Case study The global pharmaceutical industry Essay

Case study The global pharmaceutical industry - Essay Example However the wave of competition has caused shift in priorities, "many existing pharmaceutical compounds are standardized formulations that varies little in efficacy among manufacturers". The struggle for the differentiated product shall bring financial fortune to the agents of this industry, therefore major investment towards "advertising and sales force budgets have increased manifold in past years" (Sarah, 2004). As per research, less than 20 percent of the funds are allocated towards research and development expenditures. The investment towards research and development is further differentiated in terms of investment towards promising drug compounds in clinical human trials, which is less than 7 percent. The breakdown of the funds allocation is, "product introduction trials account for 5.8%; process development consumes 10% of research expenses' pre-clinical functions consumes 41%; extraction of chemical compounds for evaluation consumes 11.8%; and investment towards safety and toxicology consumes 5.4%". The new products consume more than 80% of expenditures of the research and development expenditures. The main environmental forces which has influenced the growth of this industry has been "expenditures towards research and development for each drug which typically last through a period of 10 to 15 years before a compound makes it to the market" (Michael, 2001). The approval from the relevant authorities essential for the public release of the product also dampens the growth of this industry; it takes more than 16 months for the specific product to get approved by the relevant authorities. The likelihood of clearances are also low, "only 1 in 5000 compounds will eventually be sold and less than one third of... It is expected that the pharmaceutical companies have the best potential to benefit from "aging population and increasing life expectancy rates throughout the world", the market for such products have expanded significantly, and it is predicted that by the end of current decade the concept of drugs for increase in life expectancy shall receive positive response in the poor countries of Asia and Africa, it this prediction comes out to be true than irrespective of the current wave of financial recession, this industry has positive scope towards financial development. It is known that the general understanding about health aspects is common in developed, developing and under-developing countries, therefore the sales of the pharmaceutical products shall not be confined to specific geography or class, and rather it is global business, having global outreach and market. As per research, "this business is attractive with operating profit margins exceeding 30% which is approximately twice th e S & P Industrial Index and net earnings as a percentage of sales averaging 17.9% versus 5.4% for general industry over the last 5 years". It is known that the running cost of this business is relatively lower than others; the business has "lower interest expenses, raw materials costs, tax rates and general and administrative cost as a percentage of sales when compared with most industries".