Case study notes

Case study questions

Profits resulting in a mean return of 35 per cent on investment are impressive indeed, and some extremely well-run companies in other industries have never been able to achieve this sort of return. It is suggested this is because of a lack of competition caused by the use of patents and the monopoly effect this creates and because of the way most drugs are purchased, that is via government departments of health; in other words, there is a lack of price sensitivity.

The pharmaceutical industry is an extremely powerful industry and is able to influence politicians around the world. Almost every state would want a thriving pharmaceutical industry (it is a growing modern industry). Hence, this industry is able to influence decision-makers. Indeed, it has done so in the case of patenting life forms and gene technology and on the issue of patent extensions. The key point here is the lack of competition caused by the patent system. In other industries, firms are able to eventually get round patents or use a slightly different technique. In the pharmaceutical industry, a chemical formula is very objective with no grey areas.

Partly due to patents and partly due to the way they are purchased by Government Health Departments. These have set budgets for certain treatments; this information is known to the pharmaceutical industry and it influences the price set.

This is because it prevents competition. In many other industries, while patents provide protection to firms for a limited period, eventually firms are able to develop alternative systems (i.e. get around the patent). In the pharmaceutical industry, due to the nature of the science and the way the patents are written, alternative competitive products do not emerge.

Many innovations are applications of existing technology, in such cases this part of the framework may not be used. In the pharmaceutical industry there clearly are examples of new science. And every year there are Nobel prizes awarded for significant knowledge contributions.

As with so many innovations this is where most of the technical effort takes place. The pharma industry spends much effort trying to find out the properties of drugs and their impact on humans. This is the first stage of the product development process.

During this phase, the technology is adapted to meet specific needs of customers. A good example of where the pharma industry has been successful in this area is the drug Asprin. It has been applied to many different areas and is claimed to offer benefits to many different conditions. Manufacturers have thus targeted and promoted the drug at these opportunities.

Significant efforts are made in this part to try to get customers, regulators, etc. to support the concept. In the pharma industry regulators play a big role here. The industry is heavily regulated to try to protect consumers.

Sometimes this is an individual, sometimes a project team.

In the pharma industry like many large industrialised industries. There will be project leaders who are responsible for developing products/projects and their skills help push ideas through development to completion.

6. Nobel Prize winning economist Joseph Stiglitz argues that prizes rather than patents could stimulate scientific competition. Explain how this might work.

The fundamental problem with the patent system is simple: it is based on restricting the use of knowledge. Because there is no extra cost associated with an additional individual enjoying the benefits of any piece of knowledge, restricting knowledge is inefficient. But the patent system not only restricts the use of knowledge; by granting (temporary) monopoly power, it often makes medications unaffordable for people who don’t have insurance. There is an alternative way of financing and incentivising research that, at least in some instances, could do a far better job than patents, both in directing innovation and ensuring that the benefits of that knowledge are enjoyed as widely as possible: a medical prize fund that would reward those who discover cures and vaccines. Since governments already pay the cost of much drug research directly or indirectly, through prescription benefits, they could finance the prize fund, which would award the biggest prizes for developers of treatments or preventions for costly diseases affecting hundreds of millions of people.

Case study notes

This case study explores the use of cork as a way of sealing wine in a bottle, which is referred to as a closure in the wine industry. This 400-year-old industry with all its associated working practices has continued largely unaffected by technology changes in almost all other industries – until, that is, the 1990s when synthetic plastic closures were used by some wine producers instead of natural cork. With a requirement of over 17 billion wine bottle closures a year, the cork industry could arguably afford a little competition, but it seems the cork industry had not recognised the significant changes taking place in the wine industry to which it acts as a supplier (Cole, 2006). The wine industry was experiencing a revolution where new producers from Australia, California and Chile had new and different requirements. In a matter of a few years, the industry had changed completely.

Finally, while the battle over closures rages, the so-called traditionalists argue that the wine industry is merely exploiting profits in the short-term by producing large-volume homogenised wine and that this may harm the wine industry in the long-term because consumers will grow bored with the uniformity of style.

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