The US Pharmaceutical industry - Research Proposal Example

Strategic and Marketing implications in the US pharmaceutical industry from pricing pressure of Generic medicines and increasing government control of healthcare Abstract This proposal seeks to study the impact of price control of generics medicines on the pharma companies of the U.S. and how they should face upto challenges to their survival. Though there is much justification in the name of public policy concerns, the concern of this study is that it should not result in erosion of viability pf Pharmaceutical companies and how they will have to reinvent themselves to emerge out of the crisis and what economic forces will determine their ultimate survival. Table of Contents Title page .. 1 Abstract 2 Introduction 4 Aim and Objectives ..4 Literature Review 4 Methodology .7 Conclusion 9 References 10 . Introduction This proposal sets the outline for studying the impact of the U.S. Government's generic drugs policy on its pharmaceutical industry and how the companies should address the situation in order to stay competitive and continue to meet the ever changing and ever growing needs of health care. The situation is alarming as many drugs will go off-patent with the result, the pioneering pharmaceutical companies will be pitted against the rest of the world in surviving the competition from generic drugs market unless they continue to innovate and invent newer drugs for existing diseases and drugs for new diseases. The unique feature of the pharmaceutical industry is the Governmental intervention at all levels including price control in the interest of public policy and safety. This study will identify the interplay of economic theories that will underpin the survival of pharmaceutical industry in the wake of increased competition in generics market. Aim and Objectives This proposal will specifically look into the likely economic forces that will lead to the logical conclusion in the wake of crisis perpetrated by generic drugs pricing policy pursued by the Government. Literature Review World pharmaceutical sales are estimated to grow by 5-6 percent exceeding $ 735 billion in 2008 as against 6-7 percent growth in 2007 attributed to reduced cost of drug treatment in selected therapies and dilution of intellectual property rights. A shift in growth is expected from the present top seven markets to emerging markets and from primary care drugs to specialty care drugs. Pharmaceutical companies have to change their strategies in order stay ahead as predicted by IMS Health Global Pharmaceutical Market and Therapy Forecast. U.S will experience only 4-5 percent growth which is the lowest recorded in the history of U.S. pharma market. This is as a result of Medicare Part D in the U.S., expiry of patents for many branded drugs, and resultant increase in the consumption of low cost generics, accelerated payer pressure to keep the costs under control and limited access to some therapies and increased safety measures which result in slowing down and stopping of introduction of new drugs. On the other hand, the emerging markets called "pharmerging" markets of China, India, Brazil, Mexico, South Korea, Turkey and Russia are expected to register an increase of 12-13 percent in consumption of drugs reaching over $ 85-90 billion made possible by greater access to generic drugs, improvement in primary care and increased interest to take private health insurance. Due to lessened patent protection, pharmaceutical companies will be shy of investing on newer primary care drugs and tend to focus their attention on specialty care drugs such as for oncology and biotech in which there are no cost pressures and in which case, growth is expected to be 14-15 percent for the U.S in the year 2009. Twenty nine new medicines are expected to be introduced most of which will comprise of specialties including oncology for the treatment of melanoma and acute myeloid leukemia. In the U.S, there will be soon the end of Medicare Part D rhetoric as a result of pressures on price increase, patent expiries and increased safety measures taken by the FDA. The forecast says that shift will be in terms of absolute growth in cancer drugs, anti-diabetic drugs, angiotensin II antagonists, respiratory drugs and psychiatric drugs. In Diabetics treatment alone 9-10 growth is expected due to aging population and increase in type II diabetes. There will be introduction new and sustained release insulins. (IMS Health Incorporated 2008) Public interest activists always look Pharmaceutical companies with suspicion as if they are out to profiteer on drugs. In view of external forces uniquely against the pharmaceutical companies, they have to reinvent themselves to adapt to the new IP regime. Though the WTO's newly adopted measures seek to give greater guarantee to the R & D efforts of pharma manufactures in the developed countries which will affect countries like India who had been hitherto enjoying for more than 30 years by circumventing I.P. regulations by resorting to process patents instead of product patents by means of reverse engineering process legitimized by its Government, it will