Analysis of Manufacturing Costs in Pharmaceutical Companies

Abstract

In the pharmaceutical industry, costs attributed to manufacturing are a major part of a company's total expenses. In this paper, trends in various expense and income categories of pharmaceutical companies have been analyzed with particular emphasis on manufacturing costs to gain an insight into their relationships and how they may differ among types of pharmaceutical companies such as brand name, generics, and biotechs. The study includes data published in the annual reports of leading pharmaceutical companies from 1994 to 2005. Twenty-two pharmaceutical companies were selected based on the annual revenues. The set was further divided into three groups: brand names, generics, and biotechs. The analysis shows that, between 1994 and 2005, manufacturing costs (as a percentage of total sales) are different for the three groups of companies listed above. Additionally, each group of companies differs in how savings are leveraged strategically. The data on brand-name pharmaceutical companies also indicate that there is a strong correlation between the reduction of the cost of goods sold (COGS) and the increase in R&D expenditure. This suggests the validity of Vernon's theory that for brand-name companies, a reduction in COGS will likely have a positive impact on investments in R&D, presumably resulting in much needed innovations and future health benefits for the society.

Modeling of Particulate Processes for the Continuous Manufacture of Solid-Based Pharmaceutical Dosage Forms

“…Unfortunately this does not necessarily result in the most efficient or robust manufacturing processes. Under the current process development paradigm, manufacturing costs consume a large portion of revenue for many pharmaceutical companies, as much as 27% by some estimates [7]. In many cases more is spent on manufacturing than on research and development [6,7].…”

“…Under the current process development paradigm, manufacturing costs consume a large portion of revenue for many pharmaceutical companies, as much as 27% by some estimates [7]. In many cases more is spent on manufacturing than on research and development [6,7]. Insufficient process understanding and lack of robust process development can also result in variability in product quality [8].…”

Pharmacoeconomic Considerations in CNS Drug Development

“…Companies and investors must take substantial risks with large investments over extended periods to bring new drugs to market (Paul et al 2010 ;Basu et al 2008 ;Adams and Brantner 2006 ). The current intellectual property system in the USA, Europe, Japan, and many other countries provides a means for companies and investors to make a profi t commensurate with the risk and investment shouldered during drug development based on the value that an effective therapy brings to society during a short period of legally protected exclusivity.…”

“…The costs for GMP synthesis and validation of these components together with the expense of combining, purifying, formulating, packaging, and storing the fi nal drug product defi ne the cost of goods per unit of active pharmaceutical ingredient ( Fig. 13.4 ) (Basu et al 2008 ). Manufacturing, storage, and distribution costs (cost of goods) that are too high relative to the market-established value of a therapy can erode the capability of a developing company to make a profi t and justify the investment.…”

Improving Pharmaceutical Product Development and Manufacturing: Impact on Cost of Drug Development and Cost of Goods Sold of Pharmaceuticals

“…The results of a recent study conducted by Purdue University[28] on the COGS of the top few companies in each therapeutic area, as a percentage of sales, show great variation. According to this study, the total COGS for all pharmaceutical products manufactured globally in 2008 could be as much as $200 billion.…”