Pharmaceuticals Manufacture
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Industry Overview
The US pharmaceuticals manufacture industry includes about 1,500 companies with combined annual revenue of more than $200 billion. Major companies include Abbott, Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, and Pfizer. The industry is highly concentrated: the 50 largest companies account for more than 80 percent of revenue.
Competitive Landscape
Demand for pharmaceutical manufacture is driven by the desire to cure illness and disease. The profitability of individual companies depends on their ability to discover and market new drugs. Large companies benefit from their economies of scale in research, manufacturing, and marketing. Small companies can compete effectively by specializing in drugs that target one or two specific ailments. The industry is capital-intensive: average annual revenue per worker is about $700,000.
The pharmaceutical manufacture industry is marked by rapid advances in scientific knowledge that produce ever-more effective medicines. 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.
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 pharmaceutical industry has about 2,700 compounds in various stages of development.
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 10 to 15 years and can cost more than $1 billion.
Major areas of research include the cardiovascular system (high blood pressure, high cholesterol); cancer; the endocrine system (diabetes, osteoporosis); the gastrointestinal system (ulcers); HIV/AIDS; neurological disorders (Alzheimer's and Parkinson's disease); arthritis; 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. Some large companies manufacture over-the-counter (OTC) medications, dietary supplements, or personal care products in addition to patent drugs. Offering a more diverse product line can often mitigate potential cash flow issues that can stem from patent drug development costs. Joint research is also becoming more common as the cost of research increases.
