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Business context - Essay Example

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Pharmaceutical firms claim that they must charge very high prices for 'blockbuster' drugs because of the high cost of research and development and because they lose their monopoly rights within ten to fifteen years of commercial production commencing. Introduction Across the world, the pharmaceutical companies are feeling low due to tremendous growth in the operating as well as research & development costs of the firm…
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Download file to see previous pages The main philosophy of R&D is that the money invested today will fetch higher profits for the company in near future. It is a complex process with a structured framework. The steps of the process consist of “synthesis and extraction of new helpful molecules, biological screening & pharmacological testing and pharmaceutical dosage formulation with stability testing.” (Pharmaceutical R&D: Costs, Risks, and Rewards, 1993) This process of developing, testing and offering the drug to the market is time consuming and expensive. Due to these factors R&D cost is gradually increasing which is directly affecting the increment of new drug prices. This will be evident if we carefully notice the new drug prices, which are growing more rapidly than the inflation rate, whereas the prices of old drug show decrement. Global pharmaceutical market scenario is extremely complex; here the large public sector investments is in basic biomedical R&D that influences the private sector to intensively fund on new research and development programs. Here the demand for the drugs are also indirectly generated i.e. the doctors and the health insurances act here as mediators to initiate demand for the drugs by prescribing them. Recently apart from the growth in the R&D cost a new crisis also gained prominence in the pharmaceutical world and that is the patentability of drugs and health related innovations. The pharmaceutical companies pour in billions of dollars on the R&D of new products and without the Intellectual Property (IP) protection law the formulations of the drugs are simply being duplicated. These duplicate formulations are synthesized at much low cost and the company, which initially developed the formulation, loses huge amount of revenue. Due to this reason the pharmaceutical companies utilizes the IP Law to monopolize the production and marketing of these innovative drugs. Here this report will make an attempt to focus on the recent scenario of pharmaceutical sector regarding the causes of growing cost in R&D segment and the importance of the intellectual patent tenure alterations for maintaining monopoly of the pharmaceutical companies. (OTA, 1993; Wei, n.d., p.1)                                           Industry Overview on high R&D costs and Patent rights As mentioned earlier, the pharmaceutical companies annually endow billions of dollars in R&D. Recent studies reflect there is a staggering growth of expenses in R&D costs of the global pharmaceutical industry. Though R&D costs are tremendously increasing day-by-day, the pharmaceutical companies think of it as a necessary evil. It is because R&D cost enables the company to synthesize new formulations and helps to open new avenues of opportunity to generate greater profits. R&D costs vary widely between different drugs as this cost depends upon the type of formulation being developed. The factors influencing the R&D cost are the probability of success, the molecule base of the new drug or modification of an existing generic drug. Development of innovative drugs cost the most, a rough estimation reveals it generally amounts to more than $800 million (CBO, 2006. p.2); it also includes the cost of failed attempts. This estimate ...Download file to see next pagesRead More
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