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Pharmaceutical Drugs and Drug Companies

In: Business and Management

Submitted By ngaevo
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It depends on how you look at it, some people conceder drug companies to be monopolistically competitive but I think it is an oligopoly. Oligopoly is a market structure with significant barriers of entry and exit, many consumers and few firms. With a close look of the drug business you will realize that is it has all the characteristics of an oligopoly started above. Because of the fewer number of firms there is always the tendency of collision, secondly in a relatively un-concentrated market barriers to entry and may simply reflect high operating cost. The high cost of getting this product to the market include clinical trials, patent approval and FDA approval; industry-financed studies claimed $114 million 1987, later went up to $231 million, $403 million, and then $2.1 billion in 2006 for FDA approval, patent approval and clinical trials. Oligopolies in most cases tend to go multinational which is largely associated with todays’ drug companies.
In terms of research and development, I will say it is the backbone of the pharmaceutical industry which makes it very important. I will want to focus on Pfizer one of the big names in this industry. Pfizer’s Global Research and Development is probably the group that the company takes the most pride in for obvious reasons. If we take a broader look at R&D we will see the role and importance of Contract Research Organizations (CROs). CROs account for about 20 percent of drug companies' traditional development business, according to Graham Hughes, a founder and scientific director of Technomark Consulting Services, a London-based firm that has specialized in CROs since 1987. The majority of the CROs' work is in managing Phase I to IV clinical trials, and CROs carry out between 20 and 25 percent of this function a cross the industry—though others put the number for CRO clinical trial management at between 40 and 50 percent. There are roughly 1300 CROs worldwide. About 20 of them have sales exceeding $50 million annually, and for some, revenues exceed $500 million, giving them R&D departments comparable to or larger than those of many of their sponsors, says Mr. Hughes. The global market for CROs is estimated at $8.5 billion according to Arthur D. Little (ADL) and Associates, a Cambridge, Mass.-based consultancy. Of this total, clinical work accounts for $5 billion. Research, including biotech research alliances, accounts for $1.5 billion. Clinical manufacturing controls account for $1.5 billion, and regulatory services, pharmacology and toxicology, represent roughly $800 million. With all this billions of dollars spent on R&B you will never under-state the importance. Researchers have produced breakthroughs in research areas, including HIV infection, hypertension, depression, high cholesterol and many more. The movement from patent drug to a generic drug always have effect on the market. Since prices of generic drugs cost less, there will be a decline in demand for patent drugs, and it may ultimately tend to drive down the cost for the patent brand. In this type of market structure strategic behavior is very important.

References
Naude, A. (1999). Contract Research Organizations Grow from the Core. Chemical Market Reporter, 256(7), fr17.

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