Developing a System Dynamic Model for Product Life Cycle Management of Generic Pharmaceutical Products: Its Relation with Open Innovation

Abstract

The purpose of this study is to identify elements that influence the sale of generic pharmaceutical products during their life cycle in order to achieve more comprehensive planning and to prevent a decline stage of the product life cycle (PLC). We used a system dynamic model to identify the behaviors of demand, supply, and competition as three major subsystems of PLC in generic pharmaceutical products. We first investigated the PLC patterns of 527 medicines to identify their “reference mode”, determined the causal loop of the pharmaceuticals phase of PLC based on both an in-depth literature review and experts’ opinions, and finally simulated a quantitative dynamic model based on real-world data between 2012 and 2019 from Iran. Based on the results, “total demand and accurate forecasting”, “marketing efforts”, and “R and D activities of a firm” are the most critical factors involved in the formation of a generic drug PLC. An increase of 20–50% of manufacturers’ marketing and R and D activities can raise sales by more than 50% in the decline stage of the PLC. The product life cycle can give generic manufacturers more insights into the processes leading to declining sales of their products. PLC may help to prevent a product from entering the decline stage even if the total demand for a generic drug is dropping in the market.

A Clustering Approach to Identify the Organizational Life Cycle

“…Compared to developing countries, the Iranian pharmaceutical market has grown significantly, and domestic firms produce 95% of medicines in Iran [36,37]. The Iranian pharmaceutical market was worth USD 4.5 billion in 2018 (domestic and imported drugs), of which USD 3.15 billion belong to domestic companies [38].…”

“…As open innovation encompasses all aspects of innovation in products and processes, knowledge sharing can be achieved regarding these processes from the company's external environment [49]. One managerial consideration previously shown to enhance open innovation in the generic pharmaceutical industry is proper product life cycle management [37]. This can maintain the sales growth of products as an OLC indicator and the long-term survival of firms, and also establish information-sharing flow as a core requirement for open innovation through the internal and external resources of a company.…”

“…In this case, by reforming pricing methods, the government can increase the financial capacity of pharmaceutical companies to invest in the research and development sector. This can enhance product-oriented innovation, which leads to domestic competition through enhancing product quality and differentiation, and strengthens exports to other countries [37,57]. Another solution for enhancing the performance of the R&D sector, sales growth and open innovation in the generic industry were suggested by Mousavi et al (2022) [37].…”

“…This can enhance product-oriented innovation, which leads to domestic competition through enhancing product quality and differentiation, and strengthens exports to other countries [37,57]. Another solution for enhancing the performance of the R&D sector, sales growth and open innovation in the generic industry were suggested by Mousavi et al (2022) [37]. They mentioned that generic companies can gain more profits by merging the R&D and marketing sectors through information and resource sharing, and reducing costs [37].…”

“…Another solution for enhancing the performance of the R&D sector, sales growth and open innovation in the generic industry were suggested by Mousavi et al (2022) [37]. They mentioned that generic companies can gain more profits by merging the R&D and marketing sectors through information and resource sharing, and reducing costs [37].…”