Cash Cow versus One-Hit Wonder: Analysis of Management’s Preference for Smooth Accounting on Pharmaceutical Innovation
Prescription medications account for 10% of the healthcare expenditure in the United States. However, there continues to be a shortage of innovative pharmaceutical products. In economic business models, companies, stake holders and markets prefer products with a steady revenue stream. In this paper, we evaluated the influence of preference for a steady stream of revenues by comparing the net present revenues of chronic, long term pharmaceutical products and curative, short term pharmaceutical products.The results suggest that curative products offer better net present values to pharmaceutical manufacturers and to health insurance payers, but its non-smooth temporal revenue profile is not preferred by markets and causes budgeting problems to health insurance payers.
Index Terms - Biotechnology, Innovation, Management, Pharmacy.