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The worlds leaders of the generic pharmaceutical companies marketing essay

The purpose of this commentary is not to provide a complete view of all the risks, rewards, decisions, and debates inherent in research investment and drug development in the pharmaceutical industry, but instead to provide a personal perspective based on 25 years of wrestling with investment decisions and the requirement to address the needs of various interest groups: I want to begin from a slightly different economic perspective, because our nation today finds itself not only in economic transition but also in a very precarious position that threatens our way of life and our standard of living.

I want to first look at the U. In light of America's competitive slippage in world markets, it is curious that we are so slow to learn lessons from the past, even though we have seen our world leadership and market share erode in one industry after another.

Thus far, one exception has been the U. As a secondary source of our success, however, we must cite a favorable public policy environment; a spirit of cooperation; and a collaborative relationship among industry, government, and academia on research projects.

Now, unfortunately, the environment threatens to change—in part, at least, because of a sincere concern for rising health care costs but also because of a poor understanding and simplistic analyses of the economics of the drug development process.

The Changing Economics of Medical Technology.

As a nation, we must reach a better understanding of the case for public policies that encourage medical research and innovation, which will result in dramatic improvements in health, quality of life, and the economic well-being of our country. This nation can ill afford policies that discourage innovation in the pharmaceutical industry. Those of us in the pharmaceutical industry frequently find ourselves having to develop a primer on the industry, its economics, and the nature of the discovery process.

Nor do people realize that 7 of every 10 products that do reach the marketplace never recover the average cost of development. Most discouraging is that the message must be repeated in so many different ways.

In the light of much-needed academic analyses—now planned or under way—of such subjects as the pharmaceutical industry's risks versus returns, I am hopeful that the economics of innovation in medicine will some day be better understood. In the meantime, several broad-based initiatives are essential for drug innovation: These are the specific issues of this paper. Progress on these issues rests first on public policy, and any policy actions that affect the research-based pharmaceutical industry should be grounded firmly on an understanding of the economics of innovation in medicine.

  1. Do we need 8 more drugs for erectile dysfunction? These studies will present a better view of the industry simply because economic returns are far more accurate than accounting returns as measures of profitability.
  2. For example, the drug in question here had been offered in Brazil at 8 dollars per pill by Novartis themselves because of the threat of generic versions that would threaten competition.
  3. The letter detailed 8 major objections, including that the drug was not tested against this particular form of meningitis.
  4. Food and Drug Administration regards as therapeutic advances. The list of novel drugs from the post-war era speaks for itself.
  5. Rennie also added, Dr. At a minimum, I would suggest that any economic model for the industry should consider four important issues.

Merck has first-hand knowledge of the realities of the global marketplace, the challenges of research, and the economic policy environment that is conducive to success in business competition and in fighting disease. Merck, for example, does business in nearly 200 countries, and about half of its sales are made outside the United States. The company is part of an enormous industry: The industry is highly competitive, with no company holding as much as 5 percent of the world market 2.

A history of the pharmaceutical industry

This competition forces those who want to succeed to be aggressive in the search for new drugs—a search that is increasingly expensive. In this environment many pharmaceutical companies have found it necessary to merge in order to expand their research capacities and maintain their rate of growth.

Other large foreign companies also are showing great interest in acquiring U. Merck has chosen not to make a major merger or acquisition. Merck has determined that, in a global marketplace, it needs both internal and external strategies for growth.

The Pharmaceutical Manufacturers Association estimates that the U. Much of the money Merck pays in taxes comes from the return on its investment in research facilities and scientists in the United States. In 1989 Merck made a favorable contribution to the U. That amount, though relatively small, stood in dramatic contrast to the huge total trade deficit in other industries.

Therefore, those of us in industry, medicine, and universities need to demonstrate effectively the dynamics of drug discovery something we may not have been well equipped to do up to this point. This effort will be helped by university scholars who are working to develop a model for analyzing pharmaceutical risk versus return, as well as other related subjects.

In addition, studies are being conducted at Merck to complement university efforts. At a minimum, I would suggest that any economic model for the industry should consider four important issues: We must reexamine the way research is treated. The answer is important because it will change a number of financial measurements, most notably return on assets. Our analyses must consider pricing, including costs of research and launch prices fair to the patient and to the innovating company.

We need an adequate period of exclusivity for innovative products. We need to factor in the impact of inflation on the cost of doing business and of future research. Economic analyses are under way in four broad areas: This analysis is critical because of the rapid changes in the product life cycle, which has been getting shorter for two major reasons. The first is the emergence of so-called fast-follower drugs.

Today's rapid dissemination of scientific advances throughout the worldwide biomedical research community the worlds leaders of the generic pharmaceutical companies marketing essay to simultaneous—often closely similar—research efforts by several companies. Although these fast-follower products intensify competition, they also serve useful purposes for society.

Some patients, for example, may tolerate a fast-follower better than the breakthrough product.

Pharmaceutical Corporations and Medical Research

A second reason for shorter product life cycles is generic competition. Generics today are being introduced very rapidly after patents expire, and they are supported by intense marketing efforts. From a public policy standpoint, we must ask ourselves if generics should be controlled more tightly. Clearly, the answer is important in terms of product safety. But also, from an economic viewpoint, if generics are able to reap windfall profits without investing in research, we must ask ourselves if our public policies are discouraging research by the U.

