How to Overcome Barriers to Entry in the Pharmaceutical Export Market

Janifha Evangeline | Monday, 22 May 2023

While there are frequently significant entrance obstacles for pharmaceutical companies, it holds true for new businesses as well as established businesses attempting to launch new items. The medicines and medication industry is often used as an example when discussing obstacles to entry, in academics and business textbooks. Due to the beginning expenses associated with research and manufacturing, most nations have certain restrictions on the entry of the legal drug business, however one country that is an exception due to the Food and Drug Administration (FDA) and stringent health care regulations is the US.

Common hurdles to drug production and manufacturing

In businesses like the pharmaceutical industry, where producers make vast numbers of small items, economies of scale are crucial. It could be challenging at first for a young company to try to manufacture the same medicine as a bigger, more seasoned pharmaceutical company. This is due to the larger firm's better marginal economies and established vast infrastructure and distribution network.Marketing and product differentiation are the natural routes to competition in the pharmaceutical industry. When dealing with supplements or medications that may have physiological consequences, brand recognition is essential. The majority of consumers are understandably cautious of a brand they have never heard of or a business they do not believe in. It can be challenging to get past this obstacle. Additionally, the sector encounters typical manufacturing challenges like high startup costs, a long construction and maintenance cycle for capital equipment, and unpredictable legal obligations.

Barriers to Entry

Food and Drug Administration (FDA) Approval

The FDA must first get a specific authorization before any business can manufacture and commercialize any kind of pharmaceutical product in the United States, not even a generic version. It takes a long time for a pharmaceutical business to get their Abbreviated New Drug Applications, or ANDAs, approved. According to the FDA's "Activities Report of the Generic Drugs Programme," the median approval time for the third quarter of 2022 was roughly 25 months.Only 12% of the 2,030 generic medication applications that the FDA assessed during fiscal years 2015 through 2017 were accepted in the first review cycle, according to a study released in August 2019 by the Government Accountability Office (GAO).Each application is extremely expensive for the pharmaceutical corporations seeking clearance for a new treatment and is also extremely political. In the interim, reputable pharmaceutical firms can make a copy of the medicine that is for evaluation and then submit a unique 180-day market exclusivity patent, thus stealing the product and establishing a transient monopoly.

Research & Development Costs

The average cost of bringing a new medicine to market with post-approval research and development (R&D) costs was calculated at $2.8 billion in a peer-reviewed study published in the Journal of

Health Economics. One clinical trial could cost up to $100 million, and the FDA typically approves one out of every ten medications that have undergone clinical testing. A medicine may require up to 15 years of research and development before it can be recommended to patients, which is also significant. Even if a small business had the $2.8 billion to create and test the medication in accordance with FDA regulations, it might not start making profits for ten or even fifteen years.

Intellectual Property Challenges

Barriers to intellectual property are high for two reasons. First off, even if a large company does not intend to complete drug trials, it frequently obtains patents to use as a legal defence against rivals. Second, valid patents carry a certain amount of risk since they may expire before the FDA approves the prescription, as is frequently the case. This effectively results in the emergence of a patent cliff.A variety of tactics are used by the pharmaceutical export market to avoid or get around entry obstacles. Here are some typical obstacles and possible approaches to overcome them.

Trade and Economics barrier

Importing or exporting goods in relation to a country may be more challenging if governments are using trade sanctions. Businesses may look for new markets to enter or items that are particularly exempt from trade bans. If all else fails, a corporation may simply postpone its planned transactions with the sanctioned nation since many government restrictions are only in place temporarily.

Tariffs and Tax Barriers

Companies may determine in advance that they want to impose additional barrier fees on consumers, such as import duties or taxes. Companies may also look for ways to reduce taxes, such as collaborating with local businesses to produce items or creating value-added services for the local market, which would result in a lower assessment of the imports (and a lower fee).

Information Barriers

A business that wants to enter or establish a brand-new market can simply lack the necessary facts to believe it can succeed. It can be desirable for the business to create a minimal viable product for market research in order to overcome these types of constraints. This test product could be used to solicit customer feedback and set expectations for financial planning.A business may also think about buying an established business in the industry it wants to enter. In addition to having already surmounted some, if not all, of the entry-level obstacles, this company may also possess expertise and information that will be crucial to its long-term success.

Market Dominance Barriers

Sometimes the market leader is in such a strong position that it is almost difficult for them to be overtaken in the near future. Businesses may think about employing a disruptive price strategy or even suffering a temporary loss in order to acquire long-term clients in order to overcome these restrictions. Another goal that a business may set is to "be the lowest cost producer."

Cost Barriers

A business may think about employing open-source software rather than bespoke, proprietary software even if many costs are probably unavoidable. In order to assess financial performance in the near future, the corporation could choose for short-term leases rather than making equipment capital investments. To avoid overusing resources that may have been employed elsewhere, the corporation may decide to only manufacture on demand or on order.