Presentation - One

Case: The Global Pharmaceutical Industry

The case look at the development of Ethical Pharmaceutical Industry.

i)

Aditya Bhandari (3)

(ii) Bobby M. Roy (15)

(iii) M. R. Binuchandran (27)

(iv) Mahavir Singh (28)

(v) Vijit Madan (55)

Factors affecting the following: Discovery

Production

Distribution

In terms of Origin and recent Developments.

Marketing of Prescription Drugs

* Author of the case had invited to consider the trends for the future.

#compounds Non-Clinical Pharmacology & Toxicology Studies

Cost

5,000 10,000

Clinical

IND Filing 30 Days Wait

Chemical Synthesis

& Preclinical Patemts Granted

Phase of Development

Patemts Filed

Phase of FDA Submissions

Early Research

Pre—Clinical Testing & Pharmacology Toxicology

Phase I Phase II Clinical (Safety)

Clinical (Efficacy)

Phase III Clinical (L/T AEs &

FDA Approval

Idea

NDA Submission

Creating New Pharmaceuticals (Source: Tufts CSDD)

Phase III

Phase IV

Clinical (Cont.)

(Postmarketing. (Clin. Education etc.)

Efficacy)

6

10

Pharmacologic Screening Pharmacodynamics Pharmacokinetics Toxickinetics Acute toxicity Subchronic Toxiclty Genotxiclty

5

Chronic toxiclty Carcinogeniclty Reproductive Toxiclty Additional Genotoxiclty Special Toxiclty

$313+Million (1998)

3

1-2

Supplemental Reporting

1

PHARMACEUTICAL INDUSTRY IS CHARACTERIZED BY Highly Risk Lengthy R & D Intense Competition for Intellectual Property.

Stringent Govt Regulation.

Stringent Govt regulation Powerful Purchase Premises

CHARACTERISTICS OF PHARMACEUTICAL MARKET • •

Decision making was in the hands of medical practitioners. Patients (the final consumers) payers (Govt or insurance Coys) had little knowledge or influence.

RESULT

•

Medical practitioners were insensitive to price but susceptible to the sales efforts of individual representatives

• Enabled numerous “me too” drug. • •

Imitating a known drug reduced R&D risk. With same therapeutic outcome products offered offering minor advantages.

TWO IMPORTANT DEVELOPMENTS IN 1970s • Tighter regulatory controls on clinical trials.

- resulted in increasing developing costs. • Enactment of legislation to set a fixed period on patient protection.

- resulted in appearance of “Generic Medicines"

What is generic medicine ? Generic medicine is a drug which is produced and distributed without patent protection (the generic drug may still have a patent on the formulation but not active ingredient).

IMPACT OF GENERIC LEGISLATION  Incentives for innovation & race to market. 

   



Putting upward presume on prices while time during which R&D costs could be recouped was drastically entailed. Beneficial for Society. Valuable medicines become extremely cheap. Cost is so low that developing countries can offered. Benefited of the previous marketing efforts of the brand named drug company including media advertising etc. Introduction of competition, which prevents any

CHANGES FELT IN PHARAMA INDUSTRY 1980’s

•

Govt around the world started targeting Pharma industry .

•

Started controlling health Care expenditure. Tax funded systems

•

Price Increases began to be outlawed.

•

Pharma Industry lacked the Public or Political Support to resist

(Canada, Italy, Spain and U.K)

(

•

World wide recession reduced cash for provision of health care, through

•

Started Recognised that healthcare had none of the normal checks and

balances of a free market to match supply & demand. • Payers (Govt / insurance agencies) would no longer tolerate spiraling health care costs and created incentives for decision makers. .

ny )

1990’s

r ye ded plo fun Em tely ms e iva st ) y S US

Startup of small biotech companies.

Pr

•

S Su oci pp al o Se (F ran rted cu ce sy rity &J , G ste ap erm m an a

above changes.

Turn of Millennium •

By 2003 there are more than two publicity traded biotech worldwide.

•

Global shortage is production capacity

•

Biological contributed only 7% of global market value.

•

High attrition rate in drug development made the creation of integrated sales and research platforms a lazardorus strategy

•

Prescription only or “ethical “ drugs comprised about 80% of global pharmaceutical market and 50% of volume.

•

Rest were “over the counter “ medicines (OTC) which may be purchased without prescription.

