MANAGERIAL ECONOMICS

Managerial Economics

Managerial Economics

The pharmaceutical industry consists of organizations that are involved in producing, manufacturing and processing medical elements into ready for use pharmaceuticals, which are used for humans and animals. The sub sector of the pharmaceutical industry is made up of brand name drugs, generic and over-the-counter products. The pharmaceutical industry is considered to be one of the world's most profitable and fastest growing sectors of the global economy. In fact, “ the pharmaceutical industry ranks as number one in the world in terms of return on assets, return on revenues and number three in terms of return on equity among Fortune 500 companies” ( industry analysis section, para. 2). “ In 2005 global pharmaceutical sales grew 7% at constant exchange rates( ex-manufacturer prices) to $565 billion- slightly slower than 8% growth delivered in 2004, when sales reached $ 518 billion ( audited markets only; audited and unaudited markets combined has sales of $ 602 billion in 2005), according to data from IMS Health” ( Diller, 2006).

“The market research and consulting firm, notes that the industry decelerated in 2005 and will continue to do so through 2010. It still will grow- just not as fast as it has since 1995” ( Diller, 2006). Despite the fact that the overall industry's sales are slowing down, the United States is leading the world market. In 2001, U.S. sales were equal to $ 148 billion and by 2006; the sales are expected to reach $ 194 billion. The leading U.S. pharmaceutical companies are Merck & Co, Bristol-Myers Squibb, Pfizer, Wyeth (formerly known as American Home Products), Eli Lilly, Johnson & Johnson and Abbott Labs. As of 2005, the five leading companies in terms of global sales were Pfizer with sales of $ 47.5 billion, GlaxoSmithKline with sales of $34.7 billion, Sanofi-Aventis with sales of $30 billion, Novartis with sales of $ 28.5 billion, Johnson & Johnson with sales of $ 25.3 billion and Merck and Abbott Labs were ranked among the last out of the 2005 top global 10 companies. Taking a look at the national market, the top five in 2005 were Pfizer with $ 27.2 billion sales, GlaxoSmithKline with $ 19.9 billion sales, Johnson& Johnson with $16.0 billion sales, Merck with $15.2 billion sales, Astra Zeneca with $12.9 billion sales and Bristol-Myers Squibb was ranked on the 10th last place.

Past market forces

The competition in the pharmaceutical industry tends to be very strong. Rivalry among competitive sellers has increased dramatically, especially among the key players in the industry.

….. “Standardized formulations of drug compounds have increased price competition in categories such as the hypertensive and coronary care market. Differentiation strategies have been focused on alternative use research for drug formulations in an effort to increase the product life of individual pharmaceutical products and extend their use to treatment of other diseases. Niche market concentrations have been used to provide higher return by some competitors but the majority of manufactures have an extensive assortment of products to offer ...