The Drug Industry Essay, Research Paper
The main focus of this article lies upon the battle between the drug industry’s three main drug producers on the market. Initially, Warner-Lambert and American Home Products have inked a $72 billion deal to form the world’s largest pharmaceutical company, producing everything form Advil to Zantac. However, another company, Pfizer, entered the picture, when it offered an $80 billion bid for Warner-Lambert. According to the article, the pharmaceutical business has never been healthier. The $335 billion global industry is growing smartly at 8 percent a year, and aging baby boomers will send those numbers higher. However, there are some troubling trends like the managed care’s squeeze on the profits, gains larger than the cost of production, and proposals to expand Medicare to cover prescription drugs. Also as companies spend more and more money creating such blockbusters as Viagra, they need larger budgets to absorb larger risks. Pfizer wants to merge with Warner-Lambert, mainly, because it wants the hot new cholesterol-fighting drug, for which Pfizer is already getting a share. However, if the initial deal is successful, then the Warner-American deal may imperil its share.
Obviously, the pharmaceutical business is quite lucrative right now, because a large economic growth is occurring, because after deflating, or subtracting the inflation from the profit, the real income is higher than that of the year before, thus bringing profit. One of the reasons why the pharmaceutical business is experiencing such excellent results is because it has great advertising attracting the consumer and convincing him that the product offered is the ultimate cure for whatever seems to be the problem. Obviously, the research has been conducted and the producers are aware of what seems to be the current problem of the consumer. In the American society, obesity still stands as the most daunting dilemma, therefore, such drugs as Liptor, the cholesterol-fighter will become sources of profit. However, as long as there are three pharmaceutical companies, none of them will be enjoying the maximum profit or economic growth, for the consumer demand, the consumer’s willingness to purchase a give product, will be split into three parts. Consequently, a merger between two companies will bring in larger profits to Warner-Lambert, as well as it will provide a larger budget desired for creating of new blockbusters. However, such merger will also bring doom to the third company, for it won’t have the resources to compete against the newly founded giant, as it will become the main force in setting the prices for products (please refer to graph #1). In fear, of being bumped out of the game, Pfizer sees paying the $80 billion as a lesser opportunity cost (the cost of the next best alternative) in comparison to the cost of the profits it might gain as a major player in the battle. If Pfizer drops out, it may just as well result in a monopoly of the pharmaceutical business. This would be great if looking at the supply side of the market, for the companies will have an increased power over the consumer demand. The latter not having a selections will be forced to pay higher prices, whereas in competition it would have a choice, thus the companies will prosper. From a consumer’s perspective the merger may have positive and negative results. On one, hand the product offered may be improved as the company’s budget increases. Yet, this must be placed against the opportunity cost of losing the selection.