Economics for Pharmaceutical Companies

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Table of Contents

Introduction
Prescription
Patents
Fixed costs
Insurance costs
Pharmaceutical research & Factors of Drug prescription
Change in Length of patent
Conclusion
Works Cited

Introduction

Pharmaceuticals are an industry that is doing well financially due to the patents and exclusive rights they enjoy due to their developments. They are a part of the economy that has grown technologically. Thus, joining up with other sectors ensures that their investment gets back to them. For example, the use of insurances PBMS (Getzen and Allen, 245).

Prescription

A prescription for a drug is a plan of care or a document containing the exact drugs required by the patient. The drugs are usually taken to a pharmacy from where one gets to purchase the prescribed drug. A prescription indicates the amounts to be taken, how, and when the drug should be taken, and possibly the side effects of the drug. When the drugs are restricted to the prescription status, the funds are shared among the retailer 20-25%, the pharmaceutical company 70-80% and the wholesaler gets 2-3% (Getzen and Allen, 246).

Patents

Patent rights granted to pharmaceutical companies protect their brand name. Patents allow the pharmaceutical company that comes up with the drug to be the only company selling it exclusively for a given period. This greatly benefits the pharmaceutical industries that have them. The industries can earn from patents since, for the period they are patented, they have no competitors. The patients who cannot afford the drug get to be oppressed while the wholesalers and retailers earn less (Getzen and Allen, 249).

Fixed costs

Fixed costs are important to pharmaceuticals since they do not change and they are very minimal. They allow these industries to gain huge profit margins as they easily influence their selling prices to earn great profits. The production costs do not change thus the pharmaceuticals can invest a considerable amount as this is fixed and it is guaranteed that they earn from it. Pharmaceutical companies need to invest a lot into marketing due to the high competition in this industry. With production costs being fixed, they can channel the other funds into marketing and attract customers for their products (Getzen and Allen, 254).

Insurance costs

Insurance companies handle the prescription costs through the use of Pharmacy Benefit Managers (PBMs). They are subcontractors chosen by the insurance companies to administer claims, develop benefit plans, and manage relationships with the pharmaceutical companies. They have no direct influence on what health professionals prescribe to their patients. However, they can indirectly influence through creating lists of preferred drugs, as well as making co-payments and pocketbooks (Getzen and Allen, 257).

Pharmaceutical research & Factors of Drug prescription

Most pharmaceutical research is done so that new development can be developed. The most costly aspect of pharmaceutical research is that the success or failure of a single product will mean the success or failure of the corporation. Pharmaceutical companies compete through intensive awareness creation of the drug, and the generic drugs have paved the way for incentives. They invest in the marketing of the drug, and the size of expenditure on marketing indicates the power and influence of physicians. Price is not an important factor when it comes to drugs or what doctors see. What matters is the quality, effectiveness, and detailing of the drug or doctor (Getzen and Allen, 259).

Change in Length of patent

If a change was enacted in the length of patents held by pharmaceutical companies, it will be positive for the patents to be made valid for a longer duration. In this case, it will be unprofitable if the duration is shortened. A long period will mean they exploit the market hence increasing their profit margins (Getzen and Allen, 261).

Conclusion

Pharmaceutical companies have long-term benefits from their association with insurance companies. They also benefit from the patents that protect them from the unnecessary competition. They ought to carry out fruitful research and developments to meet their consumers objectives. In this case, consumers want to get good quality, and effective drugs to either prevent or cure diseases.

Works Cited

Getzen, Thomas E, and Bruce Allen. Health Care Economics. Hoboken, NJ: Wiley, 2007. Print.

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