Pharmaceutical Economics

By Chressanthis, George | Business Economics, July 2008 | Go to article overview

Pharmaceutical Economics


Chressanthis, George, Business Economics


Much has been written in various issues of Business Economics over the years about the healthcare industry. Yet, and rather surprisingly, a lack of insight exists into the role economists play in shaping the direction and outcome of business research and policy decisions of a very important part of the healthcare industry--the pharmaceutical industry.

The main skills sought after by drug companies are in the science and manufacturing operations areas. Drug discovery and research and development (R&D) will always represent the life-blood of a pharmaceutical company. The role of scientists to ensure a steady pipeline of novel therapies that address unmet patient needs and manufacturing operations to produce those drugs will always be critical. However, with growing economic challenges facing the industry, more efforts are being placed on novel ways that these new drugs can be commercialized in the marketplace. Thus, the technical skills of an economist are needed more than ever to address the growing challenges faced by individual companies and the industry. Whether operating within a pharmaceutical company or as a consultant to the industry, these skills must be combined with expert communication and leadership capabilities. But to convince the reader, I need to address the questions you may have.

Why Work in the Pharmaceutical Industry?

The drug industry is ultimately about serving the needs of patients. Spending on pharmaceuticals represents around 11 percent of total healthcare spending, which in turn is over 14 percent of gross domestic product (GDP) and rising. Long-term demographic trends favor the industry with an increasing portion of the population reaching retirement age, implying disproportionate spending on healthcare and drugs. Moreover, due to the passage of Medicare Part D, which now provides a drug benefit to seniors within Medicare, the larger group of baby-boomers reaching retirement age will increase the demand for novel and effective therapies that prolong a productive life.

Numerous academic studies show the value of pharmaceuticals on the quality and quantity of life and, in turn, social efficiency. Also, early identification and intervention of appropriate pharmaceutical care across a wide range of therapy areas such as cardiovascular, central nervous system, oncology, respiratory, and gastrointestinal diseases can greatly reduce medical costs to treat patients. Non-intervention or delays in treating such conditions both worsen disease severity and require more invasive procedures and costly hospitalization. In short, the drugs produced by the pharmaceutical industry generate significant positive externality benefits to society. Thus, for those people looking to make a difference in the lives of people, there are few industries that can compare to the pharmaceutical industry.

The challenges that the pharmaceutical industry faces would interest an economist having both the skills and insights to investigate and solve the following issues:

* Economic analysis needed to inform decision makers on the portfolio asset allocation of R&D investments is becoming more and more critical. Drug discovery and R&D costs are increasing, as investments in drug pipelines require ever greater resources to generate differentiable and novel approaches to treat diseases. Current estimates are that, on average, it takes about 13 years and $932 million of development costs to bring a new chemical entity to market. This cost estimate does not include sales and marketing costs to commercialize the product once launched.

* An economist will be challenged to find a solution to the relentless pressure to reduce drug costs and improve the efficacy of new drug therapies for people in every country. Accessibility to drug medications is a key public policy issue across the globe. For example, regulation of drug pricing (especially in Europe), drug importation, and public reimbursement plans weigh heavily in favor of generics over branded pharmaceuticals. …

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