Introduction
The American pharmaceutical industry is among the most competitive industries where advertisements make a difference between competitors. The market share of each company in the industry helps researchers determine the Herfindahl-Hirschman Index. This index enables one to analyze the pharmaceutical industry accurately. There are over 100 pharmaceutical companies in USA, some of which are foreign based.
R&D expenditures for pharmaceutical companies
A comparison between the R&D expenditure of the pharmaceutical industry in the USA with other countries is represented in this graph.
The table below shows data for the past three years in of R&D expenditure of the top 4 firms as a percentage of sales.
The table below shows the percentage R&D costs of major companies between 2000 and 2004.
Top pharmaceutical firms
As at 2004, the top five pharmaceutical companies were;
As of May 2012, the top four pharmaceutical companies according to the fortune 500 ranking were Pfizer, Brystol Myers Squibb, AstraZeneca PLC and Glaxo SmithKline. These companies take up the largest markets share in the pharmaceutical industry. The companies’ market capitalizations as of 2012 are demonstrated in the table below;
Pfizer is the largest company in the industry and produces the widest variety of pharmaceuticals. As at 2000 December, it recorded $29.6 billion in revenues. Most pharmaceutical companies have invested huge sums of money in marketing their products. This has earned them a lot of revenue.
Annual sales
Since 2003, the sales and growth rates of prescription medicines have generally increased. The darker shade represents primary care sales while the lighter shade is for secondary/ hospital care sales.
Sales (in US$)
The next table shows the sales and growth of the top four pharmaceutical companies between 2002 and 2004.
Sales growth of U.S. pharmaceutical companies, 2002-2004 (in percentages)
The graph below shows the sales and revenues in the pharmaceutical industry
The American pharmaceutical industry has realized massive growth since the 1990s. Many kinds of drugs have been developed by various companies. To make these drugs popular, these companies have engaged in advertising, especially on the internet. The graph below represents the number of drugs that have been developed over the years since 2000.
The Herfindahl-Hirschman Index (HHI)
The top 4 companies in the pharmaceutical companies are; Pfizer, GlaxoSmithKline PLC, AstraZeneca PLC, Bristol-Myers Squibb Company. These companies constitute 70 percent of the total market share. To calculate the Herfindahl-Hirschman Index, there is a need to calculate the market share of each company. We use the average sales of each company over the last year to calculate the market share.
Pfizer: 176.06/499 * 100 = 35.3%
GlaxoSmithKline PLC: 71.99/499 * 100 = 14.3%
AstraZeneca PLC: 38.23/499 * 100 = 7.7%
Bristol-Myers Squibb Company: 63.02/499 * 100 = 12.6%
Formula of the HHI= f12 + f22 fN2
Therefore; 35.32 + 14.32 + 7.72 + 12.62 = 1668.63
The Herfindahl-Hirschman Index indicates that the market is moderately concentrated.
The Herfindahl-Hirschman Index is obtained after considering the total sales worldwide as shown.
WORLD PHARMACEUTICAL MARKET BREAKDOWN – 2011 SALES
Adopted from IMS MIDAS, 2012 (data relate to the 2011 audited market at ex-factory
Prices)
41.8%- North America (USA, Canada)
26.8%- Europe
12.0%- Japan
13.7%- Africa, Asia (excluding Japan) & Australia
5.7%- Latin America
Herfindahl data
The data in this table represents the average revenues, total sales and share of segments over a 10 year period between 2000 and 2004.
Below is a HHI graph showing the average HHI index of the American Pharmaceutical industry’s top firms and that of the Irish market between 1997 and 2008.
Conclusion
The pharmaceutical industry has evolved over the past 14 years. Both foreign and USA based companies have increased their research and drug development activities. The companies are ranked based on their market share and productivity in terms of successful drugs developed. When the industry includes foreign and local companies, the top four market holders include Pfizer, GlaxoSmithKline PLC, AstraZeneca PLC and Bristol-Myers Squibb Company.
Works Cited
Schweitzer, Stuart O. Pharmaceutical Economics and Policy. 2, illustrated. London: Oxford University Press, 2011.
U.S. International Trade Commission. Review of Global Competitiveness in the Pharmaceutical Industry. New York: DIANE Publishing, 2012.
