MBT-204 Pharmaceutical Management

Module I: Pharmaceutical Industry: History, issues and challenges Evolution of pharmaceutical industry Role of Pharmaceutical Industry Organization & governance of R & D Global Pharmaceutical Industry review

 Pharmaceuticals: what the term pharmaceutical encompasses 1) medicinal products 2) Vaccines 3) contraceptives 4) diagnostics 5)medical supplies

 Pharmaceutical Management: It is the set of practices aimed at ensuring the timely availability and appropriate use of safe and effective quality medicines, health products and services in any healthcare setting

Evolution of Pharmaceutical Industry

Origins of the pharmaceutical industry- the chemical industries of dye stuff (of the late nineteenth century) in the upper Rhine Valley of Switzerland When dye stuffs were found to have antiseptic properties, a number of these industries turned into pharmaceutical industries e.g. Hoffman-La Roche, Sandoz, Ciba-Geigy, etc. Another origin - drug store Arabian Pharmacists in Baghdad in 754 A.D. 19th century-many of the drug stores in Europe and North America had developed into larger pharmaceutical companies today's major pharmaceutical companies were founded in the late 19th and early 20th centuries.

 1920s and 1930s - Key discoveries-insulin and penicillin Mass manufacturing of insulin and penicillin strong industries in-Switzerland, Germany, Italy, UK, US, Belgium and Netherlands Research and Development-became a major thrust area of the pharmaceutical industry with the introduction and success of penicillin and other innovative drugs in the early forties

 World War 2 (1939-1945)-huge advances in medicine and surgery were made Penicillin was used on wounded soldiers and civilians men-With the use of a penicillin dressing, the chance of a wound getting infected was vastly reduced and survival chances greatly increased war forced companies to develop a way of making the highly effective medicine on an industrial scale mass production of penicillin proved to be vital to soldiers- Florey, Chain, and Fleming shared the Nobel Prize for Physiology or Medicine in 1945 Malaria- World War II forced the Army to develop new tools and strategies for use in malarious areas where fighting was occurring

Standards of clinical search

In1964-after the thalidomide tragedy, the World Medical Association set standards for clinical research Pharmaceutical companies were required to prove efficacy and safety of the drug in clinical trials before marketing them 1960s - attempts were made by the U.S. Food and Drug Administration (FDA) to increase regulation of pharmaceutical industries

Patents
The new regulations revoked permanent patents and established fixed periods on patent protection for branded products

 1978-India took over as the primary center of pharmaceutical production of bulk drugs and products for generic drugs (without patent protection)

Evolution of Indian pharmaceutical industry

Indias first pharmaceutical company-Bengal Chemicals & Pharmaceuticals Limited (BCPL), established in 1901, founder-Dr. Prafulla Chandra Ray (Dr. PC Ray) Till 1970 (Phase I) Market share domination by foreign companies Relative absence of organized Indian companies

IDPL (Indian Drugs and Pharmaceuticals Ltd.)- established in 1967-played a pioneering role in the growth of the Indian drug industry base

 1970-1980 (Phase II)-Government Control Indian Patents Act 1970 (IDPL and Indian patents Act gave momentum towards self-sufficiency and self-reliance in the field of drugs
and pharmaceuticals) Essential and life-saving drugs-Tetracyclines, Antifungals, Sulphonamides, Vitamins, Analgesics, Anti-hypertensives, Diuretics, Hypnotics, Antimalarials and Fluoroquinolones

Drug prices capped Local companies begin to make an impact

 1980-1990 (Phase III), Development Phase Process development Production infrastructure creation Export initiatives 1990-2000 (Phase IV), Growth Phase Rapid expansion of domestic market International market development Export crossed Rs. 5688 crore Research orientation

 2000-2010 (phase V), Innovation and Research New IP law Discovery Research Convergence

Indian Industry-dramatic progress

1947-2005( 10 crores production value to Rs 4098 billion ) India manufactures over 400 bulk drugs and 60,000 formulations

