Suitability of Strategies for the Pharmaceutical Company

Running head: PHARMACEUTICAL COMPANY STRATEGIES 1
Suitability of Strategies for the Pharmaceutical Company
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PHARMACEUTICAL COMPANY STRATEGIES 2
Suitability of Strategies for the Pharmaceutical Company
The company utilizes diversification through research and development as its core
strategy. Although this approach has its pros it also has significant associated risks. R&D is an
investment in a prospective long-run stream of revenues arising from the successful sale of
innovative drugs. The success of an investment in pharmaceutical R&D is highly uncertain and
its realization may take long. Additionally, although the costs for R&D vary they are
significantly high. For instance, a cost estimate of $2.6 billion is required for R&D activities
associated with development and approval of a specific cancer drug (DiMasi, 2018). What is
more, the probability of failure of drug projects is also high. For approval for use by the FDA a
drug ought to undergo three stages of human clinical trials. In the first stage the safety tests are
conducted in small sample of healthy individuals. In the second phase the efficiency of the drug
is assessed further in a larger sample of individuals suffering from a specific condition targeted
by the drug. Lastly, large-scale clinical trials are conducted to determine its effectiveness and
side effects in the last phase. As such, only a small proportion of drugs qualify for approval. As
(Ding, Xue, Liang, Shao, & Chen 2011) outlines, drug R&D is a risky corporate endeavor
characterized with long duration, high technical spill over, reduced success ratios, and large
investments. The risk is aggravated if the business environment is not innovation oriented
allowing for imitation of drugs. The costs of drug imitation are low and it is easy and convenient
for rival companies to make a copy of the same drug without spending huge investments on time
and money. This means that the R&D Company will be less likely to recoup the investments
since prices would be driven down by competition (Frank & Ginsburg, 2017). However, the need
for new and improved medicines persist necessitating development of innovative products. As