Journal of Pharmaceutical Innovation

, Volume 3, Issue 1, pp 30–40

Analysis of Manufacturing Costs in Pharmaceutical Companies

  • Prabir Basu
  • Girish Joglekar
  • Saket Rai
  • Pradeep Suresh
  • John Vernon
Perspective

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.

Keywords

COGS Pharmaceutical manufacturing 

References

  1. 1.
    Reinhardt UE. Perspectives on the pharmaceutical industry. Health Aff. 2001;20(5):1363–70.CrossRefGoogle Scholar
  2. 2.
    Kaiser Family Foundation Report, September 2007.Google Scholar
  3. 3.
    Suresh P, Basu PK. Improving pharmaceutical product development and manufacturing: impact on cost of drug development and cost of goods sold of pharmaceuticals. Pharmaceutical Technology & Education Center, Purdue University, February 2006.Google Scholar
  4. 4.
    PhRMA Report. What goes into the cost of a prescription drug? 2006.Google Scholar
  5. 5.
    Abboud L, Hensley S. Factory shift: new prescription for drug makers. The Wall Street Journal 2003;September 3.Google Scholar
  6. 6.
    IMS. Global pharmaceutical market forecast. 2008.Google Scholar
  7. 7.
    Vernon JA, Keener HW, Trujillo AJ. Pharmaceutical manufacturing efficiency, drug prices, and public health: examining the casual links. Drug Inf J. 2007;41:229–39.Google Scholar
  8. 8.
    Wharton Research Data Services (WRDS). Compustat. http://wrds.wharton.upenn.edu/.

Copyright information

© International Society for Pharmaceutical Engineering 2008

Authors and Affiliations

  • Prabir Basu
    • 1
  • Girish Joglekar
    • 1
  • Saket Rai
    • 1
  • Pradeep Suresh
    • 2
  • John Vernon
    • 3
  1. 1.Pharmaceutical Technology and Education CenterPurdue UniversityW. LafayetteUSA
  2. 2.School of Chemical EngineeringPurdue UniversityW. LafayetteUSA
  3. 3.Department of FinanceUniversity of ConnecticutStorrsUSA

Personalised recommendations