Indian pharmaceutical industry, by virtue of the emerging post -2005 product patent era has to radically change its business model in terms of launching of new products, since it is no longer possible to market patent-protected drugs without licence from the patent holder. The larger Indian companies realising this new scenario have already ventured into an attempt to join the big league by investments in the discovery and development of patentable new drugs. However the current drug discovery model pursued for the last half a century or more by the R&D based companies in the West itself, is facing serious problems and companies are looking for new approaches to reduce overall costs of R&D and ensure the development of new and better drugs at lower costs to the patients and the healthcare systems. What are these new approaches and to what extent are they likely to succeed? What will be the approach most suited for Indian R&D - based companies in the context of their limited financial and infrastructure resources and technical skills required for the pursuit of effective and successful drug discovery and development programmes?
Indian Pharma
According to a recent study by Pharmabiz (July 21, 2005),the total net sales of the top 50 pharmaceutical companies in India in 2004-2005 was Rs 29402 crore , up by 7.4% and the net profit was Rs. 4068 crore, up by 4.9 %, both from the previous years' figures. There has been no analysis of the impact of prices or volumes (increase or decrease) on the performance of these companies during the period under review. Only 9 of the top 50 companies have multinational affiliation and they too had a similar record of poor growth and profitability. In fact, Novartis, the leading Swiss MNC, had a 6% drop in sales and over 40% decline in profits. The poor performance of the Indian pharmaceutical industry in 2004-2005 had nothing to do with the new patent regime, since the impact of the product patent era will be largely felt only from 2007 at the earliest. The results are indeed surprising considering the fact that in India almost over 60 % of the market (mostly rural) is still untapped and the per capita annual consumption of drugs at $ 4 is one of the lowest in the World. Administered price controls, often quoted as one of the major causes for low profitability, have also been relaxed during the last three years.
The explanation therefore, has to be increased competition leading to lower prices both in the domestic and export markets, increased expenditure on R&D particularly by the top 10 companies, high investments for obtaining GMP certifications, submission of DMFs and AND As to drug regulatory agencies and the escalating overhead costs in human resources and infrastructure. Whatever be the reasons for lower margins, none of these cost elements are likely to decline in the coming years and hence Indian pharmaceutical companies need to develop new strategies to reverse the trend of declining sales growth and profit margins.
While containing costs of production and realizing higher prices are objectives pursued by all companies on an on-going basis, those approaches have their own limitations and hence are not likely to make a major impact on sales and margins.. The strategy adopted by the Indian pharmaceutical companies in the 1970 patent era was to produce and market patented products ahead of competition and exploit first mover advantages and concurrently establish brand equity in the market place. In the emerging post-2005 product patent scenario, this strategy will not work as Indian companies will not be allowed to market products which are patent-protected by innovation-driven pharmaceutical companies in US and Western Europe. Even though Japan has over 30% of the global pharmaceuticals market and leading Japanese companies spent over 15% of their turn-over on research including for new drugs discovery, the drugs discovered by Japanese companies are mostly marketed in the global markets by U.S. and European based MNCs.
The new strategies adopted by the top dozen Indian companies to survive and grow in the emerging environment are related to 1) entering the field of new drug discovery research 2) becoming a global supplier of off-patent (generic) drugs and 3) setting up of contract research, custom production and clinical research facilities for international companies and agencies.
