Challenged Faced by Pharmaceutical Industry and Remedies by GlaxoSmithKline - Case Study Example

?Challenged Faced by Pharmaceutical Industry & Remedies by GlaxoSmithKline Blockbuster Model & Challenges in Pharmaceutical Industry The blockbuster model is used specially in the pharmaceutical and entertainment industry which requires a company to invest a huge amount in their product development process. According to this model, the pharmaceutical company needs to invest huge sums of money in their own research and development process. This model helps the pharmaceutical company to invest the same in several projects out of which only few would turn out to be successful. 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. Monitoring 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 address certain concerns like, declining returns, high risk investment in the discovery and development of the new medicinal drugs. The blockbuster model has helped the pharmaceutical industry to generate an annual growth of 13 percent during the tenure of 1999 to 2002. This contribution of the pharmaceutical industry was made by more than 80000 medical representatives (Nisen, 2013). One of the biggest disadvantages of the blockbuster model was that most of the high investment medicinal drug which were developed, did not manage to yield high profits and therefore, the company had to bear losses. Additionally, the company has been facing severe pressure to abide by the rules and regulations for the drug safety and effectiveness and the blockbuster model proposes a different theme altogether. The biggest lesson was learnt when Pfizer had established the world’s largest research centre in Groton which was built on a 160 acre site with more than 5000 employees during its peak and had a 2.7 million square feet of research space. The company was successful in formulating only a singular drug named Chantix (GlaxoSmithKline Plc, 2010). The other pharmaceutical companies had learnt this lesson then. They had taken advantage of this situation by making the drug discovery process more precise and revolve around molecular fingerprints of disease. The pharmaceutical companies need to understand that the manufacture of medicines is dependent on the biological design of individual set of medicinal pills which needs to be screened at large research centres. The drug makers learnt the art of developing the techniques required for primary medical needs. This had spread the message that the pharmaceutical companies need to change their business model according to the changing marketing dynamics along with the changing rules and regulations. Effective Strategies by GlaxoSmithKline for Blockbuster Model GlaxoSmithKline has adopted the blockbuster model that has helped them to identify the profit potential of medicinal manufacturing strategies which would aid the promotion of these medicines through aggressive marketing campaigns. With the help of the blockbuster model, the company could actually generate sales worth $14.20 million dollars owing to almost 53 percent of the new exclusive medicinal drugs (GlaxoSmithKline Plc, 2010). The drugs related to bronchitis and other respiratory drugs could yield higher profitability because of their lower loss of exclusivity. The blockbuster model was not instrumental in the manufacturing of the other medicinal drugs related to cancer and gastroenterology and had helped in a smooth diversification (Mehta, 2012). Therefore, it was observed that GlaxoSmithKline had witnessed mixed success and the business model had helped them to translate the strategic vision successfully into successfully sustained business operations. In some cases, GlaxoSmithKline was not effective in translating the business strategies into successful operations and also, unable to maintain the balance in the life cycle of each and every product (Pharmaceutical Machinery, 2013). However, GlaxoSmithKline was able to recognize its problems immediately and develop the solutions accordingly to cover up for its inappropriate actions. Some of the strategies had failed to deliver expected benefits and strategies and they had to revert to the old processes. Some of the important effective strategies adopted by the company to combat the effect of the blockbuster model are as follows: Communication: They had invested in internal and external communication procedures like investor relations, public relations, and internal employee communications (Select USA, 2013). A survey was conducted by the company to understand the employee needs related to the medical products and communicate the opinions to the internal medical department (Frankel Group, 2011). Smooth communication within the internal department led to the development of several medicinal products especially in the radiology and cardiovascular section. Leadership Focus: Most of the leaders of GlaxoSmithKline had focused on the creation well as implementation of the strategy. One of the biggest examples was that it had set out the important strategies like, “Grow a Diversified Business” and still had managed to execute the business activities smoothly. The company had diversified widely into the consumer care products and later, developed products like, toothpastes, nutrition drinks and common cold medicines. These were effectively managed by different managers of the organization of different departments of the medicinal drugs, medical products and nutrition. Although the strategy of the company was dependent on the blockbuster business model, it had helped the company to diversify into various segments and maintain growth and stability in the overall organizations along with reducing the risk of loss of patent protection. Transitions & Handoffs: Within the interdepartmental units, the transition from the research of the development of medicinal drug to the sales of these drugs has helped the company to manufacture and get patent approval of eight medicinal drugs within the entire European region. Robust Planning: The Company laid emphasis on the successful development of the comprehensive market planning program which helps them