Main Subject - Business

The following is the most comprehensive ever explanation to the most mysterious phenomenon of Capitalism – the Business Cycles. In order to ensure that the article can be read by any well educated reader, I have minimized the economics jargon and have added a short and simple introduction to the structure of the economy. Each and every one of us would be interested to know as to why we cannot have a paradise on earth. Why is it that we are often besieged by such painful downslides of economic activity such a

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

s Great Depression or the nerve wracking periods such as Stagflations? Why can’t we all be always happy with hundred percent employment all the time, with each and every one of us employed? The following article provides simple and complete Business Cycle explanations to Depressions before 1930s, Recessions after 1940s, Stagflations of 70s and Continuous Booms of 80s and 90s.

The income that we earn is normally divided into two portions, Consumption and Savings. We normally consume a large portion of the in

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

ome we earn for our day to day necessities as well as irregular buys. Regular necessities include food, clothing, toothpastes, soaps and other daily necessities. Irregular buys include bikes, cars, books, movies, music and so on. After we spend most of our incomes on Consumption, we save a small portion of our income and invest it in shares, bonds, fixed deposits and other long term investments.

In direct relation to our above mentioned activity, our economy is divided into two sectors – Consumption sector

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

nd Investment sector. If we exclude the government spending, Consumption sector constitutes roughly around 80% of the size of economy. It includes everything that we buy – food, clothing, cars, bikes, TVs and other durable goods, books – every thing. And around 20 percent of the size our economy is constituted by the Investment sector. Investment sector mainly includes activities such as installing new plants and capacities, and housing. A three sector model would also include government spending as well. Ho

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

wever free markets have more to do with these sectors and less to do with Government Spending, so let us exclude governemnt spending. The figures given above are only approximate and can vary sizeably from economy to economy.

So how are profits made by the Consumption sector manufacturers? In any economy, Consumption sector always produces in excess of its requirements – it produces surplus. Consumption sector capitalists as well as households also save a certain portion of their income. Investors invest th

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

se Savings in the Investment sector. So these Savings turn into the earnings of the Investment sector capitalists and workers. The workers and capitalists of the Investment sector then spend their earnings on the consumption goods. So basically the surplus production of the Consumption sector is consumed by the workers and capitalists of the Investment sector. Therefore in a circular flow monetary economy, the income of the Investment sector becomes the profit or surplus of the Consumption sector firms. Ther

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

is a small assumption that is made here on which I shall allude to at the end of the article.

So there are two things that we have to note here. First the size of the investment sector decides on the size of the profits of the Consumption sector. If there are huge Investments made, the Consumption sector capitalists make huge surpluses or profits and if the size of the Investment sector is on the lower side, the Consumption sector capitalists would make lower surpluses or profits. Also all of the Savings m

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

ade should always be invested. If Savings are made but are not invested, then it would lead to a lower size of Investments and lower profits. Insufficient profits would force the producers to cut down on their production levels and this would directly lead to rising unemployment and recession! It is a long recognized economic thought that Savings made should be compulsorily invested fully so that the economy can be in equilibrium. If the Savings made are not invested fully, it can lead to disequilibrium betw

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

en Supply and Demand and can lead to piling up of unsold stocks of inventories and a subsequent recession.

With the above short introduction to the structure of our economy, we are ready for a small journey into the fascinating world of Business Cycles.

Our economies are rarely ever static. They keep growing in size every year. Now in a growing economy Consumption also grows. Year on year more cars are purchased, more televisions are bought, more computers are installed and so on. It is natural that when C

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

nsumption grows by say 6%, the suppliers would expect their surplus also to grow by 6% because surplus, which is called profit in the business parlance, is obviously measured in percentage terms. However the surplus production has to be consumed by the workers of the Investment sector which obviously means that even Investment would have to grow by 6%. However this would mean that Savings, which is the fund for Investment, would also have to grow by 6%. What would happen if Consumption grows by 6% but Invest

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

ent or Savings do not grow by an equivalent percentage? To the extent of the inequality, producers’ surplus would remain unsold and the economy would be in disequilibrium. So the equilibrium condition of the economy would be –

Periodic Growth percentage of Consumption = Periodic growth percentage of Investment = Periodic growth percentage of Savings.

