Pharmaceutical Industry

Last updated: 
2003

Pharmaceutical Industry: Sector Overview

 


Practicing the most stark acts of corporate inhumanity

Pharmaceutical Giants ‘There were times not long ago that drug companies were merely the size of nations. Now, after a frenzied two-year period of pharmaceutical mega-mergers, they are behemoths, which outweigh entire continents. The combined worth of the world’s top five drug companies is twice the combined GNP of all sub-Saharan Africa and their influence on the rules of world trade is many times stronger because they can bring their wealth to bear directly on the levers of western power.’ (Guardian, 26/06/2001)

The pharmaceutical industry is one of the most profitable industries in both the US and Great Britain. Gross Profit margins of some of the leading pharmaceutical companies in recent years has been around 70 to 80 percent [1].

The global drugs market is controlled by corporate behemoths such as Pfizer, Bristol-Myers Squibb, Bayer, Merck & Co, Pharmacia, Novartis, Johnson&Johnson, Abbott Laboratories, American Home Products, Eli Lilly, Schering-Plough, GlaxoSmithKline and Allergan. Their market domination enables them to dictate drug prices . In past years, pharmaceutical prices have risen faster than the rate of inflation. The fact that there is very little price elasticity (the elasticity of demand tells us how much the quantity demanded changes when the price changes) associated with price increases is a major factor contributing to the high profitability of the pharmaceutical industry. A patient will not change the demand for a product with a small change in price when there are no close or available substitutes. Actual manufacturing costs of medicines are relatively low [2].

The big pharmaceutical companies’ profits can be even higher due to limited competition in the pharmaceutical industry caused by strict patent laws [when a company owns a patent for a key drug, profits can mount up since the company faces no competition] and high barriers for small firms [new competitors] to enter the industry. In addition, through a recent and ongoing wave of mergers and acquisitions the big companies intensify the process of consolidation [limiting competition in the so-called free market even further]. Also, more frequently strategic alliances (less costly than mergers and acquisitions) are being formed with small biotech companies in order to reap the (new) economic benefits biotechnology offers. The drug giants cannot keep track of all new developments themselves, but want to keep their pipelines full [3].


References [1] www.activemedia-guide.com/pharmaceutical_industry.htm (Industry Analysis, Pharmaceuticals Industry, source: US Business Reporter, date viewed: 17/11/01)

[2] Ibidem

[3] Ibidem

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