Due to its increasing demand and globalization, the Brand Name Pharmaceutical Manufacturing in the United States will continue to be profitable despite competition from generic pharmaceuticals, barriers to innovation, and safety regulation.
An industry overview
Brand Name Pharmaceutical Manufacturing in the United States is one of the largest industries in the world today. This industry produces prescription and over-the-counter drugs as well as biologic products that are primarily intended for the treatment of human illnesses (Zhong). Its major products and services include other pharmaceutical preparations, biological products, oncological products, medicinal and botanical products, ...view middle of the document...
International contract laboratories have increased significantly in order to reduce costs, optimize speed and increase flexibility of research and development. For example Pfizer Global Biologics has been using contract organizations located abroad for analytical testing for more than five years. This strategy has allowed an increase in the total number of drug development projects Pfizer can manage at any one time (Turk). The number of clinical trials conducted overseas in countries like India is expected to surge to 8% of the worldwide total by 2016. Incentives for this include easier clinical trial recruitment, lower labor costs, a rich talent pool and tax incentives to drug makers (Turk).
Federal funding for Medicare and Medicaid as well as overall growth in the number of people with private insurance is expected to strongly increase making industry products more affordable for consumers who gain prescription drug coverage.
Demand for this industry’s products will also increase as the US population ages as older individuals have a higher chance of contracting illnesses and age-related diseases requiring prescription medications. More than 90% of seniors and 58% of all adults rely on prescription medicine on a regular basis (Turk). An aging population and healthcare reform’s broadening of insurance coverage will likely expand drug sales over the five years to 2018. Revenue of this industry will increase 2.0% per year on average to $182.5 billion, with revenue growth of 2.2% in 2014 (Turk).
Performance has been impeded by competition from generic pharmaceuticals, safety regulation, and barriers to innovation
Brand name and generic pharmaceutical companies are in direct competition. The annual growth of the generic pharmaceutical industry (7.3%) is three times as high as the annual growth of the brand name pharmaceutical industry (Zhong). Not helping this situation was the patent cliff of 2011 and 2012, which had a significant impact on brand name pharmaceutical, manufacturing. During this time patents expired for Lipitor, Plavix, Seroquel, Actos, Singular, and others (Turk). Generic pharmaceuticals were then able to sell their products at a significant discount. This has decreased operating profit and accounts for $140 billion of expected total sales lost from patent expiration from 2012 to 2017 (Zhong). According to the IMS Institute for Healthcare informatics, a generic drug will capture 60% of a brand name drug’s sales volume within six months of patent loss (Zhong).
Safety concerns and the related regulation of certain drugs have also had a significant impact on the profitability of this industry. In 2010, the Food and Drug Administration banned Darvon and other drugs containing dextropropoxyphene, a chemical substance used to...