Role of Pharmaceutical Industry in India GDIndia Advantage

India has the advantage of the cost, as the cost of labor, the cost of inventory is much lower than other places The multinational companies, investing in research and development in India may save up to 30% to 50% of the expenses incurred The cost of hiring a research chemist in the US is five times higher than its Indian counterpart The manufacturing cost of pharmaceutical products in India is nearly half of the cost incurred in US The cost of performing clinical trials in India is one tenth of the cost incurred in US The cost of performing research in India is one eighth of the cost incurred in US

Pharmaceutical Industry in India-Growth

The Indian Pharma sector leads the science-based industries in the country The pharmaceutical sector has the capacity and technology pertaining to complex drug manufacturing Around 40% of the total pharmaceutical produce is exported 55% of the total exports constitute of formulations and the other 45% comprises of bulk drugs The Indian Pharma Industry includes small scaled, medium scaled, large scaled players, which totals nearly 300 different companies There are several other small units operating in the domestic sector

Role of Pharmaceutical Industry in India GDPFacts

The Pharmaceutical Industry in India is one of the largest in the world It ranks 4th in the world, pertaining to the volume of sales The estimated worth of the Indian Pharmaceutical Industry is US$ 8 billion The growth rate of the industry is 13% per year Almost most 70% of the domestic demand for bulk drugs is catered by the Indian Pharma Industry The Pharma Industry in India produces around 20% to 24% of the global generic drugs The Indian Pharmaceutical Industry is one of the biggest producers of the active pharmaceutical ingredients (API) in the international arena The Indian Pharma sector leads the science-based industries in the country

 The pharmaceutical sector has the capacity and technology pertaining to complex drug manufacturing Around 40% of the total pharmaceutical produce is exported 55% of the total exports constitute of formulations and the other 45% comprises of bulk drugs The Indian Pharma Industry includes small scaled, medium scaled, large scaled players, which totals nearly 300 different companies There are several other small units operating in the domestic sector

Pharmaceutical Industry in India-Growth

As per the present growth rate, the Indian Pharma Industry is expected to be a US$ 20 billion industry by the year 2015 The Indian Pharmaceutical sector is also expected to be among the top ten Pharma based markets in the world in the next ten years The national Pharma market would experience the rise in the sales of the patent drugs The sales of the Indian Pharma Industry would worth US$ 43 billion within the next decade With the increase in the medical infrastructure, the health services would be transformed and it would help the growth of the Pharma industry further With the large concentration of multi national pharmaceutical companies in India, it becomes easier to attract foreign direct investments The Pharma industry in India is one of the major foreign direct investments encouraging sectors

Role of Pharmaceutical Industry in India GDPCRAMS

The Indian Pharmaceutical Industry is one of fastest emerging international center for contract research and manufacturing services or CRAMS The main factors for the growth of the CRAMS is due to the international standard quality and low cost The estimated value of the CRAMS market in 2006 was US$ 895 million Indian already has the biggest number of US Food and Drug Administration (USFDA) standardized manufacturing units outside the territory of United States Around 50 more new manufacturing units are to be set up in accordance to the USFDA and UK Medicines and Healthcare Regulatory Agency (MHRA) standards

 With all these development India is posed to become the biggest producer of drugs in the world Some of the major domestic players in this sector are Paras Pharma, Bal Pharma, Unijules Life Sciences, Flamingo Pharma, Venus Remedies, Surya Organics and Chemicals, Centaur Pharma, Kemwell, Coral Labs The contract manufacturing market in India pertaining to the multinational companies is expected to worth US$ 900 million by the year 2010

Role of Bio-Technological Industry in India GDP-Facts

Indian Bio Technology sector is among the five rising biotech industries in the region of Asia-Pacific The Indian Bio tech industry is the biggest producer of vaccine in the world The Bio Technology sector in India is the largest producer of Bt cotton (BT cotton is genetically modified to contain a natural toxin created by a bacteria whose initials are BT) The Bio Tech industry in India has the maximum number of companies operating under it There are 325 different companies with the Indian biotech industry The total revenue generated annually is around US$ 2 billion

