SIC 2834 Pharmaceutical Preparations
SIC 2834
This industry includes establishments primarily engaged in manufacturing, fabricating, or processing drugs in pharmaceutical preparations for human or veterinary use. The greater part of the products of these establishments are finished in the form intended for final consumption, such as ampoules, tablets, capsules, vials, ointments, medicinal powders, solutions, and suspensions. Products of this industry consist of two important lines, namely pharmaceutical preparations, promoted primarily to the dental, medical, or veterinary profession; and pharmaceutical preparations promoted primarily to the public.
325412
Pharmaceutical Preparation Manufacturing
Since World War II, when the American drug industry was established on a permanent footing, pharmaceutical firms have enjoyed a high level of profitability. The discovery and development of dozens of life-saving medications in company research laboratories created enormous demand for pharmaceuticals, while patent protection and sophisticated marketing structures maintained sales and profits. The high cost of drug development and marketing, though, tended to concentrate industry earnings in several large firms. Even with strict regulatory oversight and periodic crises, like the Thalidomide scare of 1962, the American pharmaceutical industry, or at least its major players, managed to remain both profitable and beneficial to world health while avoiding the price controls common in other industrialized nations.
Sales of pharmaceutical preparations reached $123.16 billion in 2005 (up from $104.15 billion in 2002), according to statistics from the U.S. Department of Commerce published in 2006. The industry has shown consistent and substantial growth over the previous decade, and is expected to continue to grow. Despite the economic downturn of the early 2000s, the pharmaceutical industry remained robust and by the mid-2000s was poised to meet the increased prescription needs of the aging U.S. population. However, a number of challenges remained. Perhaps most notable among them was the challenge associated with the loss of patent rights. Numerous high-profile patents will expire before 2010, leaving room for generic brands to grab a larger segment of the market.
Pharmaceutical production and employment in the mid-2000s were concentrated in the northeastern states of New Jersey, Pennsylvania, and New York. About 20 percent of the nation's drugs were shipped from New Jersey, home to industry leaders American Home Products Corp., Johnson & Johnson, and Merck and Co. Inc. Other states with high concentrations of drug companies were California, Illinois, Texas, Indiana, and Florida.
Companies marketing pharmaceutical preparations, or finished-form drugs, maintained their traditional leadership of the industry into the late 1990s. Companies in this sector share similar manufacturing techniques: They combine active medicinal ingredients, chemicals, or natural products with excipients (i.e., buffered powders) or sterile water to produce the finished, or dosage, drug form. The most common dosage forms are oral (tablets and liquid suspensions), parenteral (by injection), or solid (suppositories and ointments). More novel drug delivery systems appeared in the 1980s and 1990s, including polymer implants, transdermal patches, and controlled-release sponges inside tablets.
Preparations firms also concentrated on the development, production, and marketing of therapeutic agents—drugs designed to treat, cure, or prevent specific diseases (antibiotics); suppress symptoms (analgesics); or supplement deficiencies (vitamins). Meanwhile, other industry segments concentrated on making drugs to create immunities (vaccines) or aid in diagnosis (radioactive iodine for X-rays). Within the general area of therapeutics, pharmaceutical companies developed expertise in one or more of the eight therapeutic classes of drugs, such as cardiovasculars, or even a specific disease, such as hypertension. Industry leaders generally manufactured and marketed drugs in several therapeutic categories, while some small companies produced only one drug.
All companies in the pharmaceutical industry operate within a strict regulatory environment. Because these companies manufacture potentially harmful, yet socially necessary products, but must also make a profit, the pharmaceutical industry has had a complex relationship with government regulators. These regulators are charged with protecting the public and encouraging business growth at the same time. Major incidents of adverse or fatal reactions from drugs, evidence of collusion or corruption within the industry, and the government's desire to move the industry in a particular direction have historically prompted new regulation. From the Food and Drug Administration (FDA) to the Federal Trade Commission (FTC), pharmaceutical companies and the federal government are linked at all stages, including development, production, and marketing.
Division and segmentation also characterized the industry. Some of this was the result of federal regulation, while the pressures of a highly competitive marketplace were responsible for the rest. One point of division for regulatory agencies was that between "ethical" and over-the-counter (OTC) drugs. Ethical drugs require a prescription from a physician before being dispensed to the patient, while consumers can purchase OTC medications (such as aspirin and antacid) without a doctor's prescription.
The ethical drug segment of the industry is further subdivided into "patented" and "generic" prescription drugs. Patented drugs are therapies developed by pharmaceutical companies whose formulas, production processes, and trade names (often called branded prescription drugs) enjoy seventeen-year protection under U.S. patent laws. Patented prescription drugs were the driving force behind pharmaceutical industry sales after World War II and continued their market domination into the mid-1990s. Branded prescriptions included almost all of the major breakthrough therapies developed in drug research labs since the 1940s, continuing the drug industry's unusual combination of health- and profit-driven research. Meanwhile, an alternative to some of the most popular remedies were generics, markedly cheaper chemical and therapeutic equivalents of patented prescription drugs that go into production once brand-name therapies have come "off-patent."
In addition to drugs for human consumption, pharmaceutical companies produce drugs for the veterinary market. Accounting for a relatively small percentage of overall industry sales—nearly $3.35 billion in 2005, according to the U.S. Census Bureau—many drug industry leaders either maintained specific animal health divisions or were involved in the animal health care industry.
Beginning in the early 1980s, a new force entered the pharmaceutical arena—biotechnology. From the discovery of DNA structure in 1953 and new knowledge of "genetic blueprints" that direct protein growth by messenger RNA, scientists were able to clone proteins in the laboratory. The knowledge of a specific protein's function in the body—to stimulate infection-fighting cells or block a destructive internal process, for example—allowed physicians to induce desired reactions in patients by injecting biotechnology-produced cloned proteins, or "magic bullets," into the body. Although biotech companies managed to create and patent many exciting new treatments in the 1980s, they were generally inconsequential, lacked marketing structure, consumed vast amounts of research capital, and created little profit compared to those offered by the industry leaders. Nevertheless, because of the potential to continue providing "breakthrough" treatments and vaccines for some of the most stubborn diseases, biotechnology companies were the target of buyouts, mergers, and joint ventures in the 1980s and 1990s. In one such move, the industry giant Roche purchased controlling interest in the biotechnology pioneer Genentech in 1990.
Prior to the late nineteenth century, the American pharmaceutical industry barely resembled its current structure. Simple chemical compounds such as iodine chlorate, along with plant extracts such as quinine, constituted the prime ingredients of available remedies. However, these drugs lacked specific scientific formulas. Thus, a doctor's order for a medication might not yield the product intended. To offset this problem, doctors often dispensed medicines in addition to prescribing them. However, they did not have a monopoly on medical advice or drug selection for patients. Given the uneven quality of medical care before the twentieth century, patients often chose to dose themselves with "patent" medicines or to describe symptoms to the druggist who would obligingly offer his own remedy for purchase. Some traditional treatments, like digitalis, remain part of the pharmacological arsenal.
The War of 1812 and the Civil War stimulated an increase in domestic pharmaceutical manufacturing capacity. Both events temporarily disrupted the supply of "fine" chemicals (those with a purity level high enough for human consumption) from Europe with which pharmacists and doctors produced what few chemical medicaments they knew. Advances in the isolation and creation of new chemical substances, such as the 1840 discovery of the medicinal applications for nitrous oxide (laughing gas) by an American dentist, Horace Wells, stimulated the demand for more fine chemicals. During the Civil War, American firms like Squibb were able to establish themselves profitably by providing advanced machinery and...
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