Pharmaceutical industries

  1. Current Problems of Pharmaceutical Industries

As like many other industries all over the world, pharmaceutical industries are facing several problems of their own kind in the current global market. Deep insight into the problems of GSK's and other pharmaceutical industries throws light on certain major problems that can be categorized as follows.

Drug safety:

The important problem with drug safety is the appearance of the generic drugs which happens due to the patent expiry of the original drug or due to the unprotected patents or even due to unfiled patent of a particular drug. This is mainly due to the law of 20 year patent rights in many countries for a newly developed drug which includes the drug development period accounting for 7 to 12 years. This in turn leaves the company with less time to make profit out of the manufacture drug. This would pave way for the entry of "Generics" in to the market. Generics can be defined as the drug which is manufactured after patent expiry of the original product which are identical in composition to those of branded drugs and are sold usually at a less price, usually 70% to 80% lower than the branded counterparts. So the branded companies face a tough market competition in terms of sales and price factor and this competition is intensified after every new entry of generics by different manufacturer. This urges the branded manufacturer to device manufacturing and distribution more efficiently.

Risks of Innovation and Research & Development:

Innovation is a critical factor for any company in any field for success and survival. Innovation involves taking certain levels of risk in investing in the R&D department. The pharmaceutical industry is no exception from this and it also involves frequent changes and advancements in terms of drug development and safety regulations set by drug approval body. Companies with high levels of investment in the R&D long stand successful. This is credited by the fact that in 2007, 26 billion was invested in R&D by pharmaceutical industries in the European Union. As Research is the key fuel to innovation there also involves certain amount of risks in that as every new drug introduced in market is a result of time consuming, costly and risky R&D process. Pharmaceutical processing time since a New Chemical Entity is found until it reaches the market is 12 years on average. Furthermore only one or two of the 10,000 substances taken for screening passes all the phases of drug development and emerges as marketable products. This cost of developing a new entity was estimated at 1,059 million in 2006. In spite of this high cost involved business only 3 out of 10 marketed drug recoup their R&D costs. This high cost of developing a new drug in combination with the short time period for recouping the cost involved during the development was a major problem for the pharmaceutical industries as they could not come with new blockbuster drug every time.

External and Internal changes:

In terms of external factors, pharmaceutical companies had to face a lot of regulations by different regulating authorities in different countries and also in terms of political changes and policies. Internal changes were led by core R&D since the newly emerged biotech firms had innumerable opportunities to innovate products based on molecular biology and genetic engineering. "Approximately one-fifth of new molecular entities launched in the world are raised from biotechnology which resulted in competitive research. Thus political changes, higher safety needs and the increasing cost pressure present a vital challenge for the industry.

Parallel imports:

Parallel imports are done by large distribution companies by buying the source drugs from lower priced markets and selling it in higher priced ones. This affected the pharmaceutical companies heavily as the profit margins are enjoyed by the parallel importers instead of the same being used by the pharmaceutical companies which could be used to source R&D.

Business Model:

Every company has its own business model to define the way they do business, most pharmaceutical companies had different models and in the last decade all converged to follow blockbuster business model. In addition to this model there are few other models which are prevalent among the pharmaceutical companies. One of them is Diversification model, in which companies diversify their business and market their products in smaller potential market, this would be successful only if marketing cost is low there. The other is combination of blockbuster and diversification model. Most pharmaceutical companies in the recent times followed the blockbuster model which is considered to be the business model of the industry on the whole.

Blockbuster business model:

As model name itself suggests that this model involves pharmaceutical companies to highly invest in the R&D in quest of finding a potential drug which would give the company a substantial income generally a blockbuster drug is considered to earn more than $1 billion.

Problems involved with this model:
  • Decreasing R&D rate
  • Increased in licensing cost

In this modern world the duty of the pharmaceutical company is to address the new age disease with better medicines and health care products that delivers not only product of value but also improve consumers life expectancy and quality of life. With his major objective in line the pharmaceutical companies with this type of business model and increased regulating authorities in place and his blockbuster model demands more products to be in the R&D pipeline in later stages of blockbuster potential. The company will eventually concentrate on the development of blockbuster as model suggests and in the process it fails to address the problem of the consumers and does not meet the customer needs. The expectancy of R&D for more products in the pipeline drives he company to go for in-licensing products which are at later stage of development, this increases the in-licensing cost in pursuit of replacing the blockbuster drug at the verge of patent expiry. More over he pharmaceutical indutry today are based on the Fully Integrated Pharmaceutical company, it is risky for the company to perform all the process related to drug discovery, development , marketing and sales for is products.Traditionally as the blockbuster model suggests the pharmaceutical companies developed drug for addressing the diseases of people and not necessarily curing them and concentrated on the development of blockbuster's.

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