PHARMACEUTICAL BUSINESS OVERVIEW

The pharmaceutical companies in their nascent times were always categorized by high profits and as an attractive sector for investors with outperforming stocks. The companies generated high revenues from the sale of innovative drugs against which it acquired patents and thus had to face monopolistic competition. United States and Western Europe were the hubs of leading pharmaceutical companies providing majority of their revenues and profits. The pharmaceutical industry grew at an average of approx 11% year on year due to the following factors.

• Increased demand due to increasing population of aged people
• Development of innovative and patent protected drugs
• Rise of biotechnology

CHANGING PHASE OF PHARMACEUTICAL INDUSTRY

But however in the most recent years, the image of pharmaceutical sector has undergone tremendous change. They have become laggards from being financial leaders. The sector which gave contribution of approx 20% in 1980-2000, posted consolidated negative earnings in the most recent years. This turnaround in the pharmaceutical sectors has been mainly because of these reasons.

• The long profitable heritage has led to low level of check on internal efficiencies with respect to efficient use of capital.
• Most of the blockbuster drugs protected by patents which generated high revenue became vulnerable to expiring patents. Globally patents expiring in 2007 exposed $67.8 billion dollar to generic erosion
• The most important factor for low margins has been the declining productivity in its core operations i.e. sales marketing and research and development

The pharmaceutical companies have responded to these challenges by mostly increasing their sales marketing expenditure, extensive research and development in order to bring new products in the market, and consolidating through mergers and acquisition in order to benefit from synergies in research and development and sales marketing. But however all these measures are considered to be short term solutions and do not provide long term solution to the challenges faced by the industry.