Factors Affecting Pharmaceutical Industry
Pharmaceutical industry is one of the industries that invest millions of money in research and development. It is an industry that focuses on finding ideal cures or treatments that are more effective to different ailments. With advancement in technology, the industry has been also largely dependent on modern health and pharmaceuticals for alternative surgery and maintenance therapy.
It is an industry that has helped many patients get quality drugs without necessarily visiting a hospital for treatment. However, there are many factors affecting pharmaceutical industry. The challenges facing the industry slow down its operations and affect it’s efficiently. This can be largely attributed to ever-changing market trends and generic segments. Below are some of the challenges faced by pharmaceutical companies.
Major factors affecting pharmaceutical industry
Research and development
With advanced technology, new treatment options have to researched and developed fully. This has become highly complex and specialized across different parts of the globe. The leading pharmaceuticals consortium expenditure in the industry according to Pharmaceutical Manufacturers Association is on research and development. Even so, it is imperative to note that the role of pharmaceutical industry has increased significantly and so have the risks. Patients and other consumers expect a lot more compared to the past. There is also competition from generic drug manufacturers which is quite stiff and stringent FDA requirements.
As a result, the ability of the industry to make profits and recoup on investments largely depends on how the research developments pull through to the approval stage. Drug companies are therefore expected to carry out many clinical trials on new drugs before they can be approved in the market. After the trials, they get about one year’s patent protection before other emerging competitors are given the right to manufacture similar or even high quality products at half their price.
The profits made by pharmaceutical industry largely depend on the level of government regulation. Every effective state and government regulates the industry to a certain level. Canada and Germany are some of the countries known to have price controls and caps on pharmaceuticals within their borders.
The USA and FDA are known to exert a high level of control on adverts by pharmaceutical industry. This is very true in regards to what the drugs are expected to do or what the medication claims to do. Complying with the regulations costs the companies millions of money every year.
Therefore, pharmaceutical companies must always comply with the regulations and by doing so; they spend a lot of money. This affects their profitability year in year out.
Consumer demand is also one of the factors affecting pharmaceutical industry. Over the past decades, the demand for lifestyle drugs by consumers has increased. There is high demand for drugs that enhance an individual’s general health and well being hence, growth of the industry.
It is worth to note that there are blockbuster medications and drugs such as Lipitor, Viagra and Claritin that have been heavily advertised online and other communication forms heavily increasing demand from clients. Educated patients on the other hand have prescriptions in the doctor’s office thus, increasing sales.
Managed care and insurers
Insurance and managed care price in the US is a free market system. This means that prices for most of the services in managed care and insurance industry are set by a free market system. However, individual health care companies and organizations including Medicare have formulas that include tiered therapy selections and at different prices.
Consumers therefore pay full prices in rare occasions for prescription drugs and most of them are paid for by third party insurers. This affects pharmaceutical industry in the sense that third party insures or payers often negotiate for lower prices for the medication. It depresses prices of drugs and lowers pharmaceutical industry profit margins significantly.
Other factors affecting pharmaceutical industry
Besides consumer demand and government regulations, there are other factors affecting pharmaceutical industry including
- Increasing demand from various stakeholders such as service providers and pharmacies
- Persistent and stringent regulatory hurdles
- Value chain affecting productivity and supply shortages in the research and development
- Economic crunch and
- Social factors such as lifestyle changes also affect pharmaceutical industry
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