not give any corresponding benefits to original inventor pharma companies in the U.S. and other develop countries due to dilution I.P. rights for newer inventions for only short terms Existing literature only advocate manufactures to adapt to the new situations of lesser IP rights and there has been no study of the impact of pricing and patent control as dictated by economic forces. In a perfect competition market setting, there will be no governmental intervention. When there is Governmental intervention, profits will come down or in the case of no more possibility of profiteering, there will be Governmental subsidies to partly meet the cost of costly raw materials to make it affordable for the public. For example sugar is supplied at subsidized rates for drugs manufacturing. As a food product, it will be costlier than the price offered to pharma companies. But this will not be the case for bulk drugs as there can be no dual consumption possibilities. What then will determine the strength of Pharma companies to stay ahead by producing cheaper drugs as dictated by public policy concerns The Government sources say that use of generic drugs will save consumers an estimated $8 to $10 billion a year at retail points. The figure will be greater when consumed at the hospital levels. (FDA) Methodology This section is devoted to the measures adopted for finding out answers for the key questions of this proposed study. The key question being, how the pharma companies will face up to challenge posed by the price control on generics and as a result of most of their branded drugs going off patent shortly and the short term protection that will henceforth be available for newer discoveries in future. What economic forces will determine the companies' continued presence in the market And how far the artificial price control will be viable for the country's economic growth. Rather than increasing the income of its citizens, is the country's Government justified in forcing the burden on the companies under the pretext of profiteering. What if the profiteering part is removed and still there is outcry of exorbitant prices of drugs. Are the drugs companies really to blame These questions will be answered in the main study by what is known as qualitative research methodology. Studies are conducted by either the quantitative or qualitative research approaches. Creswell (1994) sets out five major assumptions that outline the distinctions between the two approaches. These assumptions relate to the researcher's role, the reporting of data, and the data collection and analysis methods employed. Table below outlines these differences. Table 1 Quantitative and Qualitative Paradigm Assumption. Source: Creswell (1994). The secondary data collected will be subject to the above qualitative assumptions. Secondary information and data will be the support base for this study which includes the following These are mainly discussed in literature review A review of the history and current situation of drugs pricing policies. Identification of current studies on the concepts of price control. Justification of the study of different aspects of price control. A few case studies Further the objects of this research will be achieved by secondary data supported by primary research methods originally found therein. This research will be mainly of qualitative character though quantitative surveys used to collect opinion will be involved. As it does not involve quantitative techniques along with qualitative techniques, it need not be called hybrid. Opinions variables record how respondents feel about being part of outsourcing. (Saunders et al. 2003). Conclusion The findings in the literature review throw much light on the impact of price control on generics though what has been seen is just a tip of an ice berg. Though it has been perceived from the study so far that generic pricing is not a bad proposition to address public policy concerns, the main study would go into detail about the economic theories underpinning the ability of pharmaceutical companies to re-emerge out of the generics crisis. Any economic activity would ultimately fail if it does not fall within the context of economic forces and theories. More efforts will be directed towards this end for justification or other wise of generics price control and alternatives available to the players. The main study will look into the aspects of competitive advantage, backward integration and application of Porter's five force theories which are not found in the existing literature. References Creswell, J. W. (1994) Research Design: Qualitative and Quantitative Approaches, USA: Sage Publications, Inc FDA,"Office of Generic Drugs", Accessed 29 March 2008 IMS Health Incorporated (2008) "IMS 2008 Global Pharmaceutical Market Forecast" accessed March 29, 2008 http://www.imshealth.com/web/home/0, 3153, 64576068_63872702, 00.html Saunders, M., Lewis, P. and Thornhill, A. (2003). 3rd. Research Methods for Business Students, Prentice Hall Rough Schedule 1 Proposal submission March 2008 2 Data collection April 2008 3 Data findings 15 May 2008 4 Conclusion and submission 31 May 2008 Read More