Risk Management and financial derivatives Essay

insecurity Management and financial derivatives - Essay manikinIn this regard, pharmaceutical firms argon relatively more volatile than most companies in other industries (Risk Management in the Pharmaceuticals Industry 2005).This paper discusses the major business risks that have significant impact on pharmaceutical companies, specifically AstraZeneca. Moreover, it explains how the caller-out utilises derivative financial instruments such as interest rate swaps and advancing foreign contracts to minimise its exposure to financial risks brought about by fluctuations in the interest rate and swap rate. This paper as well presents alternative strategies that the firm can adopt in order to hedge against these risks. found on their annual reports, AstraZeneca and other multinational pharmaceutical companies including GlaxoSmithKline and Merck have identified risk factors affecting their operations. These are summarised as followsMost pharmaceutical companies have recognised that th e pharmaceutical companies throughout the world have acquire highly competitive (Risk Management in the Pharmaceuticals Industry 2005). AstraZeneca cited that industry consolidation have resulted in the establishment of few but very large and formidable companies which are able to match, if not exceed, the firms resources allocated for question and development as well as marketing. This threatens the companys competitive edge, thus, directly impacting its bottomline (AstraZeneca Annual Report 2004).Similarly, GlaxoSmithKline explained that result innovations and orgasm of technological advances which competitors may adopt could adversely affect the firms operating results (GlaxoSmithKline Annual Report 2001). These factors have facilitated the issuance of new global players, particularly in the markets of China and India, which are playing increasingly significant roles in the business models of industry players (China and India Risk and Returns in Asias Blockbuster Pharma Mar kets 2005).Apart form these, AstraZeneca also mentioned that risk relative to competition is aggravated by the loss or expiration of patents, marketing exclusivity and trademarks. The company noted that once patent protection or other types of marketing exclusivity for a certain product have expired, lower priced generic wine copy products may be legally manufactured. The introduction of generic products broadly speaking leads to substantial loss of sales for the pharmaceutical companies proprietary products (GlaxoSmithKline Annual Report 2001).The competition from generic medicines exerts downwards pressure on profit margins and results in decreasing revenues. This is evidenced by the study conducted by Deloitte which asserts that the very large number of drugs coming off patent in the next three to five age equates to billions of dollars in current in potential sales. However, it is estimated that the pharmaceutical giants could lose about $35 billion to $50 billion in product sales during the said time frame due to competition from generic brands. (Rhodes & Mulder 2004)Regulatory Approvals and Price ControlsPharmaceutical companies are also facing increasing pressures from regulatory bodies in discordant countries. In