Pharmaceutical Industry Overview - Trends
Since the mid-90’s the industry has been undergoing a consolidation period. Mergers involving many large and medium size companies have been common in this period. The success of the stock market has madelarge amounts of capital available at reasonable ratesfor borrowing or for raising equity. The companies involved in the mergers are biotech companies, who develop products based on living cells. Also involved are companies who have developed new technology in unlocking the genetic makeup of humans.
Many foreign companies have been entering the United States market because of its uncontrolled pricing structure, rapid approval processes, private and public insurance reimbursement policies and government support for basic research. Additionally, the industry enjoys many tax benefits not available in other countries, although the benefits are narrowing.
The tax benefits include Research & Experiment Credit for research conducted in the United States, the IRC 936 Puerto Rican Tax Credit for possession companies, Orphan Drug Credit for illnesses afflicting two hundred thousand or less patients. Benefits of relocation to the United States include the ability to advertise to both the medical community and direct to consumers in an effort to increase awareness and consumption.
The restructuring of the United States’ Food and Drug Administration has had a tremendous impact in the ability of companies to bring drugs to market quickly. A tremendous lobbying effort on the part of the drug industry has resulted in the reduction of the average approval time for new drugs from two or three years to one year or less. A prime example of the quick approval process was the 42-day approval of reverse transcription drugs for HIV that stems the progression of the virus. More than half of the new drugs approved in the United States in 1998 were the first approval anywhere.
Another segment of the industry that has enjoyed the changes has been the generic pharmaceutical industry. This segment may manufacture drugs based on the original product once the patent on the original chemical entity expires. The generic industry does not have to conduct the expensive clinical trials performed by innovator companies. Clinical trials are performed in order to prove a drug is safe and effective for the illness they wish to treat. Not having to conduct clinical trials has substantially reduced the cost of bringing a product to market.
The last segment of the pharmaceutical industry, which resulted from the early 90’s downsizing, is the Clinical Research Organization (CRO’s) segment. These companies are primarily involved in the clinical trial, which shows the effectiveness of the drug. Clinical trials are quite large, often involving 3,000 or more patients who volunteer to test the product. These companies are contracted by innovator companies who pay them on a per patient basis to conduct the trials. All the data belongs to the drug company that pays for the trial. The trial results must be statistically valid.