Decisions in the Generic Pharmaceutical

¶ … Decisions in the Generic Pharmaceutical Industry

In this study, author Fiona M. Scott Morton attempted to define the trends of market entry by generic pharmaceutical manufacturers after initial patents with the FDA by branded pharmaceutical companies have expired. Her attempt was not to describe the times and situations when companies should enter new generic markets -- the author repeatedly stresses that the available data did not allow her to draw any conclusions regarding the efficiency of market entry at different times -- but rather to describe the observed behavior of companies in the pharmaceutical industry. The period studied was from 1984 to 1994, and the author collected data from both the Food and Drug Administration and outside sources about company policy.

One suspects that her repeated mention about the unavailability of data due to the "institutional setting" reflects the extreme secrecy with which the branded companies especially tend to operate. It is unlikely that these companies would have shared information regarding strategy with Morton. Several managers of generic manufacturers responded to phone calls, however, and provided qualitative data regarding entry decisions and the considerations of competition, cost of manufacture, and profit potential that were a part of these decisions. The secrecy of the industry does not stop with the branded companies, however, and the generic companies are not immune to its forces, either. Like most businesses, the managers Morton spoke to believed that revealing certain information could reduce a company's competitiveness in a given area or overall. To illustrate this fact, Morton found only one instance in all of her research in which the entry of a company into a new generic market was announced.

Secrecy, this study finds, is a way of limiting the addition of more manufacturers to the market, which can lead to over-saturation and reduced profits. This was not the main finding, however. The study's focus was determining when generic pharmaceutical companies were likely to branch out into new markets via the manufacture of new drugs. The answer tended to be that companies entered markets with similar supply and demand levels as those of drugs already produced by the generic manufacturer. The study also interprets these results to mean that specialization based on supply capabilities is beneficial to all generic pharmaceutical manufacturing companies as it reduces the "overentering" (or over-saturation) of a market.

This was the bulk of what I learned from the article. Some of the other findings followed basic common sense -- markets with higher revenues, drugs that were purchased by hospitals more, and drugs that treated chronic conditions all received more market entries. This makes sense as these markets will increase the manufacturer's profits. I also learned -- though I should not have been so naive -- how big a role money plays in healthcare. Though there seem to be few alternatives, the current system does not seem to be set up to the patient's advantage.