The pharmaceutical industry is a major player in the overall life science sector, responsible for developing and manufacturing the majority of prescription drugs.
Companies in this space are constantly researching and creating innovative treatments for various medical conditions. In recent years, there has been a particular focus on developing new treatments for diabetes, weight loss and cancer.
Market cap: US$860.11 billion
Founded in 1876, Eli Lilly and Company employs approximately 10,000 individuals for research and development in seven countries and has products marketed in 110 countries, including therapies for diabetes, cancer, immune system diseases and a wide range of mental health conditions. The company also has drugs in development for various medical conditions, such as skin ailments, cancers, Crohn’s disease, diabetes, obesity and Alzheimer’s disease.
Market cap: US$594.89 billion
Danish company Novo Nordisk has demonstrated a commitment to addressing various health conditions, such as type I and II diabetes, obesity, hemophilia and growth disorders, and markets its therapies in 170 countries. The company’s main product is the diabetes drug Ozempic, which is also marketed for obesity under the name Wegovy
Market cap: US$399.96 billion
Johnson & Johnson operates on a massive scale and encompasses various segments through its subsidiaries. Its primary pharmaceutical subsidiary is Janssen Pharmaceuticals, which focuses on cardiovascular disease and metabolism, infectious diseases and vaccines, neuroscience, oncology, immunology and pulmonary hypertension.
Market cap: US$300.73 billion
Merck & Company has an extensive portfolio of products, including treatments for conditions such as diabetes and cancer, as well as vaccines for a variety of diseases.
Market cap: US$340.8 billion
AbbVie is a global biopharmaceutical company that discovers and delivers innovative medicines and solutions to address complex health issues. The company has identified five areas of focus where it believes it can make a significant impact in improving treatments for patients: immunology, oncology, neuroscience, eye care and aesthetics.
“This collaboration underscores our commitment to expanding our immunology portfolio with the ultimate goal of improving the standard of care for patients living with inflammatory diseases globally,” said Jonathon Sedgwick, PhD, senior vice president and global head of discovery research at AbbVie.
The pharmaceutical industry encompasses a variety of companies that have different — although sometimes overlapping — roles to play. The most famous players are the “Big Pharma” companies. These giants often have a variety of subsidiaries, large pipelines and many products in their portfolios.
There are also smaller pharma R&D companies, which sometimes get acquired by larger firms if their work seems promising. Companies in these categories research, develop and bring to market drugs aimed at filling unmet needs, or helping people who are resistant to pre-existing treatments.
Big Pharma companies have a fairly consistent business model. Often, the company’s R&D team will slowly develop a new drug through many stages of testing to prove the drug’s efficacy, safety and necessity.
Once a drug is approved by the relevant health organization, it can be marketed and prescribed. Because patents expire after 20 years, companies lobby and advertise to try to get as many sales as possible during that window.
One of the largest problems with the pharmaceutical industry, particularly in the US, is the high cost of treatments. According to a study looking at American prescription drug spending between 2016 and 2021, prescription drug prices were 2.5 times the cost on average of prices in similar high-income nations.
In early 2023, US President Joe Biden signed the Inflation Reduction Act (IRA) into law intending to reduce healthcare costs and improve access to medications for patients; however, it may present new challenges and opportunities for pharmaceutical companies as they adapt to the evolving regulatory and market landscape.
Critics have argued that the IRA could negatively impact drug development and innovation due to additional regulatory hurdles and increased operational costs, potentially reducing the incentive to invest in R&D. Additionally, the IRA requires drug companies to pay rebates to Medicare if they raise the price of drugs faster than inflation. If the industry can’t adjust its prices in response to market conditions, it could deter investment in new drug development.
Pharmaceutical companies will have to adapt to changing times. The world is shifting, with economic woes, geopolitical disruptions and supply chain concerns affecting nearly every sector. Innovation continues to accelerate as well, and the medical landscape has changed in the wake of COVID-19. Additionally, the US government is making moves to address the astronomical prices of prescription medicine as the industry comes under more scrutiny.
While established players like the Big Pharma and wholesale companies discussed above should be relatively consistent, small companies are make-or-break depending on whether their drugs are successful. This means that investors could see much higher returns compared to large companies, but run the risk of taking massive losses in the case of failure.
This is an updated version of an article originally published by the Investing News Network in 2016.
Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.
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