Good Report About Prescription Drugs

Type of paper: Report

Topic: Drugs, Company, Business, Development, Medicine, Pharmacy, Market, Industry

Pages: 7

Words: 1925

Published: 2020/11/15

Executive Summary

The aim of this report is to present the findings of analysis of feasibility of prescription drugs in the medical industry. Along with a healthcare outlook, the report also highlights the business aspect of the industry in terms of research and development of new prescription drugs.
Any new product, launched in the market, faces with the challenge of overcoming barriers, and in case of the drug industry, the ability of an organization to spend on research and development is dependent on market conditions, existent legal, ethical and political conditions. These very same factors are mentioned in the report, which aims at identifying market implications for new prescription drugs. In the concluding section, the observations and factors identify the findings of the study.
1.0 Introduction
Innovation of new medicines especially prescription drugs is an important aspect in health care that helps in transforming and curing many diseases and chronic ailments in the recent years. These help increasing more survival among patients, and reducing hospital stays. This development and research of new prescription drugs are quite challenging where the chances of survival is extremely low. The research and development is a risky business for both the pharmaceutical companies and the patients since this requires spending a lot of money. These require extensive animal and human trials over a long period before introduced along with government rules, regulations, and strict ethical conditions before proving that the new drug is safe and manufactured using high quality standards . Drug development nowadays is a highly complex systemic process covering various aspects that restricts many companies in innovation.
2.0. Research and development costs in the pharmaceutical industry leads to evolution of less number of large firms globally
Discovery and development of new drugs is a very multifaceted, much costly, high risk and potentially highly worthwhile effort. Several big pharmaceutical companies literally have to burn cash to go through this difficult process of innovating new drugs. The public interests in pharmaceutical research and development (R&D) govern the relationship between the drug prices, drug firms’ costs and the speed and way of innovation . The complex economic forces that govern the process of drug discovery are not clear enough; even some of the basic financial facts about pharmaceutical industry have been subject to discuss that leads to many giant firms in developing new prescription drugs and operating globally.
2.1 Factors determining research and development costs of innovative new prescription drugs
Several factors determine the research and development costs of new innovative drugs require a major venture of investments, human resources and technical expertise. This also requires strict loyalty to rules on testing and industrialized standards before a new drug can be applicable in the universal population. All these involve to contribute in cost enhance for new chemical products, R&D, in ensuring the question that will pay for the new research and development ensuring high retail prices for the new drugs. Drug markets are much complex in various aspects, like large investments of public sector in basic biomedical research and development influences the preferences of the private companies in their areas of working and how frequently to invest in research and development. The usual return in private sector research and development are good but they vary significantly from one drug to another. The new drugs have to go through costly and time-consuming tests before sold in the market. This may cost hundreds of millions in developing new innovative drugs, and the price of the new drug do not has any obvious connection with the costs . The costs depends on the type of drug that is innovated, the probability of failure, if the drug is based on some particular molecule, which is not used before in any drug product in terms of new molecular entity or it is an incremental alteration of a previous drug.
3. Demand for prescription drugs differ from other products
Various types of insurances influence the demand for prescription drugs. Needs in the self-paid sector are less price flexible than other sectors. This identifies the efficacy of managed care inducement in changing prescription patterns towards less costly products and states the reality of an agency crisis between physicians and patients .
In the recent years, there is marked change in the prescription drug market because of the governmental inspection of the pharmaceutical market and the fast growth in managed care so the pharmaceutical companies’ faces blame of making large profits from elderly and sick people .
This leads to a significant trend in the market whereby the demand for prescription drugs is higher than other drugs. As a result, there are greater sales for prescription drugs and comparably lesser sales for others. It arrests the ability of other firms to spend on research and development of new drugs, which have an impact on the industry as well. Economically and legally, it creates a hurdle for new prescription drugs to develop in the market as compared to existing develop medicines.
