The pharmaceutical industry has two prevailing philosophies for competitive success. The first and most expensive philosophy is based on diligent research and development programs for designing new medicines. The second and equally valid philosophy is the bulk production philosophy employed by generic prescription pharmaceutical companies; while these companies did not design the drugs they produce themselves, lapsed patents allow any company to legally produce them. There is room for innovation in generic drug production, but developments in generic drug production focus on efficiency and cost effectiveness rather than designing new compounds.
Research and Development Pharmaceutical Strategy
Researching and developing new drugs is an incredibly costly affair that takes many years of hard work before a new medicine ever reaches market. What makes the research and development competitive strategy viable is the fact that after developing a new drug and testing its accuracy and safety, a pharmaceutical firm can then patent the drug, maintaining exclusive rights and selling doses for a significant profit. New drugs often require substantial advertising campaigns to find their market niche and may even find themselves competing directly with well-established drugs treating the same condition. For example, competition is extremely fierce in the market of simple headache and muscle pain pills, meaning that any newcomer has a difficult time establishing market share.
Generic Pharmaceutical Production Strategy
Pharmaceuticals are, at their most fundamental level, simply products of molecular chemistry. Often in chemistry, a chemist can take several approaches to arrive at the same end result. When it comes to generic production, companies who develop the most efficient processes of synthesizing medicinal chemical compounds stand to earn the greatest profits. For example, acetylsalicylic acid, a type of headache medicine, can be extracted either from willow bark or produced synthetically in the lab. Generic acetylsalicylic acid derived from willow bark may open up access to the pro-organic customer base. Alternatively, a company able to improve on the production method of acetylsalicylic acid in pill form may opt to significantly undercut the price of brand-name producers for the same product.
Developments in Pharmaceutical Patent Law
In 2011, a new law placed a hard cap on pharmaceutical patents in the United States at 12 years, nonrenewable. This is a significant change in the patent law regarding pharmaceuticals, since in past incarnations of the law, slight variations in essence allowed pharmaceutical companies to evergreen patents, perpetually renewing them. While some businesspeople consider this law unfair, the end result will be a large number of drugs opening up for generic production, assuming the law stands long enough to yield results.
Globalization heats up the competition in many industries, and pharmaceutical production is no exception. With the increased production capacities of countries such as China and India, American pharmaceutical firms face growing competition in the international medicinal drug business. As of 2011, Chinese and Indian pharmaceutical producers are stronger in terms of generic production rather than research and development based models, meaning that a lapse in U.S. patent law on various drugs may in fact see Chinese and Indian generic equivalents on pharmacy shelves.