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E-Folder - Top 10 factors that Determine the Profitability of Firms
The essence of profitability is a firms Revenue – Costs with revenue depending upon price and quantity of the good sold.
1. The degree of competition a firm faces is important if a firm
1. The degree of competition a firm faces is important if a firm
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
has monopoly power then it has little competition, therefore demand will be more inelastic. This enables the firm to increase profits by increasing the price. (For A2 draw monopoly diag
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
am) However govt regulation may prevent monopolies abusing their power e.g. the OFT can stop firms colluding (to increase price)Regulators like OFGEM can limit the prices of Gas and Elec
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
ricity firm
2. If the market is very competitive then profit will be low. This is because consumers would only buy from the cheapest firms. Also important is the idea of contestability.
2. If the market is very competitive then profit will be low. This is because consumers would only buy from the cheapest firms. Also important is the idea of contestability.
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
This is how easy it is for new firms to enter the market. If entry is easy then firms will always face threat of competition, even if it is just “hit and run competition” This will reduc
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
profits. Firms may seek to create barriers to entry. The most common is creating brand loyalty through advertising.
3. The strength of demand is very important. For example demand will
3. The strength of demand is very important. For example demand will
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
be high if the product is fashionable, e.g. mobile phone companies have been very profitable. However in recent months profits for mobile phone companies have fallen because the high pr
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
fit encouraged over supply. Products which have falling demand like Spam (tinned meat) will lead to low profit for the company
4. The State of the economy. If there is economic growth t
4. The State of the economy. If there is economic growth t
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
en there will be increased demand for most products especially luxury products with a high YED. For example manufacturers of luxury sports cars will benefit from economic growth but will
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
suffer in times of recession.
5. A successful advertising campaign can increase demand and make the product more inelastic, however the increased revenue will need to cover the costs of
5. A successful advertising campaign can increase demand and make the product more inelastic, however the increased revenue will need to cover the costs of
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
the advertising. Sometimes the best methods are word of mouth. For example it was not necessary for YouTube to do much advertising.
6. Substitutes, if there are many substitutes or subs
6. Substitutes, if there are many substitutes or subs
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
titutes are expensive then demand for the product will be higher. Similarly complementary goods will be important for the profits of a company.
7. The other aspect of profitability is t
7. The other aspect of profitability is t
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
e degree of costs. An increase in costs will decrease profits, this could include labour costs, raw material costs and cost of rent. For example a devaluation of the exchange rate would
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
ncrease cost of imports therefore companies who imported raw materials would face an increase in costs. Alternatively if the firm is able to increase productivity by improving technology
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
then profits should increase. If a firm imports raw materials the exchange rate will be important. An depreciation making imports more expensive. However depreciation of the exchange rat
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
is good for exporters who will become more competitive.
8. A firm with high fixed costs will need to produce a lot to benefit from economies of scale and produce on the minimum efficie
8. A firm with high fixed costs will need to produce a lot to benefit from economies of scale and produce on the minimum efficie
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
nt scale, otherwise average costs will be too high. For example in the steel industry we have seen a lot of rationalisation where medium sized firms have lost their competitiveness and h
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
d to merger with others.
9. If a firm is not dynamically efficient then over time costs will increase. For example state monopolies often had little incentive to cut costs, e.g. get rid
9. If a firm is not dynamically efficient then over time costs will increase. For example state monopolies often had little incentive to cut costs, e.g. get rid
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
of surplus labour. Therefore before privatisation they made little profit, however with the workings of the market they became more efficient.
10. If the firm can price discriminate it
10. If the firm can price discriminate it
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
ill be more efficient. This involves charging different prices for the same good, so the firm can charge higher prices to those with inelastic demand. This is important for airline firms
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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