Global R&D Scene
Globally, new drugs discovery and development continues to be an important and essential component and the life-line of the pharmaceutical industry. However, as of now, this activity within the pharmaceutical business is the least productive and most cost-ineffective segment. In spite of each of the leading companies particularly in the US and Western Europe spending $ 4 to 7 billion annually on R&D, representing between 12-20% of their turn-over, the results are not commensurate with such investments. While it was always known that new drug discovery research is a high risk/ high return activity, it is now being recognized that the risks are increasingly becoming unacceptable. The R&D expenditure of the U.S. pharmaceuticals industry in 2004 was $ 38 billion compared to $ 34 billion in 2003, $ 24.6 billion in 2001 and $ 17.8 billion in 1997. These are in addition to massive investments (as high as $ 27 billion in 2004) at the National Institutes of Health (NIH), which carries out a large amount of basic and basic-applied research of great relevance to modern drug discovery. While the number of new drugs (NMEs) approved in 1997 was 59, that number came down to 31 in 2004
The estimates on costs of discovery and development of new drugs have varied a great deal. While studies conducted at the TUFTS University Centre for the study of drug development had estimated the costs for a single new drug at $ 897 million in 2003, later in the year, according to a study by Bain & Co, the cost for a new drug averaged $ 1.7 billion, which unlike the TUFTS study included the marketing costs for the drug during the first 12 months post-launch. Both studies emphasise the fact that the high costs are due to increasing levels of attrition during the pre-clinical and clinical development phases or even post-marketing, declining innovative potential to discover drugs which improve their therapeutic usefulness and the long gestation period required for completing the various developmental phases and regulatory approvals, all of which add to overall low productivity. The Bain study also concludes that the ROI in the pharmaceutical industry which was 9% in the mid 90s came down to 5 % in the late 90s and the first five years of this century. It was also mentioned that reducing failures of drug candidates during the development phase by 5% will result in savings of 20% in overall drug development costs.
Equally important, the products which reach the market have in recent times, shortened exclusivity or even survival periods, primarily due to better drugs coming into use or the drugs being forced out of the market due to adverse effects appearing when the drug is widely used by heterogeneous populations of diverse ethnicity, life styles, diets and ages. Almost none of these, along with other extraneous factors including drug-drug and, drug-food interac-tions are totally predictable during the drug development phase or even when they are already in use.
Options
The problems of high costs of R&D and unacceptable returns have been a feature of the industry for almost two decades now and various strategies have been adopted by different companies over these years to reduce their impact on overall business. The most popular one adopted by most MNCs in recent times has been entry into mergers, acquisitions and formal or informal alliances with other companies to complement their strengths. The assumption in this approach, apart from the belief that large deeds can be successfully carried out only by large corporations formed through mergers and acquisitions, is that the new entity will not only have financial strength to meet the increasing and often times unaffordable R&D costs, but also will complement the management and technical skills as well as business and product portfolios of the partners. Over a dozen mega mergers between large pharmaceutical companies have taken place over the last few decades, the first important one being in 1962 between the Swiss giants, CIBA and GEIGY.
Since then the momentum of continuing to deploy this approach has been increasing in U.S., Western Europe and recently even in Japan. In 2003 several multi billion dollar deals were finalised between pharmaceutical companies in US and Europe. They included Pfizer with Pharmacia-Upjohn ($57 billion), Amersham with General Electric ($9.7 billion), Biogen with Idex ($6.7 billion), Johnson & Johnson with Scios ($ 2.4 billion) and Roche with Igen ($1.4 billion). In 2004, the mergers included Sanofi takeover of Aventis ($62.6 billion), Johnson & Johnson of Guidant ($ 24.5 billion), Mylan of King Pharmaceuticals ($4 billion) and Roche of Bayer's Healthcare OTC ($2.9 billion). Whether this strategy which was also aimed at increased spending capacity for R&D, really improved the productivity of R&D vis-à-vis those of the partners is still not established. In fact in one study it was implied that size is indeed a deterrent to creativity and innovation, both of which are essential pre-requisites for drug discovery programmes. In yet another report it was mentioned that the recent mergers and acquisitions in the pharmaceutical sector in fact has made the situation in the industry worse.
Activities of Indian companies in this area have been marginal, even though there are indications that this will be one of the preferred options for smaller companies to stay in business in view of the emerging patent regime and stricter regulatory requirements (Schedule M and others). Off-shore acquisitions of companies by some of the Indian pharmaceutical companies have been largely aimed at gaining a foothold in those countries' markets or for eventually establishing a manufacturing base as well as to expedite regulatory processing to enable easier and earlier approvals of their Abbreviated New Drug applications (ANDAs). The costs of acquiring an R&D company in the US to leverage the latest developments in the area by an Indian company is still a pipe dream since costs/benefits ratio would be unacceptable to most Indian companies. There are exceptions as always, Dr. Reddy's Laboratories have an research arm in Atlanta, USA, to pursue state - of -the -art genomics- based research for new drug discovery.
