The global pharmaceutical industry is going through a period of turmoil. Public's image and understanding of its motives and business approaches are at an all time low. R&D costs are unaffordable even to the largest corporations with productivity reaching unacceptable low levels. To ensure economic sustainability and growth of this vital industrial segment and to regain public's confidence, a paradigm shift in approaches to all major activities including R&D, manufacturing and marketing is called for. The current decade will see major strategic shifts which will hopefully lead to the return of a vibrant industry fulfilling its avowed mandate of being a provider of effective and safe drugs at affordable prices to the masses who need them.
The year 2009
In many ways, 2008 and 2009 were years to forget not only due to the unprecedented economic melt down affecting global development goals, but also due to loss of public's faith in what was thought to be well established institutions in both public and private sectors. The global pharmaceutical industry was probably the least affected during these turbulent years. Nevertheless, while demand had expectedly grown in all markets there was a steady decline in investments in newer facilities and even more importantly in research and development, the most important lifeline for the industry. The years 2008 and 2009 saw the lowest number of new drugs introduced in the world market. The year 2009 also saw several events which seriously affected the fortunes of the industry .
The global pharmaceutical industry had a total sales of around $720 billion in 2009. The growth in value terms has been in low single digits in the developed economies while in the emerging markets annual growth was 12 to 20 per cent. It is estimated that by 2020, the market will be worth $ 1.3 trillion with Brazil, China, India Indonesia, Mexico, Russia and Turkey accounting for two -fifths of the global sales.
Image of the industry
The credibility of various activities of the pharmaceutical industry were seriously dented during recent years. Suppression of valid information gathered during the clinical phase of drug development, and even post-marketing, poor quality standards, lack of transparency in marketing, creating nexus with the medical professionals to gain undue advantages, irrational promotion of drugs to the medical profession or even to the patients, concentration on market needs rather than medical needs while allocating investments in new drug discovery and development, using the patent system to ensure monopoly in the market, forming cartels while fixing prices, anti-competition practices are some of the charges levelled against the industry in general
Recent events of adverse drug reactions of well established drugs and their withdrawals and bans have raised serious questions both about the validity of current pre-clinical and clinical evaluation methods as well as the interpretation of the outcomes of such studies. There is also the criticisms of companies developing and marketing too many "Me Too" drugs with no major medical benefits to the patients to gain an entry into a new market or protect their market share with patented products.
Challenges of pharma industry
While the above charges against the industry has caused serious damage to the image of the industry, from the industry's perspectives there are several major issues which need to be addressed and corrective actions and approaches identified and implemented to ensure sustainability and growth. These challenges relate to R&D, state of Intellectual Property Rights (IPR) Protection, more stringent regulatory standards for approval of new drugs, control on prices of drugs, difficulty in making drugs available at affordable prices to the majority of world's population, emergence of new diseases as well as resistant infections and problems of distribution across the various geographical territories.
Pharmaceutical R&D
The current business model which has been responsible for the industry's present standing as a major contributor to healthcare is no longer economically viable or operationally suitable to provide the needed services. That model is primarily based on strong R&D and innovation leading to new drugs which then are made available to meet the global market needs. The key pre-requisite for success of this model is the ability to recover the massive investments in R&D through the patent system which gives the innovator the exclusive rights to be a monopoly supplier to the market for a period of twenty years from the date of filing of the patent application. The success of this model is dependent on the speed with which the innovation cycle moves and the costs of discovery and development of new drugs.
Over the years the costs of new drug discovery and development R&D have escalated considerably and present estimates are that every new drug that reaches the market costs not less than $ 1.5 billion. Even though the exclusivity though the patent system is available effectively for up to 10 to 12 years, in actual practice there is no guarantee that the drug will remain in the market that long since unexpected side reactions, competition from newer and better products and the emergence of alternative therapies can considerably affect the life of the drug in the market place.
The reasons for the high and ever-increasing costs of R&D are low productivity and poor success rate due to the need for setting higher standards of safety and efficacy of new drugs ; stricter regulatory systems ; poor understanding of disease processes, infective organisms and transmission vectors and higher costs of pre-clinical and clinical experiments and others. The financial bottom line of R & D based pharma companies is purely dependent on the number of patent protected drugs in their portfolio.
Impact of biotechnology in new drug discovery and development
With the expiry of several patents on some of the blockbusters , large pharma companies are increasingly moving into high value biotech drugs which in spite of small volumes, in view of the high prices ,are commercially attractive.
Modern biotechnology- based drugs are only two decades old largely triggered by the deciphering of the structure of DNA and much later of the human genome as well as the genomes of a large number of infective organisms and vectors. Recombinant technology and the production of monoclonal antibodies have revolutionized the advent of biologicals as therapeutics, diagnostics and prophylactics.
