What are the economic conditions in the main markets in which the corporation is operating?

A. The market structures

The market structures of the pharmaceutical industry are an interesting one. This is because the pharmaceutical market is vastly different from the IT market and the market modelling has been based largely on innovation. There are three aspects of the market structure of the pharmaceutical industry. The first of them being that this industry is strongly reliant on research and development and that which has undergone several radical technological changes. The second factor lies in the aspect that this industry is strongly based on science and science alone. This science base has influenced the course of the industry structure dramatically. More recently, the advent of a new science of molecular biology has had a significant impact on the market structure of the pharmaceutical industry. Thirdly, the pharmaceutical industry since the time it began has been based on the premise of institutional policies, patents and so on. Therefore, the examination of such a dynamic industry makes for an ideal examination of the economics of innovation by way of exploring scientific research in relation to market dynamics and innovation (Malerba & Orsenigo, 2001).

B. Factors affecting supply and demand conditions in the main markets

The main factors that affect the supply and demand conditions in the main markets include policies, productivity cycle, newer patents, reduced profits, early expiration of patented products, and the need for new and innovative products to reach the market. The mainstay issue however has been related to the productivity in the market that is categorised by investment in the research and development sector of the industry and sales which both form the opposing ends of the spectrum that is supply chain. A method with which it was shown to be overcome has been through expansion by way of mergers and acquisitions (M&A). However, a down trend in the productivity has still been consistently recorded. Besides these issues another influential factor on the gap that exists between the research, development and the eventual sales has been due to slower approvals of the FDA. Other factors pertaining to the same are paradigm shifts that have occurred in the regulatory process that now have allowed for fierce competition in the market by allowing for more generics to be sold (reduced patent timelines). A large emphasis has thus been placed on quality rather than quantity that again have immense implications on the current supply chain processes in the pharmaceutical industry presently (Sousa et al., 2011; Snapp & Rangarajan, 2015).

C. Technological factors

The pharmaceutical industry as aforementioned has undergone several technological advancements for better innovation. The technological factors however still hold an immense implication towards the market structure of this industry. There has been a significant advance made in the arena of technology that is fast being imbibed into all streams of business with no exception to the pharmaceuticals. This can be evidenced in the aspect that people nowadays are considering purchasing and research in medications online as opposed to solely relying on the pharmacists for the same. This shift in the trend is one instance that sheds light on the impact of the technological factors. Another instance of the same are the strides as taken in the field of molecular biology through such technological innovation that have not only altered the research and development sector of the industry but has also reshaped the entire market structure as a result making this the most prominent of technological factors affecting the industry presently (Floyd, 2008; Abdullah & Shamsher, 2011).

D. Government regulations

Before delving into the impact of the government regulation on the market structure it is important to understand the market structure as it was. The mainstream aspect in this respect pertains to the high expenditures of public health as perceived by the government. This led to more stringent regulations to lower such costs. This has been proven to be a method through which the costs of drugs have been lowered thereby also lowering the costs for public health. Studies however have demonstrated that these lowered costs are making it harder for the pharmaceutical companies to meet the rising costs for research and development. It has been estimated however that the average cost required to bring a new molecule into the market is around $1 billion. Furthermore, such regulations reduce the incentives for companies to invest in research and develop a new drug which in turn results in incurring large costs over the long term due to the lack of new drugs in the coming years and also the long stages of latency. This hence can have gross impact on the market structure as it stands (Eger & Mahlich, 2014; von der Schulenburg et al., 2011).

E. International dimensions

In the international context of the pharamceutical industry, it has been demmed that a some multinational companies presently form and dominate the market. For the year 2012, majority (66%) of the market was segregated into 20 large dominant pharmaceuticals (Evaluate Pharma, 2013). These countries are seen to be based in major developed countries such as the USA, Japan, or UK. A study in this respect has shown that about 50% of the molecules developed since 1950 have come from 15 of these 20 companies. The projected estimations however predict that the top pharmaceuticals may drop a point by the year 2018 due to the rise in fierce competition from the developing countries into the international market which again goes to alter the market.

F. Future conditions

Companies over the last few years have been consistently releasing new drugs onto the market which has led to the success of big firms in terms of turnover and profitability. The prediction however lies at the reduction in such profits mainly due to the rising costs for investments and low turnovers. Another reason for drying out in the future may be attributed to the expiration of several patents soon, which in turn is slowly giving way to generic drugs thereby largely cutting down the industry’s profits (Karamehic et al., 2013).

G. General macroeconomic factors

The macroeconomic factors of the pharmaceutical industry may be examined by way of examining the research and development, industry structure and the effects of regulation on the costs and prices, the utilisation of drugs and their availability. As for the research and development and the industry structure, biotechnological advances make the economic climate overall more feasible for the market however, the regulations as present in major markets globally may have the converse effect thereby lowering prices and driving costs up. The regulation that leads to an impact on the drug price also has an impact on the availability and the utilisation of the drugs. Furthermore, emerging competition is also a macroeconomic factor that affects the overall economic climate of the industry (Danzon, 2006).