Profit of pharmaceutical company’s research and development

March 12, 2021
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Top Pharmaceutical company in Ambala

Pharmaceutical companies have often come under harsh criticism over the amount they charge, whether hiking prices on long-existing drugs, trying executive pay to drug prices, or making critical medicines difficult to afford by those who are dependent on them. Drugmakers blame high prices on the costs of research and development. It is true that research and development (R&D) is expensive, with companies typically spending more than they ultimately make in profits. Pharmaceutical manufacturers often argue that the steps to reduce the prices will eventually lead to less innovation in the future because it is not possible to spend on research and development when the revenues of a company are low.


US pharmaceutical industry has maintained its world leadership, principally because of its willingness to invest huge sums of money in research and development. A favorable public policy environment, a spirit of cooperation, and a collaborative relationship among industry, government, and academia on research projects are required for the pharmaceutical industry to grow and compete.

Economics of patent protection and pharmaceutical research and development

  • The pharmaceutical industry is often called a high-fixed low-cost marginal cost industry which means that the cost of bringing a new drug to the market is very and the process is risky, while the cost of producing an extra unit of a product that is on the market is frequently ‘’pennies a pill’’.
  • The research and development (R&D) risk is enormous in the pharma industry. Very less people understand that it takes an average of about 12 years and $230 million to develop a new drug but few people know that 7 of every 10 products that reach the marketplace never recover their average cost of development.

The fact that patents are granted and marketing exclusively for new drugs is established does not mean that there is no competition. Competition between the patented drugs that deal with the same medical conditions is common, but it is based on the clinical features of the drugs and to a more limited extent on price which is referred to as ‘’differentiated’’ product competition

Profitability and innovation

  • There are various evidences which are assembled regarding the relationship between profitability and innovation in the pharmaceutical industry. One major strand of evidence involves natural experiments regarding the industry responses to growth in the size of markets.
  • Innovation is measured in many different ways. Studies measure the number of clinical trials, research, and development spending or the number of new drugs launched; still, others attempt to measure the quality of new drugs launched.

Academic analyses

  1. Re-examine the way, the research is treated. Should it be a profit and loss expense or amortized as an asset? Knowing the answer will help in the financial measurements such as return on assets.
  2. The analyses should consider pricing, including the costs of research and launch prices fair to the patient and the innovating company.
  3. An adequate period of exclusivity for the innovative product is required.
  4. Need to factor in the impact of inflation on the cost of doing business and of future research.

The way forward

  • The sincere concern of rising health care costs is true but on the other hand, it indicates a poor understanding and simplistic analyses of the economics of the drug development process. It is imperative to reach a better understanding of the case for public policies that encourage medical research and innovation, which eventually will result in dramatic improvements in health, quality of life, and the economic well-being of our nation.
  • The pharma companies need to be aggressive in succeeding to the market forces in the search of new drugs which is becoming increasingly expensive. In addition to the rising research and development costs, and intensifying foreign and domestic competition, research-based drug companies face growing pressure in their pricing, profits, and patents.

Research and development (R&D) in Worldhealthcare Pharma

World healthcare pharma, a Top Pharmaceutical company in Ambala is committed to providing better health and lifestyle through quality products and innovation. It is thriving to become a global company with strong R&D.


Posted in Pharma Company Blogs by whcadmin