LIMITATIONS
As the leading Indian pharmaceutical companies enter the precincts of new drug discovery research to meet the challenges of the new patent regime, they need to deliberate on the appropriate modalities for drug discovery research which would be cost-effective and within their investment capabilities. Following the current Western model of drug discovery research is not only cost-ineffective, but also unaffordable to even the largest of the Indian companies. The strategy of adopting the licensing route at defined milestones in the drug development cascade to third parties for development, by itself does not provide India competitive advantages in the global market place as an innovator of new drugs. It is interesting to analyse the pitfalls of the current model and suggest alternate approaches to meet the new challenge.
To afford the high costs of R&D and improve performance, R&D-based pharmaceutical companies have been pursuing the strategic route of mergers and acquisitions during the last few decades. The alliances thus forged were in many cases among near equal partners such as Glaxo-Wellcome and Smith Kline, Pfizer and Warner Lambert,
Pfizer and Pharmacia-Upjohn, Hoechst and Roussel, Ciba and Geigy, Ciba-Geigy and Sandoz, Bristol Myers and Squibb, Aventis and Sanofi etc. There are also several instances of large pharmaceutical companies acquiring stakes in smaller companies to strengthen their research pipelines such as Roche and Genentech, J&J and Centocor, J&J and Alza Corporation, J&J and Guidant etc. These alliances not only improved the finances of the new entity, but also complemented their therapeutic ranges, R&D pipelines and marketing strengths. However, the size of the new companies compel them to deploy their R&D efforts and investments only in areas aimed at discovery and development of blockbusters for lucrative markets. In the process the priorities of these companies are increasingly shifting to markets rather than meeting medical needs. The losers in the new game are the developing countries and their health problems.
New drugs, ever since the advent of chemotherapy, have been discovered from two major sources, synthetic chemicals and natural products including plants, animals and microbes. During the last two decades the new field of use of recombinant DNA technology has also made a foray in new drug discovery. While these sources are still the major ones, there has been a paradigm shift in the ways they are being used to discover and develop new drugs.
Drug discovery programmes of the 50's to 70's started in the medicinal chemistry laboratories where large number of new chemical entities were synthesized, isolated from natural products or produced by the fermentation process and screened for their biological activity in various iv-vitro (where relevant) and in-vivo animal models. Even though the selection of chemical entities was in some cases based on established drugs or leads from traditional use, in most cases all new molecules synthesized by chemists were routinely subjected to random screening against available models.
This approach practiced by all the major R&D-based companies for almost three to four decades was to a large extent a numbers game with a heavy element of chance and luck contributing to success. There was very little rationale for the selection of a chemical class, a plant, or a microorganism at the beginning of the programme even though once a lead molecule which may not be a candidate for development was identified considerable efforts at improving its activity through analog synthesis based on Quantitiative Structure Activity Relationships (QSAR) were deployed with successful outcomes.
Yet another important aspect of this approach was the positive role that serendipity played in drug discovery. Serendipitous discoveries resulted from observations during the pre-clinical drug development phase as well as in the clinical phase or in rare cases post-marketing. The best known example even today was the discovery of Penicillin by Alexander Fleming which revolutionised anti-infective therapy and led to a plethora of antibiotics in future years. Subsequently the discovery of minoxidil for hair loss or even of sildenafil citrate (Viagra) for erectile dysfunction established that serendipity continued and will continue to be part of drug discovery scene, provided scientists and clinicians keep their minds , eyes and ears open to unexpected results.
Problems of random screening approach
The problems with this approach are related to the fact that it is somewhat based on statistical odds of discovering something new. In addition, from the biological screening perspective there are deficiencies in the pharmacological models used for screening, particularly in animals. These were developed without any rationale and are hardly representative of the disease progression in humans. Thus the models of streptozotocin diabetic rats, carragenin rat paw edema, UV erythma or turpentine pleurisy as indicators of anti-inflammatory or even anti-rheumatic activity, carbon tetrachloride induced hepatic damage as a model for liver disorders and many others had little relation to the corresponding disease condition and hence their relevance to predict activity in humans was questionable. Yet another major problem faced in the development of primarily anti-infective agents was the absence of in-vivo activity when very potent in-vitro active molecules were tested in animals. While it was known that this was primarily due to the physico-chemical properties of the molecule including solubility, protein binding, PKas and their pharmaco-kinetic behaviour, little attention was paid to modify these to make them active in-vivo.