in designing and executing the business activities within a particular time frame (Frankel Group, 2011). The company relied heavily on aggressive promotion of its generic drugs and extended its budget of sales and advertising by 3 percent in 2011 and by 2 percent in the year 2012 (GlaxoSmithKline Plc, 2011). These years had also witnessed high allocation of budget for the marketing and sales programs. Pricing Effect: There are various challenges in the blockbuster model which suggest the company to adopt uniform pricing model. GlaxoSmithKline on the other hand, had developed different pricing strategies for different countries. For the Asian regions, the country had set the base price of generic drugs lower than that in the European countries to attract potential customers and retain the existing ones. Assembling the Right Ones: The implementation had laid emphasis on the design of the cross section team which affected people of the organization and the processes involved in the development systems. The decision making process was sorted and had facilitated smooth decision making within the company. In a pharmaceutical company, the manufacturing of H1N1 medicinal drugs is of utmost importance and therefore, demands a minimum level of production capabilities in this section. During the tenure of 2009 to 2012, the company was successful in manufacturing global vaccines and was able to sell vaccines worth $ 600 million for the flu and had received a further order of $195 million (GlaxoSmithKline Plc, 2010). The company was also able to redesign an effective model which had stressed on the manufacturing of advanced vaccines within a short frame of time. Future Clinical Trials: The company is constantly redesigning its current business models as per the projects. The pivotal clinical trials of GlaxoSmithKline have helped the company to develop models for fourteen medicines for the next two years (GlaxoSmithKline Plc, 2010). This pipeline which is unveiled by the management of the company signifies that the company has invested a huge amount for the manufacturing of drugs for cancer and heart diseases. GlaxoSmithKline relies heavily upon the pipeline for its stability in the pharmaceutical industry and also, to yield high amount of profits. Unlike other years, the company has allocated a budget for the year 2012 and 2013 that serves the phase 3 clinical trials encompassing the drugs for heart and other cardiovascular diseases. Drugs like, Darapladib and therapeutic cancer vaccines like, MAGE A3, are expected to yield high amounts of profits as per the assumptions of the analysts and experts of the pharmaceutical industry (Clinical Trials, 2012). Review of current operations: The organization is reviewing its current operations after the recurring losses borne by Pfizer caused by the blockbuster model (The Guardian, 2013).GlaxoSmithKline had lost the patent protection and consolidation of several of its drugs (Criterium, 2013). In the year 2006, the company suffered losses worth €4.2 billion, especially through patent expiry (U.S. Bureau of Labor Statistics, 2011). The allocation of budget has gone through severe scrutiny by the several medicinal managers and three areas have been given their much deserved consideration. The enhancement of the existing consumer care brands like, Ribena, Lucozade and Nicorette, over the years has helped the company in maintaining strong position in the pharmaceutical industry. Therefore, it has been observed that the blockbuster model cannot be stringently followed by the pharmaceutical companies and need to change their models according to the different health regulations prevalent in different countries. GlaxoSmithKline has laid emphasis on the development of several other strategic models according to the nature of the medicinal drugs and the rules and regulations of different countries. This will help the company to sort its priorities and lead to a lesser loss of exclusivity of patent drugs. Reference List GlaxoSmithKline Plc, 2010. Annual report 2010 [online] Available at: < http://www.gsk.com/content/dam/gsk/globals/documents/pdf/GSK-Annual-Report-2010.pdf> [Accessed 08 November 2013]. GlaxoSmithKline Plc, 2011. Annual report 2011 [online] Available at: < http://www.gsk.com/content/dam/gsk/globals/documents/pdf/GSK-Annual-Report-2011.pdf> [Accessed 08 November 2013]. Nisen, M., 2013. Novartis CEO: The Age Of Massive Blockbuster Drugs Is Over [online] Available at: < http://www.businessinsider.in/Novartis-CEO-The-Age-Of-Massive-Blockbuster-Drugs-Is-Over/articleshow/21296103.cms > [Accessed 08 November 2013]. Clinical Trials, 2012. History, Policies, and Laws [Online] Available at: < http://clinicaltrials.gov/ct2/about-site/history > [Accessed 08 November 2013]. Criterium, 2013. Clinical Research USA [Online] Available at: < http://www.criteriuminc.com/clinical_research_usa.php > [Accessed 08 November 2013]. Frankel Group, 2011. The Current State Of Pharmaceutical Industry Research And Development [pdf] Frankel Group. Available at: < http://www.frankelgroup.com/FG%20Advisory%20Board%20Whitepaper%2012-29-11.pdf > [Accessed 08 November 2013]. Mehta, P., 2012. Pharmaceutical Life Cycle Management: Can it help The Industry? [pdf] IHS. Available at: < http://healthcare.blogs.ihs.com/2012/01/27/pharmaceutical-life-cycle-management-can-it-help-the-industry/ > [Accessed 08 November 2013]. Pharmaceutical Machinery, 2013. Tablet Section [Online] Available at: < http://www.pharmaceuticalmachinery.in/ > [Accessed 08 November 2013]. Select USA, 2013. The U.S. Pharmaceutical Industry [pdf] Select USA. Available at: < http://selectusa.commerce.gov/industry-snapshots/pharmaceutical-industry-united-states > [Accessed 08 November 2013]. The Guardian, 2013. AstraZeneca to cut 2,150 jobs in George Osborne's constituency. The Guardian, [online] 18 March. Available at: [Accessed 05 May 2013]. U.S. Bureau of Labor Statistics, 2011. The Pharmaceutical Industry: An Overview of CPI, PPI, and IPP methodology [pdf] U.S. Bureau of Labor. Available at: < http://www.bls.gov/ppi/pharmpricescomparison.pdf > [Accessed 08 November 2013]. Read More