Challenges to the pharmaceutical industry's blockbuster-driven Essay

Challenges to the pharmaceutical industry's blockbuster-driven business model, and the effectiveness of GlaxoSmithKline's strate - Essay Example The model is mostly used in entertainment and pharmaceutical industry because they can afford to invest a considerable amount in their projects where the development, costs and risks related to the projects are higher and the returns on these projects tend to be higher too. The companies have to make sure that after the huge investment in the projects for marketing and development of new drugs is made, a considerable amount of control should be exercised on the revenue and profit streams. However, presently the blockbuster model which is proposed for the pharmaceutical industry has helped several companies to develop medicinal drugs that are worth trillions of dollars and has also led to the loss of exclusivity of several drugs. The actual cost of researching on a new drug is worth $1.7 billion and that is valued to be more than 55 percent of the increase in the average commercialization cost, which is expected to take down the investment returns in the past few years (Nisen, 2013). There are high hopes for the blockbuster model which is based on current investment returns, forecast, and successful commercial performance. The blockbuster model is expected to deliver actually 5 percent returns on investment which is significantly much lower than the industry rate risk and adjusted cost of capital (Nisen, 2013). This signifies that only one of six drugs is likely to deliver high returns above cost of capital which is an unattractive proposal for the required investors. The outcome of the establishment of the blockbuster model was as follows: Decreasing Research & Development Productivity- Compared to the thirteen medical products which were successful during the tenure of 1995 to 2000, during the tenure of 2009 to 2011, only eight medicinal drugs were found to be successful (Nisen, 2013). Increasing cost of commercialization: It has been observed that the actual cost of commercialization has been much higher than the expected cost estimated by the analysts. Monit oring Payment: The growing challenges and the rising price pressure on the cost of development have limited the total revenue from the average drug. Shorter Exclusivity Payments: The creation of the FDA approval and the MCO coverage is quite a time consuming process and has led to the loss of exclusivity of several medicinal drugs. This suggests that several medical drugs are under patent protection risk (Nisen, 2013). Enactments: Enactments like, The Affordable Care Act, has made the process of developing drugs extremely difficult because of the stringent rules associated with the act. These strict laws associated with the act have made it difficult for the pharmaceutical companies as the failed medicinal drugs which are developed by these companies are not reimbursed by their insurance firms. In most of the industries, there are several winning strategic business models which are prevalent. Blockbuster model helps in the improvement of the existing systems and processes within the systems and also, lays special emphasis on the utilization of the company investment in a systematic way for the creation of franchises for medical products. The creation of franchise system would help to achieve global sales of more than $ 1 billion (Nisen, 2013). In the past few years, the blockbuster business model could not solve factors that are responsible for the research and development activities, cost of commercialization and shorter exclusivity gaps of medicines. The model has failed to