dollars by the end of 2016.

As indicated by Pharmaceutical Research and Manufacturers of America (PhRMA), the pharmaceutical exchange bunch, high costs are an impression of the innovative work costs it takes to put up a medication for sale to the public. PhRMA refers to that all things

Profit in pharmaceutical industries is not possible without patents and without patents innovation, research and development of new life saving drugs and medicines suffers (Winestock and Cooper, 2001, p. 1). Without incentive Research and Development (R&D) cannot be done, and this incentive is provided by strong IPRs. According to Grabowski, H. (2002) the total cost of doing researching and developing new drug along with the costs of capital and failed R&D is more than US$400 million. In the absence of strong implementation of IPRs and R&D costs, investors will not be ready to invest in R&D.

The intellectual property is essential in pharmaceutical industry, which is usually embodied in laws regarding patents, copyrights and trademarks etc. It motivates the sustainable development of the innovation of the pharmaceutical companies (Richard & Rozek 1990).

Strategic bets in pharmaceuticals, as in any other industry, must take into account what a company already does well. In other words, the bets should leverage the company’s capabilities system, made up of the three to six activities that truly differentiate the company and allow it to compete effectively both in the market position it has staked out and with the products and services in its portfolio. Companies that exhibit a high degree of coherence in these three elements (their capabilities system, market positioning, and product/service portfolio) tend to thrive in their industry sector; companies that exhibit lower degrees of coherence tend to have trouble keeping up.

The controls, restrictions and pressures are really important in pharmaceutical organization in many countries such as France, USA, Japan, etc. Some governments are directly involved in the price control of pharmaceuticals products. It is impossible to foresee whether controls, regulations or buyers’ pressure will increase, or if new controls or regulations will be created in any area where GSK is present. The pricing strategy is actually essential, especially in the pharmaceutical industry, as it is a budget that cannot be cut down by customers. People belonging to lower class will always prefer

Developing and emerging markets present several challenges, which need to be overcome by multinational Pharma firms. Pharmaceutical managers consider market access to be their most important challenge.