Business Risks in the Pharmaceutical Industry Essay

Business Risks in the Pharmaceutical Industry - Essay Example Manufacturers of generic pharmaceutical products in countries like Asia and Latin America are challenging the company's patents and trademark protection. 2. Exchange rate fluctuations are a major concern for a company with headquarters in the U.K., operations in 45 countries, 64,200 employees of whom 60% are based in Europe (AstraZeneca, 2005, p. 16), 49% of sales from the U.S. and Canada, and 30 manufacturing sites in 20 countries buying and selling raw materials from different sources using a variety of currencies (AstraZeneca, 2005, p. 14), although they are minimizing this to avoid currency fluctuation effects. The company reports in U.S. dollars, so a stronger dollar will have a negative effect on its bottom line due to lower dollar revenues on sales in foreign currencies. Although AstraZeneca mitigates currency risk, it does not "seek to remove all such risks (AstraZeneca, 2005, p. 155)." The company, with a $1.1b fixed interest rate debt, is exposed to interest rate risk due to fluctuations in market interest rates. By converting fixed interest debt to floating rate (AstraZeneca, 2005, p. 91), every one hundred basis point (on e percent) rise in interest rates means the company pays $11m more. 3. Uncertainties of developing new products from the Research and Development (R&D) pipeline affects not only AstraZeneca but the whole pharmaceutical industry, which spends an estimated $1 billion over at least ten years to launch a new drug (KPMG, 2005, p.6), which includes losses incurred in developing drugs that do not even reach the market. Companies need to launch new drugs to replace those with expiring patents, marketing exclusivity or trademarks (Bate, 1997, p. 230-231). 4. AstraZeneca is the 9th largest pharmaceutical company in the world (Fortune, 2005) and competes with bigger companies with more resources for R&D and marketing. It also competes with biotechnology companies developing similar products. Increasing regulations in Europe, the Americas, and Asia (Clifford and Flochel, 2005) that put caps on drug prices directly or indirectly lead to low revenues and margins. 5. The company is at risk of paying higher taxes if existing U.K.-recognized double tax treaties are revoked for any reason. Fortunately, these treaties are holding but the risk of being taxed more than once for the same revenue is real. 6. AstraZeneca had a product liability scare in 2004 with Crestor, an anti-cholesterol drug. As the recent experience of Merck with Vioxx has shown, adverse publicity depresses the stock price and wipes out a portion of potential revenues (Bate, 1997, p. 287-288). 7. AstraZeneca's reliance on other companies for raw materials and services expose it to supply chain risks. If these third parties do not deliver, the company suffers stoppages in production, late deliveries, and lost revenues as the market switches to similar drugs. 8. The pharmaceutical i