The Dilemma In The Financing For The Research And Development Of New Medicines In Chinese Pharmaceutical Manufacturers And Its Possible Solutions

The creation of the new drug can cure the masses of refractory diseases, or rather say it supplies a new way in medical science. It improves the quality of patient’s life and the national physical constitution consequently. At the same time, pharmaceutical corporations can achieve more profit margins and better vitality from marketing the new drug. The advent of innovative drugs reflects the national comprehensive strength and help China build an innovative country. In developed countries, such as the United States, innovative drugs have brought enormous social and economic benefits to the country. The successful product of some multinational pharmaceutical companies is the most powerful proof.However, the cost of new drug R&D is gradually increased. A large initial investment, long cycle and high-risk cause a rapid increasing of R&D cost in both pre-clinical studies and clinical trials. According to incomplete statistics, it costs more than $ 800 million and more than 12 years on average to create a new drug. But the new drug’s success rate is less than 1/5000. From 1980 to 2010, the cost increases 24.7 times. But some domestic pharmaceutical enterprises start to shrink the investment on R&D, which could restrain the R&D of new drug and process of new drug coming into the market, when the cost of new drug R&D has increased obviously.Some multinational companies have relatively abundant R&D funding, which mainly relies on internal funding accumulation. Most R & D funding comes from the drug sales revenue. The proportion of external financing is relatively small. Because of the low cost of capital without debt and no pressure for repayment, it can help R&D of new drug in the long terms.However, some domestic pharmaceutical manufacturing enterprises, which have some R&D capabilities can’t get enough R&D funding from the marketing. To collect enough Drug R&D funding, this study attempts to make a way for the pharmaceutical manufacturing enterprises in addition to relying on government support. Corporate financing provided by financial institutions is an effective way. In this case, pharmaceutical enterprises not only can avoid over-reliance on government funding vicious cycle, but also can improve financial risk awareness, social responsibility, and the use of R&D funding.By the document analysis, comparative analysis and case analysis, the conclusion of study can be more objective by using the investment theory, policy issues research, management science, decision theory, and other related scientific theories and methods. This thesis, in a more realistic context, analyzes the difficulty of raising the R&D funding for China’s enterprises and gives a more reasonable way to resolve the problems, which is helpful for the development of pharmaceutical industry, the human healthy, economy and technology.As the financial market is not yet mature in China’s present conditions, pharmaceutical manufacturing enterprises know little about how to use financial instrument for its own development. To solve this problem, two approaches are suggested:first, the pharmaceutical manufacturing enterprise should understand of research and development of new medicine and launching new medicine onto the market are the main way out for the enterprise; second, financial investors should invest in the research and development of new medicine with more confidence. Only if the pharmaceutical manufacturers make more effort, can the dilemma of information asymmetry be solved. Therefore, for better financing, pharmaceutical manufacturers should set up an index system for self-evaluation, presenting its own advantages and disadvantages to the financiers to make it easy for investors to make decisions. This thesis presents a questionnaire on the importance of financing decision-making. The results show that investors agree that it is very important for the pharmaceutical enterprises to establish its own self-evaluation system, as it has a positive effect on their investment decision-making.This thesis proposes that the government should play a leadership role and make favorable policies for enterprises to obtain financing, and help set the enterprises onto the positive cyclic track of financing-investment in research and development-refinancing. With the pressure from the investors, the enterprises are motivated to make more profit through research and development. Thus, the problem of lacking motivation for research and development can be solved. But the dilemma of financing for pharmaceutical enterprises cannot be solved by government alone. Only by combining the efforts of the government, the enterprises and the financing organizations can a healthy development of the pharmaceutical industry be promoted.This research is original in two aspects:first, through thinking from the standpoints of others, the problem of information asymmetry in financing is solved with the establishment of index system for objective self-evaluation on the part of the pharmaceutical enterprises. The enterprises, through objective self-evaluation, can find its own shortcomings and improve themselves; second, the government will not give direct funding but play a new role as guarantor-an innovation in government policy. The government will change its policy of tax reduction for pharmaceutical manufacturers devoted to research and development of new medicines to one of giving guarantee for financing or directly investing in its upstream or downstream enterprises, encouraging the forming of a capital system based on industrial groups and promoting the healthy development of the whole industry.Finally, this thesis proposes that from the prospective of financing innovation, syndicate loan and industrial foundation should be introduced into the pharmaceutical industry in order to solve the problem of frequent shortage of money on the part of the enterprises.