These studies will present a better view of the industry simply because economic returns are far more accurate than accounting returns as measures of profitability. An example will demonstrate how the accounting and economic models yield different results. In 1989, based on the accounting model, the average return on assets ROA for eight leading U. Consequently, use of the economic model lowers ROA for many industries.

The effect is greatest for research-intensive industries. Based on the economic model for the 1989 results of the eight leading health care companies, the average ROA the worlds leaders of the generic pharmaceutical companies marketing essay approximately 11 percent because of our substantial commitment to research.

It is well known that patents are essential to the future of the pharmaceutical industry, but it is not well known that patent laws often give less protection to pharmaceutical companies than to other industries. For the pharmaceutical industry the average prescription medicine, because of the long period of development and regulatory approval, has lost an average of 6.

Thus, for pharmaceuticals the 17-year patent term mandated by Congress is shortened dramatically, further compounding the risks of drug development. The studies of research productivity and innovation now under way will explore the many interrelated factors that drive innovation and will seek to define an optimal industry structure for productivity. Pharmaceutical research requires the investment of vast sums of money over long periods of time under extremely uncertain conditions.

According to Grabowski, 12 years is now the industry average for drug development 1. In many countries where the government is responsible for providing health care, government agencies intervene in virtually all aspects of research, marketing, and pricing of pharmaceuticals. In response to concerns about rising health care costs, certain countries have pursued policies with the effect of limiting drug prices and profits.

This is, I think, a very dangerous game in terms of discouraging the discovery process and threatening the battle against disease. I also think it more than coincidental that many of the countries that exercise the most control have failed to contribute significantly to the discovery of new chemical entities of therapeutic importance.

In the last three decades these four countries have contributed more than 70 percent of all significant drug products introduced in the U. A salient characteristic of all five countries is government policies that encourage innovation and reward success. Not coincidentally, in these countries prices, are commensurate with those in the United States.

All too often the debate boils down to one issue: It is a critical issue to the public and to innovation for two major reasons: Health care costs continue to increase faster than the rate of inflation and are causing budget problems for all who provide or pay for health care, including federal and state governments and corporations; 2.

This situation sometimes causes payers, such as corporations, health maintenance organizations, and state governments, to make decisions aimed primarily at minimizing costs rather than helping patients.

  1. Fortune 1988 ; 117.
  2. They mostly come from India, and go through Europe in transit.
  3. The companies seem to be increasingly willing to sacrifice the already marginal sales generated on HIV drugs in Africa in an attempt to forestall the development of a larger social movement that might ultimately lead to the TRIPS Agreement being significantly altered or even removed from the WTO.
  4. This analysis is critical because of the rapid changes in the product life cycle, which has been getting shorter for two major reasons.
  5. WTO patent rules allow 20 years of exclusive rights to make the drugs. Its because they not only can threaten not to make medicines available, but they can credibly threaten that the U.

Whenever policy makers look for solutions to the problem of ever-increasing costs, pharmaceutical companies, with their rapid growth and relatively high levels of accounting profitability can easily be seen as constituting a large part of the problem. The facts are very much at variance with this popular impression.

Prescription drugs account for less than seven cents of every health care dollar 10. In addition, the percentage of health care costs attributable to drugs has been declining for many years 10. The situation abroad is very different.

As a major source of basic biomedical research, training of scientists, and research funding for U. Our nation's long term record of innovation notwithstanding, other countries are now rivaling traditional U. Since 1975, according to analyses by Merck, foreign firms have provided close to half of the new chemical entities that the U. Food and Drug Administration regards as therapeutic advances. That role is also one of basic research, not applied research. Industry—particularly in pharmaceuticals, still is the worlds leaders of the generic pharmaceutical companies marketing essay best source for applied research.

The key to this industry's success is its ability to make optimal use of basic research findings flowing from the NIH and from universities. These findings serve as springboards for applied research by individual competing companies—research aimed at discovering new compounds and developing new drugs.

As an integral part of this focus, they are allocating funding, establishing incentives, and training the talent pool needed to do research and commercialize technology. They are removing barriers to technological development and coordinating efforts to achieve economic growth.

Unfortunately, the United States is not doing these things as well as other countries. In the past decade we have witnessed a decline in the proportion of U. Only 7 of every 1,000 U. More than half of new U. Public policy must give science education a higher priority in our national agenda.

All around the world efforts should be made to establish a business and political climate in which innovation will flourish. As Eastern Europe finally admits to the potential rewards of such an environment, we in America need to remind ourselves and others of the benefits of free trade and competition.

Local economies benefit as industry is encouraged; nations benefit by adding new export products. In terms of pharmaceuticals, society benefits through victories in our fight against disease. Among our own national needs, one of the most urgent is for the United States to adopt policies that will result in more equitable international trade arrangements. We must encourage Congress and the administration to take steps to equalize the flow of trade by measures that will enhance the competitiveness of U.

In particular, there is a need for increased worldwide protection of rights to patents, copyrights, and trademarks.