CASE: you THE PHARMACEUTICAL DRUG INDUSTRY
Managers in pharmaceutical companies face a dynamic and challenging activity environment that creates both equally opportunities and threats. Demand for pharmaceuticals can be strong and has been developing steadily for decades. Between 1990 and 2005 there was a 12. 5% annual embrace spending on prescription drugs in United States. The solid growth was driven simply by demographics. As people grow old they tend to eat more pharmaceutical medicines, and the population generally in most advance nations has been getting older as the post вЂ“ World War II baby boom era ages.
In addition, successful new prescription drugs can be extraordinarily lucrative. Consider Lipitor, the cholesterol-lowering drug distributed by Pfizer. Introduced in 1997, simply by 2005 this drug generated a staggering $12 billion dollars in total annual sales to get Pfizer. The expense of manufacturing, the labels, and distributing Lipitor amounted to only about 10 percent of revenues, or around $1. two billion. Pfizer spent near to $400 , 000, 000 on marketing and endorsing Lipitor and maybe as much again on keeping a salesforce to sell the item. That continue to leaves Pfizer with a low profit from Lipitor of most likely $10 billion.
Lipitor is extremely profitable as the drug can be protected by direct competition by a 20-year patent. This kind of temporary monopoly allows Pfizer to impose a high price. After the patent expires, other organizations will be able to produce generic versions of Lipitor, and the selling price will fallвЂ”typically by 80% within a yearвЂ”but that is a while away.
Contending firms will produce drugs that are similar (but not identical) to a patent-protected drug. Drug firms obvious a specific molecule, and contending firms can easily patent comparable, but not similar, molecules which have a similar pharmacological effect. Hence Lipitor has competitors wanting to buy cholesterol-lowering drugsвЂ”such as Zocor, sold simply by Merck, and Crestor, distributed by AstraZeneca. But these rivalling drugs are also patent shielded. Moreover, as a result of Federal Drug Administration restrictions and requirements for showing that a medication is safe and effective, the charge and dangers associated with having a new medicine and taking it to market are very large. Out of 5, 1000 compounds examined in the clinical by a drug company, simply five enter into clinical trials, in support of one of these will ultimately make it to the market. Typically, estimates suggest that it costs some hundreds of dollars million and takes anywhere from 10 to 15 years to bring a brand new drug to advertise. Once out there, on the market, just 3 away of 12 drugs at any time recoup their R& M and marketing costs and turn a profit. Hence the high profitability of the pharmaceutical market rests on a few blockbuster medicines. To produce a blockbuster, a medicine company need to spend superb amounts of money on exploration, most of which will fails to produce a product. Pfizer, for example , spent over $7. 4 billion on R& D in 2005 alone, equivalent to 16. 6 percent of its total earnings.
In addition to R& Deb spending, the incumbent organizations in the pharmaceutical drug industry dedicate much cash on advertising and marketing and revenue promotion. Although the $400 million a year that Pfizer consumes promoting Lipitor is small relative to the drug's profits, it is a large amount for a new competitor to fit, making market entry tough unless the competitor provides a significantly better product.
There are also some big opportunities coming for organizations in the industry. fresh scientific break-throughs in genomics portend that within the next 10 years pharmaceutical firms might be able to deliver new drugs to market that treat some of the most intractable health conditions, including Alzheimer's, Parkinson's disease, cancer, heart disease, stroke, and HIV.
However, managers on the market face significant challenges. Many patent-protected medications are slated to arrive off obvious in the next ten years, and to keep profitability, pharmaceutic firms need to find fresh drugs to change...