Question2: Give a brief description of the pharmaceutical industry ?


Pharmaceutical industry:

An Introduction:

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. Their focus is to research, develop, market and/or distribute drugs, mostly in the context of healthcare. They can deal in generic and/or in brand medications. They are subject to a variety of laws and regulations regarding the patenting, testing and marketing of drugs.


The earliest drugstores date back to the Middle Ages. The first known drugstore was opened by Arabian pharmacists in Baghdad in 754,  and many more soon began operating throughout themedieval Islamic world and eventually medieval Europe. By the 19th century, many of the drug stores in Europe and North America had eventually developed into larger pharmaceutical companies.

Most of today’s major pharmaceutical companies were founded in the late 19th and early 20th centuries. Key discoveries of the 1920s and 1930s, such as insulin and penicillin, became mass-manufactured and distributed. Switzerland , Germany and Italy had particularly strong industries, with  UK , US, Belgium and the Netherlands following suit.

Numerous new drugs were developed during the 1950s and mass-produced and marketed through the 1960s. These included the first oral contraceptive, “The Pill”, Cortisone, blood-pressure drugs and other heart medications. MAO Inhibitors, chlorpromazine (Thorazine), Haldol (Haloperidol) and the tranquilizers ushered in the age of psychiatric medication. Valium (diazepam), discovered in 1960, was marketed from 1963 and rapidly became the most prescribed drug in history, prior to controversy over dependency and habituation. Attempts were made to increase regulation and to limit financial links companies and prescribing physicians, including by the relatively new US FDA. Such calls increased in the 1960s after the thalidomide tragedy came to light, in which the use of a new tranquilizer in pregnant women caused severe birth defects.

In 1964, the World Medical Association issued its Declaration of Helsinki, which set standards for clinical research and demanded that subjects give their informed consent before enrolling in an experiment. Phamaceutical companies became required to prove efficacy in clinical trials before marketing drugs. Cancer drugs were a feature of the 1970s. From 1978, India took over as the primary center of pharmaceutical production without patent protection.

A new business atmosphere became institutionalized in the 1990s, characterized by mergers and takeovers, and by a dramatic increase in the use of contract research organizations for clinical development and even for basic R&D. There are now more than 200 major pharmaceutical companies, jointly said to be more profitable than almost any other industry

Industry Revenues:

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 .

Market leaders in terms of sales

The top ten pharmaceutical companies by 2007 sales are:



Sales ($m)

Growth (%)

Market Share (%)

Based/Headquartered in

1 Pfizer 45,983 1.8 7.3 US
2 GlaxoSmithKline 37,034 9.7 5.9 UK
3 Sanofi-Aventis 35,638 5.0 5.7 France
4 Novartis 28,880 18.0 4.6 Switzerland
5 Hoffmann–La Roche 26,596 21.8 4.2 Switzerland
6 AstraZeneca 25,741 10.5 4.1 UK/Sweden
7 Johnson & Johnson 23,267 4.2 3.7 US
8 Merck & Co. 22,636 2.8 3.6 US
9 Wyeth 15,683 2.4 2.5 US
10 Eli Lilly and Company 14,814 7.5 2.4 US

The cost of innovation

Drug discovery and development is very expensive; of all compounds investigated for use in humans only a small fraction are eventually approved in most nations by government appointed medical institutions or boards, who have to approve new drugs before they can be marketed in those countries. Each year, only about 25 truly novel drugs (New chemical entities) are approved for marketing. This approval comes only after heavy investment in pre-clinical development and clinical trials, as well as a commitment to ongoing safety monitoring. Drugs which fail part-way through this process often incur large costs, while generating no revenue in return. If the cost of these failed drugs is taken into account, the cost of developing a successful new drug (New chemical entityor NCE), has been estimated at about 1 billion USD[4](not including marketing expenses). A study by the consulting firm Bain & Company reported that the cost for discovering, developing and launching (which factored in marketing and other business expenses) a new drug (along with the prospective drugs that fail) rose over a five year period to nearly $1.7 billion in 2003. The consumer advocacy group Public Citizen suggests on its web site that the actual cost is under $200 million, about 29% of which is spent on FDA-required clinical trials. Calculations and claims in this area are controversial because of the implications for regulation and subsidization of the industry through federally funded research grants.

Regulatory authorities:

         European Medicines Agency (EMEA)

         Food and Drug Administration (FDA)

         Ministry of Health, Labour and Welfare (Japan)

         Medicines and Healthcare products Regulatory Agency (MHRA)

         Central Drugs Standards Control Organisation(India) CDSCO

The Future:

Pharmaceuticals will have an increasingly prominent role in the health care of the future. The health of our citizens depends on the availability of safe, effective and affordable medicines. In the future, pharmaceutical manufacturing will need to employ innovation, cutting edge scientific and engineering knowledge, and the best principles of quality management to respond to the challenges of new discoveries and ways of doing business such as individualized therapies or genetically tailored treatments. Regulation of the future will also need to meet these challenges, by incorporating new scientific information into regulatory standards and policies.

According to the futurologists, several changes will take place. The new pharmaceutical industry model must:

1. Shift from chemical-based small molecules to biological-based large molecules (proteins, antibodies
2. Put clear emphasis on early validation of targets
3. Provide better disease segmentation to understand differences among patients resulting in developing drugs targeting sub-populations with specific disease states
4. Create drugs with disease modifying rather than symptom modifying impact
5. Shift to a more holistic service; rather than drugs only, providing diagnosis, treatment, monitoring and patient support.

Pharmaceutical manufacturing is evolving from an art form to one that is now science and engineering based. Effectively using this knowledge in regulatory decisions in establishing specifications and evaluating manufacturing processes can substantially improve the efficiency of both manufacturing and regulatory processes.

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