Bio-Technological Industry in India-Functions

Bio-Technological is a combination of technology and science pertaining to the field of biology The application of biotechnology is done in order to transform, natural and genetic systems for a particular use The biotechnology sector comprises of several fields such as bio agriculture, bio pharmaceuticals, bio fuels, etc. In India few companies have discovered biotechnology-based medicine pertaining to diabetes and cancer The agricultural sector is immensely benefited by this biotech industry The development of transgenic crops such as rice, chickpea, and corn is one of the success stories of the Indian Bio Technology sector Bt cotton is one of the most significant genetically modified crops grown extensively in India The total area under the cultivation of Bt cotton in India is more than 6 million hectares The growth of the transgenic crops sector is highest in India, nearly 200 %, where as the international average growth in this sector is 13%

Role of Bio-Technological Industry in India GDP-Trends

With the continuous development in the Indian Bio tech industry, several trends are coming up Hyderabad has become one of the major centers for research pertaining to biotechnology, with the establishment of the Genome Valley project The Genome Valley project earns a foreign exchange of US$ 1.24 billion per year The state of Gujarat has become a hub of biotechnology with the huge concentration of biotech companies in the state The biotech sector expects a major part of the revenue to come from the Indian pharmaceutical industry The biotech sector also acts as a Contract Research Organizations (CRO), catering to several other organizations The Indian market of Contract Research Organizations is growing at the rate of 30% to 40% and is presently worth US$ 250 million

The exports pertaining to the Bio-Technological Industry in India is increased by 47% according to the Biotech Industry Survey The investments in the Biotech Industry was mare than US$ 580 million in the year 2006-07 The major investors in the biotech sector are AstraZeneca, Jubilant, Biocon, GE Healthcare, etc The Indian Biotechnology Industry comprises of biopharmaceuticals, bioservices, bioagriculture, bioinformatics, and bioindustrials sectors The biopharmaceuticals sector makes up for 40% of the industry and represented a growth of 27% with the sales amounting to US$ 1.46 billion in 2006-07 The bioservices sector accounting 21% of the industry registered a growth of 53% The bioagriculture segment accounting 19% of the industry registered a growth of 55% The bioinformatics and bioindustrials sector accounting 14% and 5% of the industry respectively registered growth of 21% and 5% India has become one of the most favorable places pertaining to the bioinformatics, clinical research, contract research and manufacturing, collaborative research and development, which would provide tremendous boost to the Biotech industry

Role of Bio-Technological Industry in India GDPGovernment Initiatives

The Government of India recognized the potential of the biotech sector in the development of the economy of the country The National Biotechnology Board (NBTB) was set up in the year 1982 as the premiere agency to formulate long term developmental plans for the biotech industry The Department of Biotechnology (DBT) was set up in the year 1986 as a government department The Government of India has allowed 100% foreignbased investments for the manufacturing of all kinds of drugs apart from cell-targeted therapies and recombinant DNA products

Role of Pharmaceutical Industries

Solution for existing medical problems and requirements To improve efficiency or safety of medicines Becoming innovative rather than imitative R & D strategy is changing from reverse engineering to patent driven approach

Organization and Governance of R & D

Important government regulatory policies Drugs and cosmetic act 1940 Drug Policy (1986) Indian Patents Act (1970) Drug Price Control Order (1995) Pharmaceutical Policy (2002) Indian Patent (Amendment )Act (2005) Draft National Pharma Policy (2006)

Drugs and cosmetic act 1940

Regulates the import, manufacture and distribution of drugs in India In 1937 a Bill was introduced in the Central Legislative Assembly to give effect to the recommendations of the Drugs Enquiry Committee to regulate the import of drugs into British India. This Bill was referred to the Select Committee and the Committee expressed the opinion that a more comprehensive measure for the uniform control of manufacture and distribution of drugs as well as of imports was desirable Thereupon the Drugs and Cosmetics Bill was introduced in the Central Legislative Assembly.