The percentage of biologicals approved for marketing or are in the pipeline of development has been increasing in recent years. In 2009, seven of the 26 new drugs approved for marketing by the USFDA belonged to this category. These products meet selected niche medical needs and are generally much higher priced than their synthetic counterparts.
Thus each of the top 10 biotechnology drugs had annual sales ranging from $ 3 bn to $7.66 bn with Enbrel (Amgen) Remicade (Schering-Plough), Rituxan (Roche), Herceptin (Roche), Humira (Abbott), Lovenox (Sanofi-Aventis) crossing the $ 4 bn mark. There are over 300 biotechnology products under pre-clinical and clinical development primarily in the area of cancer, viral disorders, immune compromised diseases and central nervous system disorders.
While biotech drugs are largely based either on functional proteins identified using tools of modern genomics and proteomics and on specific humanized monoclonal antibodies and are highly specific in their activity, they suffer from the problem of not being useful to all populations. In other words they lead to personalized medicines rather than medicines for the masses. In addition they are not affordable to the majority of patients who need them. Yet another issue is the approval of biogenerics. Establishing equivalence with a marketed biotech drug and its generic counterpart is a complex process. That is why, even though over a half dozen biotech drugs have gone off patents, starting with human insulin , bio-generics have hardly been approved for marketing.
Mergers and acquisitions
A major strategy adopted by pharmaceutical companies during the last three decades or more has been growth though mergers and acquisitions . While the compulsions to take this route to growth were different for different players, they largely were triggered by the need to fill in their product portfolios, increasing the size and profitability to afford higher levels of R&D investments, consolidating and downsizing activities, centralizing facilities, complementing the management expertise of the partners etc.
During the last few years total M&A deals have crossed over $ 300 billion of almost 40 per cent of the global pharma industry's sales. Apart from the earlier ones of Glaxo & Smith Kline Beecham (GSK), CIBA- Geigy, & Sandoz (Novartis), Bristol Myers & Squibb (BMS), Sanofi, & Aventis (Sanofi -Aventis), notable new ones are Pfizer & Wyeth ($ 68 bn) Roche & Genentech ($ 46.88 bn), Merck & Schering-Plough ( $ 41 bn), Novartis-Alcon ($28.1 bn) and many smaller ones such as GSK Steifel ($ 3.6 bn), Sanofi-Aventis &Merck Animal care ($ 4 bn). The trend will continue and by the end of the decade the footprints in the map of the global industry will have a totally restructured look based on consolidation of the major merged entities. Indian companies have also been victims of such global strategies as in the case of Ranbaxy & Daiichi, Nicholas Piramal & Abbotts, Orchid & Hospira, Shanta Biotechnics & Marion and many other smaller ones.
The patent scene
The World Trade Organisation (WTO) which administers the global intellectual property (IPR) system under the TRIPS Agreement has recognised that all members except those of the Least Developed Category (in DOHA, the Inter - Ministerial conference extended the transition period to 2016) have legislated TRIPS compliant IPR systems in their countries, even though there are minor differences from the full TRIPS agreement in the patent laws of India, Brazil, Argentina, China, Mexico, Egypt , Thailand and a few other members. To an extent even the US has certain sections which are outside the ambit of the TRIPS Agreement. What is however of major concern is the difficulty faced by developing countries for protecting their public health interests through legitimate grant of compulsory licenses as provided for under Para 6 of the Doha Declaration. It is hoped that the by the end of the current decade there will be more clarity on these issues and an equitable modality of implementation of the Doha Declaration will be worked out.
Drug prices
One of the major issues faced by the pharma industry is its inability to provide effective and safe drugs to three fourths of the world's population at affordable costs. There are no easy solutions to the problem as long as the current models for R&D, decentralized production and marketing are followed. In all countries , the healthcare providers, insurance companies, the patients and the public at large will continue to put pressure on the industry to reduce prices of drugs and the industry has to device ways and means to achieve costs reduction in all it's activities .
Regulatory agencies
The arguments for and against stricter regulatory controls have raised many important issues. With more and more drugs being withdrawn, banned or discontinued, there have been major questions on the reliability of clinical studies and the regulatory approvals based on those studies. Stricter controls, better systems and higher standards of pharmaco-vigilance are inevitable consequences of the present loss of faith in the existing systems. The current decade will surely witness some major changes in the area.
Conclusion
Overall, for the global pharmaceutical industry, the current era is one of introspection and corrective actions in order to ensure a growth pattern which will satisfy the needs of all stake holders including healthcare policy planners, providers, medical profession, administrators, patients and the general public. The industry to gain confidence of the public should move from merely being a supplier of drugs to being in addition a participating member of the community contributing to the overall healthcare of populations . It's obligation to its direct stakeholders, the investors and equity holders is not questioned, but maximizing returns to them should not be at the cost of hurting the interests of its consumers, the patients.
The author is a senior research scientist & industry expert based in Chennai