It was therefore rightly concluded that while it is true that the random screening approach did produce some valuable drugs, it was not the preferred approach to new drug discovery and if this approach is pursued, it will not only erode its usefulness for the discovery of new drugs, but will also make the process even more costly.
From the perspective of the gestation period required for drug development from the concept to the market, while the time frame for identifying the candidate molecule for development cannot be predicted, the time required for completion of subsequent steps could be estimated with reasonable accuracy. A major factor negatively impacting on the time needed for drug development was the fact that according to this model all activities are carried out sequentially and and consequently the total time was additive and dependent on the successful outcome of each individual step before the next step could be initiated.
Plants with medicinal properties have been known for thousands of years and have been used by traditional societies to treat diseases. In fact it is estimated that over 25% of the drugs discovered have some relationship to the knowledge of medicinal properties of natural products. While whole plants or parts of plants, their extracts and fractions thereof are still used mostly in traditional medicines of various countries, the Western drug discovery teams use these as sources of phytochemicals or as leads to synthesise bioactive molecules. Products from medicinal plants such as quinine, morphine, strychnine, ephedrine, aspirin, belladonna, digixin etc were used for various ailments before their pharmacology or other biological properties were known. The discovery of reserpine from Rauwolfia serpentina in the late 50's and its development as a an anti-hypertensive drug by CIBA led to a major move among pharmaceutical companies to investigate plants for their medicinal properties. A whole new world of steroids was discovered from the work on the Mexican Yam (Dioscorea species) from which a range of contraceptives and other hormonal steroids were developed. Investigations on the secondary metabolites produced by plants led to the isolation, characterization and structure determination of several new types of molecules including alkaloids, terpenoids and phytosterols. Secondary metabolites isolated from plants were also used as leads for new molecules, as well as, as substrates for sem-synthetic conversions. The whole range of statins as hypolipidemic agents, ACE inhibitors for hypertension, various immunosuppressants and oncology products came out of these efforts. The development of Taxol from Taxus brevifolia as an anti-ovarian cancer drug and of artemesinin and derivatives as anti-malarial drugs are more recent examples. Microorganisms isolated from mostly soil sources were used to produce a host of antibiotic classes useful against a variety of gram positive and gram negative bacterial infections.
In spite of such an impressive array of natural product-based therapeutic products, interest in the area waned over the years. No major drugs were forthcoming through this route and pharmaceutical companies terminated their natural products R&D activities and investments in the area. It has to be emphasized that the Western approach to natural products-based drug discovery was restricted to isolation of active principles using plants as a source and developing them through the conventional drug development cascade including all the pre-clinical and clinical studies needed for new drug approval by the regulatory agencies.
Rational approaches to drug discovery
The compulsions to rationalise drug discovery approaches stemmed from the following imperatives. 1) Better drugs with a higher therapeutic ratio (efficacy to safety) and therapeutic rationale were needed for most disease conditions 2) the time required for the discovery and development of new drugs needed to be shortened 3) overall costs needed to be reduced to contain escalating costs on drugs as a component of healthcare costs and 4) companies had to have products with unique properties to gain competitive advantages and market share. Generally the new approaches to rationalise new drug discovery consist of 1) building large chemical libraries of new synthetic molecules as well as natural product extracts, subjecting them to high throughput and ultra high throughput screening using robotic systems 2) structure activity relation (SAR) studies on the lead molecules and 3) development of QSAR techniques to minimize the number of molecules which needed to be synthesized.
The impact of the new science of genetic engineering, the deciphering of the genomes of humans and over 60 other organisms, isolation of disease-causing genes and the proteins they express, the development of molecular targets as screening models for drug discovery are the new approaches which have both supporters as well as detractors. Indian researchers and pharmaceutical companies need to take an objective look at all these issues and evolve their own strategies to ensure that their limited resources will be optimally utilised and new drug discovery research in India will develop and practice a fundamentally new approach.
- (The author is a leading phrama consultant based in Chennai, India)