Drug Policy (1986)

Under guidance and leadership of our prime minister Mr.Rajiv Gandhi, the main objectives of the Drug Policy 1986 were made Objectives: ensuring abundant availability, at reasonable prices of essential and life saving and prophylactic medicines of good quality strengthening the system of quality control over drug production and promoting the rational use of drugs in the country creating an environment conducive to channelising new investment into the pharmaceutical industry to encouraging cost-effective production with economic sizes and to introducing new technologies and new drugs Strengthening the indigenous capability for production of drugs

Comparison
Indian Patent Act 1970 Process patent 5 years for food, drugs, medicines etc and 14 years for other inventions Indian market became undesirable to the MNC Focus on generic and neglect of new drug discovery Development of expertise in reverse engineering The patent amendment act, 2005 Product patent 20 years for all inventions (filed after 1/1/05) MNCs to enjoy the same IPR in India as they enjoyed elsewhere Shifting of focus from generic to innovative drug discovery

Drugs Price Control order (DPCO) 1995

The Drugs Price Control Order (DPCO), 1995 is an order issued by the Government of India under Section 3 of the Essential Commodities Act, 1955 to regulate the prices of drugs. Provides list of controlled drugs The Order provides the list of price controlled drugs, procedures for fixation of prices of drugs, method of implementation of prices fixed by Government and penalties for contravention of provisions among other things. Powers of the government have been vested in the National Pharmaceutical Pricing Authority (NPPA)

The essential features of DPCO covers the following questions:

How are the prices of drugs and medicines in the controlled category regulated? There are two prices for this fixed by the NPPA as per the provisions of DPCO- Ceiling and Non Ceiling Price . Ceiling Price is the single maximum selling price fixed that is applicable throughout the country in the case of each bulk drug, which is under price control. Non-Ceiling Price fixed by NPPA are specific to a particular pack size of scheduled formulation of a particular company. Whether NPPA has any role to regulate prices of non-scheduled drugs (drugs not under direct price control)? What margins are allowed to a Wholesaler and a Retailer as per DPCO, 1995?

Pharmaceutical Policy (2002)

The main objectives of this policy are:Ensuring abundant availability at reasonable prices within the country of good quality essential pharmaceuticals of mass consumption. Strengthening the indigenous capability for cost effective quality production and exports of pharmaceuticals by reducing barriers to trade in the pharmaceutical sector. Strengthening the system of quality control over drug and pharmaceutical production and distribution to make quality an essential attribute of the Indian pharmaceutical industry and promoting rational use of pharmaceuticals. Encouraging R&D in the pharmaceutical sector in a manner compatible with the countrys needs and with particular focus on diseases endemic or relevant to India by creating an environment conducive to channelising a higher level of investment into R&D in pharmaceuticals in India. Creating an incentive framework for the pharmaceutical industry which promotes new investment into pharmaceutical industry and encourages the introduction of new technologies and new drugs.

The draft National Pharmaceuticals Policy of 2006

This policy says about the the government plans for the following actions to facilitate and encourage clinical trials in India: Early decision on data protection Improved regulatory infrastructure and some form of protection for undisclosed test data The National Toxicology Centre within the National Institute of Pharmaceutical Education and Research to be made fully compliant with GLP norms, in order to facilitate pre-clinical trials Tax benefits available for R&D also to be applicable for clinical trials; Clinical trial samples imported into India to be exempted from payment of import duty on the basis of authorizations/licenses issued by the Drug Controller General of India Direct investment in the field of clinical development and data management to be made exempt from service tax for a period of 10 years up to 2015.

