Pharmaceutical Manufacture and Sale
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Industry Overview
About 1,500 companies in the US manufacture and market medicinal drugs, with combined annual US revenue over $200 billion. Large US manufacturers include Merck, Pfizer, Bristol-Myers Squibb, Abbott, and Eli Lilly. The industry is highly concentrated: the 50 largest companies control more than 80 percent of the market.
The traditional drug manufacturing industry increasingly overlaps with the biotechnology industry, which is a source of many new medical treatments. To a large extent, traditional drug manufacturers are becoming development and marketing companies that acquire new drugs from smaller research companies.
Competitive Landscape
The industry is marked by rapid advances in scientific knowledge that produce ever-more effective medicines. Profitability is determined mainly by the ability to discover new drugs. The industry is dominated by the large manufacturers/marketers that manufacture drugs, have large research operations, and also have large clinical testing, marketing, and distribution capabilities. Small companies are mainly research operations or manufacturers of non-prescription products. Because of the high value of the product, average revenue per employee is a very high $600,000.
Products, Operations & Technology
Drugs are chemicals with beneficial biological activity. Modern drug development is an outgrowth of recent research into the specific causes of illness and disease, coupled with advances in chemistry and industrial technology that allow scientists to manufacture chemicals to improve these conditions. The explosion of scientific knowledge about human biology in the past 40 years, and in particular, the discovery that the chemistry of proteins is involved in many illnesses and diseases, has provided a wide array of protein "targets" for drugs to act on.
R&D is the major activity of most drug companies. While some drugs can now be designed from the ground up to fulfill a specific biological function, drug development in most cases still involves testing a large number of chemicals "in vitro" (in a test tube) to see if they have biological activity. Many of these chemicals are derived from natural sources, especially plants. A company may test thousands of chemicals before finding a few that have the desired effect.
The entire drug development process may take many years (while patent protection is running down), with only a small percentage of candidate drugs surviving the testing and approval process. On average, the industry claims, discovering and developing a new drug takes ten to 15 years and costs $500 million.
Major areas of current research include the cardiovascular system (high blood pressure, high cholesterol); cancer; the endocrine system (diabetes, osteoporosis); the gastrointestinal system (ulcers); infections; and antidepressants.
The actual manufacture of drugs involves one of three major methods: synthesis (using well-known chemical reactions to build a drug from simpler components); extraction (using solvents to remove and purify a drug from a natural source); or biotechnology (such as gene-splicing to produce large quantities of drugs from bacterial fermentation, or the production of monoclonal antibodies using mouse or human cells). Small companies may use a contract manufacturer to produce their products.
Because large research budgets don't guarantee new products, many large companies supplement their own efforts by buying or licensing products from other companies. Companies often buy smaller ones that have a promising research program, to ensure a future stream of products.