INDUSTRY

PLAYER

Strategic Capabilities

ETHICAL

STRONG R&D GLOBAL SALES MARKETING AND INFRASTRUCTURE

OTC

DIRECT TO CONSUMER MARKETING

GENETRIC

SUPPLY CHAIN MANAGEMENT & MANUFACTURING COST LEADERSHIP

BIOTECH

CREATE AND DEFEND INTELLECTUAL PROPERTY

Methods used to Control Pharmaceutical Spending

Ethical Pharmaceutical Companies. Suffered from Low Utilization , high fixed costs and low productivity. Relocation were tax advantages is offered. In 2002 generic captured 65 to 80% of new prescriptions within 5 weeks of patent expiry Sales & Marketing (25%)

Generics actively encouraged in European union Markets. Brand loyalty was no longer a safeguard following patent expiry.

Manufacturing of goods (25%) R & D(12 to 21%)

Administration (10%)

Global Presence

Key Markets

Govt Price control created “Parallel trade”.

• Profit didn’t go to R&D but by parallel importers therefore loss to industry. • Global Pharmaceutical sales originate in the Triod (US , Europe & Japan). • World Market more US-Centric therefore industry exposed to fluctuation in that market. • The economic health of pharmacy Industry in Japan & Europe was slow.

• Japan faced the challenge of economic recession causing tax revenue to fall, again population which resulted in unprecedented price cuts. • Germany, France, Italy, UK, Spain are the top five markets in Europe. • Low price than US or Japan. • Now challenges from Generics and Low priced parallel imports. • Pacific rim countries were becoming more important. • China in focus radar of Pharma Industry. • Least developed countries provide the industry the important choice in area of corporate social responsibility.

INNOVATION Development times were lengthening.

Innovative

R & D in decline. Stringent regulatory hurdles. Clinical trials became very expensive.

Patentable

ETHICAL COMPANIES Developed Rapidly

Differentiated Two third of the industry’s total pipe line resided in small companies with 67% available for ceiling.

Sales and Marketing Traditional focus of drug marketing was personal. Pharmaceutical promotions was subject to self regulations. Large sales force were becoming obsolete and advocated to be replaced by small number of specialist payer liaison sales people. Firms were caught in classic “Prisoners dilemmas” no one willing to call off the arms race. Novel communication channels such as e- detailing been introduced. Moving drugs from prescription only status to OTC. Aim to extent product life cycle. Switching patients to new improved formulations when the original products expiry is near.

(i) Successful Drug Launches Product Superiority

Correlated Strongly

High Prices

High Promotional Spend

(ii) High Compression Marketing by Global Brands World Wide Launches Product Superiority Global Branding Correlated Strongly Very Heavy Investment in Promotion Share of voice around time to launch

World Wide Launches Product Superiority

Correlated Strongly

Share of voice around time to launch

Corporate social responsibility Pharma industry lost its sheen. Corporate greed is one of the cause. Failed in balancing societal and shareholder expectations. Unethical practice by few brought govt regulations and intervention. Marketing strategy been alleged as “legalised bribery”. Industry been criticised for oligopolistic behavior. Cost beyond the reach of common man. Life style cures got priority..

Strategic Responses Consolidation at Global Level. Critical Mass in R&D and Global marketing was advocated but sanofisynthelebo & Agmen proved otherwise. Mergers has resulted in formation of Novartis,Aventis , Astrazenecea and Glaxo Smithkline while Pfizer acquired Warner-Lambart and then Pahrmica. More management layers resulted in greater bureaucracy, less freedom to innovate thus reduced R&D output. Some proposed that R&D and Marketing should autonomously. Operating a new “integrated health care” business model. Roche claimed to be the only company embracing the “integrated health-care”.

Conclusion Pharmaceuticals companies are facing their toughest outlook in a decade. Product approval pricing and promoting are subject to increasingly onerous regulation, yet free allows wholesalers to extract a large chunk of value from the chain without adding anything back. Companies must balance shareholder return against the huge unmet need of developing nations. Industry consolidation is driven by the dominant belief that size is what counts, although a few players prefer to build focused franchises or offer integrated health care solutions. Meaningful innovation is what matters most, but it is not clear that a business formula based on inventing and selling blockbuster drugs can continue to sustain double-digit growth rates.

Thanks..