Regulatory Bodies
Ministry of Health & Family Welfare (MoHFW) Ministry of chemicals and Fertilisers (MoC&F)

Main agencies of MoHFW

Central Drugs Standard Control Organisation (CDSCO) -It works both at central and state level -responsible for ensuring safety, efficacy, and quality of drugs supplied to the public This agency performs the functions with the Drugs Controller General of India (DCGI) as the executive head

 DCGI-governs issues like product approval and standards, clinical trials, introduction of new drugs, import licenses for new drugs and enforcing new drug legislation

Major factors of future growth

numerous advancements in science and technology, including those in the health care industry, life expectancy in the developed countries has been steadily growing. As the result, growing proportion of elderly people promises further growth of demand for healthcare products.

Pharmaceutical Industries Overview

major players current trends challenges

Major players of the world pharmaceutical industry

fifteen multinational companies dominating the industry

2004 revenues from the sales of pharmaceutical products

Table 1.1. Major pharmaceutical companies.
Revenue of Company pharmaceutical segment, mln USD Pfizer NY, U.S. 46,133 GlaxoSmithKline UK 31,434 Johnson & Johnson NJ, U.S. 22,190 Merck NJ, U.S. 21,494 AstraZeneca UK 21,426 Novartis Switzerland 18,497 Sanofi-Aventis France 17,861 Roche Switzerland 17,460 Bristol-Myers Squibb NY, U.S. 15,482 Wyeth NJ, U.S. 13,964 Abbott IL, U.S. 13,600 Eli Lilly IN, U.S. 13,059 Takeda Japan 8,648 Schering-Plough NJ, U.S. 6,417 Bayer Germany 5,458 Source: 2004 Annual Reports of the companies HQ location Total sales, mln USD 52,516 37,324 47,348 22,939 21,426 28,247 18,711 25,168 19,380 17,358 19,680 13,858 10,046 8,272 37,013 Share of pharmaceutical segment, % 87.85% 84.22% 46.87% 93.70% 100.00% 65.48% 95.46% 69.37% 79.89% 80.45% 69.11% 94.23% 86.09% 77.57% 14.75%

 Geographical headquarters of major pharmaceutical companies are approximately evenly distributed between the U.S. and Western Europe with only one Asian company in the list

Industry Trends
Here we examine structural changes causing significant transformations, major factors leading to strong future sales growth, and point out the industrys strong reliance on research and development

Structural changes
Besides economies of scale in manufacturing, clinical trials and marketing, bigger companies can allow investments in more research and development (R&D) projects that diversify their future drugs portfolio and make them much more stable in the long term. As the result, topcompanies in the industry were active participants of mergers and acquisitions (M&A), new joint ventures and spin-offs of noncore businesses.

 The largest acquisitions in the industry during last years acquisition of Pharmacia by Pfizer (purchase price $58 billion), acquisition of Guidant by Johnson & Johnson (purchase price $25 billion) European companies -GlaxoSmithKline (merger of Glaxo Wellcome and SmithKline Beecham), AstraZeneca (merger of Astra and Zeneca) and Sanofi-Aventis (merger of Sanofi-Synthelabo and Aventis)

strategic alliances and joint ventures

Another form of structural change in the industry was establishing of new strategic alliances and joint ventures. So far as the research and development process for each drug take many years and requires significant investments, and the outcome of these investments of time and financial resources remains unclear until the final approval of the drug, Big Pharma companies are constantly looking for synergies that they can get from cooperation with their competitors. Last years gave multiple examples of such initiatives. For example, cooperation of Sanofi-Aventis and Bristol-Myers Squibb resulted in production of Plavix, which is currently one of the top-selling products for each of these companies.

Massive sales of nonpharmaceutical businesses

Finally, Big Pharma companies in order to maintain strong sales growth and meet profitability expectations of their shareholders were actively selling low-profitability or non-core businesses. For example, in 2003 Merck sold its low-profitability Medco Health Solutions that helped to increase its profitability margin. Massive sales of non-pharmaceutical businesses by Takeda also were compatible with its strategy to concentrate its financial resources on its core pharmaceutical business.

