Biomedical Engineering Reference
In-Depth Information
the firm either by stimulating unit sales or through per-unit pricing. Third, pharma-
ceutical firms often operate in multiple markets. We therefore present an overview
of the strategies that can be used to leverage the new treatment's potential across
countries taking into account the different regulations, spending power for health-
care, prescription practice, among other factors, of different geographic markets.
We conclude by reviewing possible directions for future advances in methods across
the three chain elements.
For many large pharmaceutical firms that sell branded drugs, the successful launch
of new therapies remains the key to profitable growth. New therapies are essential in
enabling pharmaceutical companies to overcome the challenge of generic substitu-
tion—the replacement of branded drugs with generic alternatives, at the initiative of
either physicians or pharmacists—as the patents of older drugs in their portfolios
expire. Generic drugs enter the market at much lower prices compared with the
original branded drugs they replace, as generic drugs do not need to go through the
risky, costly, and lengthy process of new drug development. Grabowski and Vernon
( 1992 ) show that an original brand typically loses half of its market share 1 year after
patent expiration. Generic substitution is ever increasing in scope and speed, given
government regulations in many countries that promote generic dispensing at the
pharmacy, in an attempt to control drug spending. Granted, there are multiple ways
in which pharmaceutical firms that produce brand-name drugs can fight the trend of
generic substitution. Some companies (e.g., Pfizer) own their own generic subsidiar-
ies, others (e.g., Bayer, Merck Serono) offer diagnostics and other types of services
in addition to their drugs or try to convince patients or physicians to be brand loyal,
for instance, through social media (e.g., Johnson & Johnson). Nevertheless, the suc-
cessful launch of new branded drugs remains crucial to the survival of such pharma-
ceutical companies and continues to be their primary means of differentiation.
Seemingly at odds with pharmaceutical firms' dependence on the success of new
treatments, the number of newly approved treatments is declining. Grabowski and
Wang ( 2006 ) review the decrease in the number of newly approved molecular enti-
ties in the period 1982-2003. Grewal et al. ( 2008 ) estimate that only 1 out of 50,000
molecules that receive initial investigation develops into a marketable drug. In 2010,
only 21 molecular entities were approved (Jack 2011 ). The cost of developing such
new drugs is enormous, between $500 million and $2 billion. Government agencies
such as the FDA and the EMEA are increasingly critical of new drug applications,
and are specifically attentive to the effectiveness/safety tradeoff. Furthermore, in
several domains the need for new treatment has diminished, as many common dis-
eases have long been treatable with effective drugs with few side effects, such as
antihistamines, statins, beta blockers, and antibiotics. Several areas, such as oncol-
ogy, neurodegenerative diseases, and autoimmune diseases, remain in high need of
new drug development from a societal perspective, because existing therapies are
not sufficiently effective for a large proportion of patients. However, drug develop-
ment in these areas has presented few breakthroughs. Thus, given the high strategic
importance of the launch of new pharmaceutical drugs and the lower frequency at
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