Suppose during a particular period, there was a perfect equilibrium in which Consumption was C, Investment was I and Savings was S. Suppose during the next fi

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

nancial period C grows by a certain X percentage points. Then S and I would also have to grow by the same X percentage points. Suppose either I or S does not grow by X percentage points, the economy would be in disequilibrium even if Investment is equal to Savings!

Here in lies a blue print for different types of Business Cycles.

A normal characteristic of any recession is the presence of huge un-invested Savings. Investors hoard money without investing it because of lack of investor confidence. At the tro

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

gh or the lowest point in a business cycle, Consumption is relatively low and Savings are relatively high, especially un-invested Savings. Then as economic activity picks up, all of the Savings are invested and the producers of the Consumption sector would be able to realize their expected surpluses. The size of Investment sector is equal to the surplus of the Consumption sector. Since Savings are high and are fully invested, the producers of the Consumption sector would be able to realize huge surpluses. Ec

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

nomic activity picks up a roaring speed.

As economic activity picks up, there starts a battle amongst the producers for market shares. For example, each car manufacturer wants to sell as many cars as possible. He would not think – let me produce less cars now, let me save and invest more for later. So as the battle for market share picks up, Consumption accelerates at the expense of Savings i.e. Consumption grows at a faster rate than Savings. Our above mentioned condition tells us that for equilibrium to e

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

xist, Consumption and Savings have to grow at an equal pace. So if Consumption grows at a faster pace than Savings, would this lead to disequilibrium immediately? This may not immediately lead to disequilibrium because producers would obviously not keep expecting to earn abnormally high profits the way they earned in the initial stages of the boom. Their expectations are also geared towards comparatively lower profits or what is called as normal profits as the boom progresses and therefore lower growth rate

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

n Savings vis-?-vis Consumption would not immediately damage their expectations of surplus. This way the boom progresses from the trough to the peak for a few years.

After a few years of growth of Consumption at a faster rate than Savings, the percentage of Savings in the income would drop so low that Savings are not sufficient to meet the expectations of surplus of the producers of the Consumption sector. Even if Savings are fully invested, this does not generate the surplus as expected by the Consumption

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

ector because of the lower size of investment and would lead to disequilibrium. Producers see their unsold inventory stock piles rise and their profits dwindle. The situation needs correction. Consumption needs to be cut and Savings need to be raised. As they are not able to sell their goods, the producers of Consumption sector would be more than willing to do so. They cut their production and increase their Savings.

However the required correction might not materialize! The very objective of capitalist eco

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

nomies is Consumption. If Consumption is on the decline, we cannot expect Investment to increase. We cannot have fewer bikes sold as compared to previous year and at the same time have much higher Investment in the bike sector as compared to the previous year. A cut in Consumption might increase Savings but would not raise Investment. Investment follows the path of Consumption and it itself starts in the downward trend. As a result the increased Savings are not invested and the disequilibrium takes on a rela

.

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

ively permanent position and we have a recession! There are no automatic forces to ensure immediate correction. What started with a cut in Consumption to increase Savings leads to a fall in Investment. This drop in Investment leads to a further depletion of aggregate demand which then prompts the producers to cut their production levels even further. Consumption declines even further and the spiral continues until the economy settles at a low output with a lot of unemployment. This sort of downward spirals w

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

re recognized by the eminent British economist John Maynard Keynes. Eventually, after a few years of low output, some invention or some enthusiastic entrepreneurs who are attracted by prevalent low interest rates might trigger Investment to reverse its downward path and start the process of expansion all over again. I believe that most recessions in US and Europe after 1940s occurred in this way. I would call these cycles – the Consumption led Business Cycles.

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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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Companies that provide selfless information through participation 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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Main Subject - Market Failures And Business Cycles (Part 1)

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