 For example, only about one third of the U.S. population who requires medical therapy for high cholesterol is actually receiving adequate treatment. As it is expected, the Medicare Prescription Drug Improvement and Modernization Act starting from the beginning of 2006 will increase access of senior citizens to the prescription drug coverage, thus increasing pharmaceutical sales.

 Although developing countries at the moment have a small portion of world pharmaceutical sales, these countries also have a significant potential for the pharmaceutical industry in the future. Fast growing economies in Asia, South America and Central & Eastern Europe suggest an increasing solvency of population and make these markets more and more attractive for Big Pharma companies. Further reforms of legislation systems in the countries of these regions, especially regarding patent protection issues, will inevitably result in growing pharmaceutical sales.

Strong emphasis on R&D

One of the distinctive characteristics of the Big Pharma companies is a very high level of investments in research and development. On average, it takes about 10-15 years, and millions of dollars to develop a new medicine. According to industry statistics, only about one in ten thousand chemical compounds discovered by pharmaceutical industry researchers proves to be both medically effective and safe enough to become an approved medicine, and about half of all new medicines fail in the late stages of clinical trials. Not surprisingly,

Key Challenges
The main challenges for drug companies come from four areas: First, they must deal with competition from within and without. Second, they must manage within a world of price controls that dictate a wide range of prices from place to place. Third, companies must be constantly on guard for patent violations and seek legal protection in new and growing global markets. Finally, they must manage their product pipelines so that patent expirations do not leave them without protection for their investment.

First, obviously, Big Pharma companies compete among themselves

almost all of them are active in R&D and production of drugs in the segments with the highest potential such as treatment of infectious, cardiovascular, psychiatric or oncology diseases

 Secondly, Big Pharma companies experience significant profit losses due to competition from the generic drug manufacturers.

 Opposite to the research-oriented pharmaceutical companies, which invest significant financial resources and time to develop new medicines, generic drug manufacturers spend minimum resources on R&D, and start manufacturing already developed by other companies drugs after their patent expiration. Because generic drug manufacturers do not have to recoup high R&D costs, prices of their products are usually much lower then those of major pharmaceutical companies; as the result, after patent expiration, generic drugs manufacturers capture significant market share, dramatically decreasing revenues of the Big Pharma companies.

 Finally, the whole pharmaceutical industry competes with other health care industries. In this case, pharmaceutical companies should not only demonstrate high efficiency of their products, but also provide obvious proof of cost advantages in comparison with other forms of care.

Price control
One of the most important aspects of government regulation for pharmaceutical companies is price regulation, and different countries have different policies on this issue In the United States the largest and the most attractive pharmaceutical market currently there is no direct price control for non-government drug sales. At the same time, it is expected that Medicare Prescription Drug Improvement and Modernization Act will potentially increase downward price pressure. The majority of European countries control drug prices, and this downward pressure on prices has been increasing during last years. Japan has even stricter price controls than European countries; all prices are controlled by the government, and they are subject to a periodic price review. As the result of price control, prices of the same products can significantly differ in different countries.

Protection of patents
Generic drugs manufacturers represent a significant threat to research-based pharmaceutical companies. For example, Schering-Ploughs Claritin patent expired in 2002; as the result of generic drug competition, sales of Claritin by Schering-Plough declined from $3.2 billion in 2001 to $1.8 billion in 2002 and to $0.37 billion in 2003. Moreover, generic drugs manufacturers sometimes start production of patent-protected drug analogues even before a patent expires. Although research-oriented companies in many cases are able to protect their patents, they do suffer from lost revenues. Therefore, protection of patents is one of the key conditions necessary for further development of the pharmaceutical industry.

Drugs portfolio management

most important determinants of long-term prosperity of research-oriented pharmaceutical companies Projects that the company starts today will determine its financial performance 10-15 years later. Therefore, careful planning of R&D projects is very important for the long-term stability of the company.

 Second, insofar as patents keep exclusivity of drugs only during a limited time, and soon after the expiration of the patent the sales of the drug sharply go down, the company has to carefully monitor its patent expiration dates, and insure that new products become available by that date.