3.1 Standard economic theory deals with costs, outputs, and adjusting theory to cope with actual circumstances in pharmaceutical industry
The standard economic theory of the law of supply and demand is one of the bases that govern an economy. This states that if the supply increases the prices will drop, or in vice versa, as the demand increases the price will increase. This is the most fundamental principle that most of the people follow in relation to goods and services associated with the requirements for those goods and services . The standard economic theory suggests that when the supply and demand are in poise it is in a balance state between the price and the quantity. The supply and the demand are not self-governing variables interacting with each other but they represent a symbiotic connection where one is dependent on other. Disturbance of one will automatically disrupt the other.
4. Economic theory applied to costs and profits in the prescription drugs market
The classical economic theory is applicable in determining the cost of a drug. Here the price charged by a corporation to its customers for a product relates to the total costs of investment and the normal profit. Critics in the pharmaceutical company states that the prices charged by these companies are unfair to the consumers since the profit margin here is excessive . The supporters of free market theory suggest that as long as the free of charge market decides the selling price, the price remains fair. In association to free market, there are two types of pricing models; one opportunity based pricing and the other is based risks. The risk based pricing ensures for the finance and market risks, which a company takes by pursuing an economic opportunity in a given market. The more risks taken by the company relates to higher probability of profit and lowers the risk, lower will be the profit. Both of these models are indifferent to the actual distribution of any product among the customers, making it unfeasible in theory , and for the pharmaceutical companies to implement any societal obligations towards cost sensitive patients by adjusting prices.
4.1 The risks associated with the research and development cycle
Various risks are associated in drug development in various stages such as preclinical research, clinical trials and obtaining regulatory market approval. Other factors include, cost, valuation and success rate . The preclinical trial ensures in emergence of new chemical entities though not much is known about the safety, toxic factors, pharmacokinetics and metabolism of this product in humans. This stage requires in assessing all these factors before human clinical trials ensuring the strict requirements of drug certifying authorities. The clinical phase includes a number of stages in determining healthy humans and determines safety, the dose and efficacy in large number of patients. The costs implemented in bringing a new drug relates to hundreds of millions and billions of money. These include the capital costs and the out of pocket costs, not described by the companies officially. This drug development relates in high erosion rates, huge capital expenditures, and much time consuming. This makes the project a challenging one for the companies where they have to cope with valuation. This also ensures in high failure rates where there is necessity for careful decision-making in developing new drugs .
5. Existence of patent protection makes a pharmaceutical firm a monopolist and how competition from other firms is immediately after the patent expires
The security of intellectual property rights forms the basis of R&D investment in the pharmaceutical industry. These rights in the structure of patents and trademarks are more significant in this industry than in any other industry. The patents on recommendation drugs are more effectual in means of building replication costs than patents in other products . The price of the patent security depends on the length of the era of individuality. Though the patent life is pre-set by global agreement of 20 years from the date on which the submission is filed but in practice, the effectual life of a patient is fewer than 20 years. The patents play a very significant role in inspiring and gratifying research and modernization in this industry.
5.1. Significance of legal protection through patents and the effect this has on the prescription drug market
Congressional interests in the accessibility of prescription drugs have alert the role of patents in drug industry. The ventures within this sector often attain patent fortification, implement patent rights, and reportedly place an elevated relative value on patents than do contestants in many other markets . The Drug Price Competition and Patent Term Restoration Act have made numerous major changes to the patent laws intended to promote modernism in this industry while make possible speedy opening of low cost generic drugs. This act gives the Food and Drug Administration with definite authorities to bid periods of promotion absolutely for a pharmaceutical sovereignty of the rights present by patents.
5.2. Ethical and market considerations involved in the prescription drugs
