Pharmaceutical Companies - Report Example

PHARMACEUTICAL COMPANIES By Location Pharmaceutical Companies Introduction Pharmaceutical companies have beendescribed as the most profitable companies in the world. However, the reality of this claim has been disapproved by the fact that pharmaceutical companies face the compulsion of investing in research and development to develop new drugs that can treat emerging diseases. The process of drug development is costly and takes a long time. Therefore, pharmaceutical companies have to analyse the potential returns from the development of a certain drug before investing in its development. There are cases when pharmaceutical companies have invested a remarkable percentage of their revenue in research and development only to register minimal returns. Therefore, pharmaceutical companies need to ensure that they invest in profitable research and development. For this reason, they must carefully approximate the capital required for their research projects. This paper will highlight some of the factors that contribute to pharmaceutical companies investing in research for the treatment of illnesses, yet receiving minimal returns on investment. Estimated Capital to start up the Project As highlighted by Kesič (2009, p. 60) ppharmaceutical companies should carry out an accurate approximation of the budget to determine whether a project is worth investing in. The main players in the pharmaceutical industry can fund different research projects by investing a remarkable percentage of their revenue. However, such companies are only willing to invest after clearly analysing the viability of the project and its estimated cost. Worth noting is the fact that research institutions handle the development of new types of treatments or alternative drugs that have a higher potential than those in the market. Pharmaceutical companies place requirements that research institutions must meet if they are to receive any form of funding. The research institutions must critically develop a proper budget for their start-up projects if they are to qualify for funding from pharmaceutical companies, assertions highlighted by Kuwashima (2015, p. 165). When pharmaceutical companies understand how much is involved, they can make a better decision about whether the project is worth is worth taking up. Major Stakeholders of the Pharmaceutical Companies The major stakeholders in the pharmaceutical industry should play their role in financing major projects. As mentioned earlier, pharmaceutical companies rely on other stakeholders who contribute to the development of new forms of treatment. Research institutions and biotechnology centres are some of the main stakeholders. As highlighted by Outterson (2009, p. 240) the main objective of pharmaceutical companies is to maximize profits. Therefore, many pharmaceutical companies will refrain from investing in projects that do not seem profitable in the end. For example, GlaxoSmithKline has avoided investment in the complex process of drug discovery, citing reasons that the challenging economics in drug discovery are a major setback. According to the company, there are instances when it has spent billions in the development of treatments, but only a limited percentage of the drug produced are eventually approached and gain entry into the market. Therefore, unless research institutions can define clear goals and convince pharmaceutical companies that their projects are viable; many companies are not likely to invest in projects (Profits at pharmaceutical companies have been declining or showing little growth for the last year as austerity measures across Europe lead to cuts in healthcare spending, 2012, p. 64). It is evident that research institutions face the compulsion of playing their roles well if new forms of treatment are to be developed. Government Regulations The government plays a critical role in the development of new forms of treatment by placing health regulations that pharmaceutical companies must meet. For example, all the major stakeholders of the pharmaceutical industry must obtain licenses and renew them in accordance with the law. Ruiz-Conde, Wieringa, and Leeflang (2014, p. 54), the process of acquiring and renewing licenses requires money and the companies must meet certain criteria if they are to qualify for the licences. Therefore, many pharmaceutical companies consider government regulations involved in the process of drug discovery before they decide to invest in such projects. The rigorous process of drug development requires new equipment as well as resources. For this reason, companies must obtain licenses for all the new equipment and machinery. Government regulations may serve to discourage pharmaceutical companies from investing in drug development projects. In many cases, pharmaceutical companies feel that extreme government regulations serve as barriers to investment. As highlighted by Schramm and Hu (2013, p. 210), the pharmaceutical companies need to ensure that they can make profits if they invest in drug development projects. Excessive government regulations may compel companies to exhibit compliance all the time (Shimura, Masuda, & Kimura 2014, p. 179). Companies that do not comply with the existing regulations may face litigation cases, a factor that affects the company’s performance. Duration and Processes of Manufacturing the Drug The manufacture of drugs involves numerous processes that may take a long duration. Many pharmaceutical companies realize that investing in drug development projects requires a long-term investment. There are different phases involved in the process of drug development. Each of the phases has its challenges and depends on multiple factors. Therefore, it is impossible to estimate the exact time that drug development procedures may take. In the past, it took 7.9 years before drugs could be approved. However, since the 1990s, the number of years has gone up to 12.9 (Sun & Gai 2014, p. 673). Evidently, drug development of the modern day takes a longer time compared to the past. Pharmaceutical companies need to consider any potential factors of steps that could hasten the process of manufacturing the drug. For example, researchers and pharmaceutical companies have focused on the development of anti-cancer agents for many years without success. However, the pharmaceutical companies involved in such projects are still fuelling their resources into the research and hoping that the projects will be successful. In many countries, the process of drug development involved preclinical testing, investigating new drug application, phase one clinical trial, phase two clinical trials, phase three clinical trials, new drug application, and finally, phase four studies. Worth noting is the fact that not all the drugs that find their way into the preclinical testing find progress successfully to the final stage. In all these stages, pharmaceutical companies have a role to play if they are interested in the new drug. Therefore, if the companies are to maximize their profits, they must critically consider the duration and the processes involved in the manufacturing of new drugs. Distribution of the Drug to the Market Pharmaceutical companies need to understand the process of distributing and marketing new drugs. The reception of a drug in the market determines the level of profitability that the company registers. The reception of the drug depends on the needs of the population as well as its perceived efficiency. Some companies invest in the development of drugs that fail to meet the expected reception in the market. For example, GlaxoSmithKline’s Aldair did not have the expected performance in the market, especially in the United States. Unfortunately, for the company, the drug was unable to meet the needs of the population, a factor that saw the regulatory bodies involved discourage physicians from prescribing the drug (Outterson 2009, p. 240). Evidently, the marketing of a drug determines its expected level of profitability. If a drug does not have a good reception in the market, or is unable to meet the customer needs, then the company will register limited returns. Conclusion Evidently, it is unrealistic to expect pharmaceutical companies whose role is to make profits to fund research for the development of new drugs if they will only receive a minimal return on their investment. Therefore, the companies need to ensure that they carry out a critical analysis of the budget involved as well as the processes and duration of manufacturing the drug in question. Research institutions need to be more competent and set clear goals that can motivate pharmaceutical companies to invest. Government regulations may also discourage pharmaceutical companies from funding drug development projects. However, if pharmaceutical companies understand the process of drug development as well as the associated costs from the initial to the final phases, as well as the expected performance in the market, they can develop strategies of maximising profits. Although pharmaceutical companies seek to benefit their stakeholders and the community, they give priority to the potential returns before investing in any project. 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