Budget Airline

Topics: Pharmaceutical industry, Generic drug, Drug development Pages: 7 (2277 words) Published: June 7, 2010
Question 1

A patent entitles the inventor of a new product to prevent others from selling, manufacturing, making, marketing or importing the patented product for a limited period of time. This can provide the patent holder with a monopoly position in the market for that product, which allows them to charge a higher price and achieve their expected returns (both tangible and intangible). Pharmaceutical companies used this strategy to maintain their market competitiveness and guarantee the returns on the investment on research and development of their products. The patent law and policy also protect and encourage manufacturing companies to invest in the research and development of new products that ultimately will benefit the end users.

The enforcement of patent law in the pharmaceutical industry is particularly important. A recent report by Ernst and Young LLP found that for every drug that is able to pass the entire test and acquire the certification to launch to the market, on average, it costs $500 million.

The pharmaceutical companies invest a lot of money in R&D and technological areas to develop new drugs. Without these initiatives, most of the new drugs on the market will not exist and from that people will suffer from disease. The system of granting patents is important for drug companies to generate profits to do research to launch new drugs on the market. The profit gained from selling the patented drugs will support the funding for developing new prescriptions. If the patent is about to expire, the drug manufacturer will adjust the pricing, sales and marketing strategies to cope with the changes in external environment. This will normally enable more customers to buy the drug at a lower price. The patent law prohibits the stealing of ideas and formula of the inventors and at the same time encourages the competitors to steer their R&D in other drugs. Under ideal situation, this will create a fair competitive market that allows a healthy development in the pharmaceutical industry.

Currently, the pharmaceutical industry faces a significant threat from generics companies who challenge existing patents and erode branded product sales. On average, branded drugs lose 15-30% of their market share when a first generic version reaches the market. Sales decline by as much as 75-90% when companies introduce subsequent generics. If the situation continues, this will slow down the initiative of the pharmaceutical company to invest in R&D and the development of new drugs. Pharmaceutical industry will face tough competition and create price war among the different brands. In short term, end users may purchase their prescriptions at a lower price at the expense of quality or service. In long term, it may discourage the development of new effective drugs and affect the profitability of the drug companies. At the end, drug company will withdraw from the industry and jobs within the pharmaceutical field will declined, people will lost their interest and motivation towards the job and eventually the market will lack of professionals in these areas and people will suffer from newly diseases.

Question 2

The pharmaceutical industry is caught between the need to provide support to urgent medical needs in developing countries and the price war has already started. The South Africa government has already authorized parallel importing and compulsory licensing, this will threaten the pharmaceutical company’s ability to continue new drug development and hence its existence. To set a pricing policy, pharmaceutical should consider the factors their will influence on their pricing first and then determine the pricing objectives.

As the price war has already begun in South Africa, therefore the pharmaceutical companies need to set a price that will cover the costs and allow them to continue operations. Mercks mission statement; ‘The mission of Merck is to provide society with superior products and services by developing...
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