The ethics and market consideration involved in pharmaceutical sales has evolved from the ethics of the organization that relates to system acquiescence, liability and culture. In this industry, the success of the business depends on sales and marketing of each drug. The sales representatives are solely responsible to make sure that proper information regarding the benefits of the drug, the safety and the side effects reach the health care professionals to make them proper choices in prescribing drugs. This relates in considering ethical values while promoting the drugs to the physicians. The European Federation of Pharmaceutical Industries and Association direct there is corporate social responsibility of the pharmaceutical industry towards the society. In US, the Pharmaceutical Research and Manufacturers issued a set of guidelines that governs how the company representatives will interact with doctors, limiting gifts, restricting contracts offered to doctors and regulates interaction between representatives and health care providers.
5.3. Legal framework surrounding the testing, production and use of prescribed pharmaceuticals
Marketing for a prescription drug in US, needs approval from FDA. In order to obtain approval, the manufacturer have to state the safety and effectiveness of the drug in relation to the criteria specific in the guidelines and agency regulation so that the company has to pass inspection and approval of FDA in labeling a drug .Four stages lead to approval of a new drug. These include; investigational new drug application (IND), clinical trials, new drug application (NDA) and FDA review. The scientific and regulatory employees consider the applications and prepare written evaluations in several sectors such as chemistry, medical, pharmacology, and statistical, clinical, biopharmaceutics, review of risks and improvement, name of proprietary, brand name and tagging.
6. Difference between the cost structure of a typical pharmaceutical firm and the abstract firm in economic theory
Some of these studies identified that there may be arbitrage chances in an ideal capital market if the cost of the firm depends on its capital construction. This also accounts that if the depositor and the firms can have a loan at the same time and the depositor can counteract any capital structure choices the firm’s administration may take. This sounds hypothetically good but it is only applicable under ideal market conditions, which were not probable in the true world . This proposal corrects incorporating the outcome of tax on value and expenses of the principal firm. The new proposal contends that in the world of business tax, the worth of the firm depends on the difference of the debit level and the tax protects remuneration on interest expenditures. Some study argues that principal structure choices of firms with both business and personal taxes situations are irrelevant. The static trade off model declares that a firm’s best possible debit equity ratio reaches at the point when subsidiary current value of the tax on supplementary debit is equal to enhance in the current value of monetary suffering costs. Under this theory, three challenging forces drive a firm’s target force such as; taxes, costs of monetary distress and organization costs.
6.1 How the firms attempt to keep their business secrets and the ethics of their commercial operations
Industrial supervision is purely for business purposes. This account in lawful and ethical action of systemically collecting, scrutinizing and managing knowledge on industrial challengers becomes advantageous . These include activities like exploring newspapers articles, business publications, websites, copyright filling, particular database, and information at business shows to find out information in a company. These essentials are termed as Competitive Intelligence with its origin in marketplace research. The industrial surveillance forms in two ways, getting hold of intellectual possessions or seizure of proprietary or equipped information, such as business secrets, corruption, blackmail and technical surveillance .
6.2. Significant ethical concerns involved in the sale and use of medicines
Pharmacists who researches, develops, manufactures and people who are dependent to give guidance on drugs to all health experts and persons who promote drugs in the entire world. The pharmaceutical business is the most regulated business . This industry is mostly dependent on regulations of ethics in its daily practice. The national Board of Registration of Pharmacists internationally presents rules of professional behavior to make sure utmost degree of moral and honest practice by pharmacists. This makes sure that the customers are receiving maximum quality of medicinal product with guaranteed safety and effectiveness. This also implements a set of principles in the national curriculum of pharmacy, and mandatory to teach morals as a recognized course.
7.0. Conclusion
All the above study identifies the various complex aspects in development and research of new prescription drugs that restricts many large companies in developing new prescription drugs and from operating globally. The enormous costs and the strict rules and government regulations that they have to face sometimes may lead to enormous loss in their business. Several risks are associated with the research and development of new drugs. These involve in considering many factors such as the ethical concerns involved in sale and use of new medicines, whereas keeping their secrets while operating commercially, the legal frameworks that governs testing, production and use of new prescribed drugs. This also ensures strict loyalty to rules in testing and industrialized standards before a new drug is applicable in the universal population.

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