Pharmaceutical Industry: A close look

Contents a. b. c. d. e. Overview Practices, processes and techniques Classification of products Industry Segments Regulatory Framework

Pharmaceutical Industry: Overview

Pharmaceutical firms are involved in discovery, development, manufacturing and marketing of drugs and other related pharmaceutical products. Drug discovery is the process of identifying therapeutic components. Discovery can be done by identifying therapeutically active ingredients in natural substances or isolating them from synthesized substances. This discovery can be made by analyzing traditional remedies or by serendipitous discovery. Recent trends also include utilizing tools of biotechnology to either reverse engineer disease mechanisms or studying biological pathways to identify therapeutically active ingredients. Drug development refers to the activities undertaken after drug discovery in order to establish the compounds suitability as a medication. Thus, it involves analyzing the discovered compound to determine appropriate levels of dosage, formulation, safety etc. Both discovery and development come under the Research and Development stage. This stage is relatively more cost intensive than in any other industry due to risk involved (probability of medically approved compound being discovered is 10-4; only 33% of approved drugs are profitable). This stage can either be outsourced or performed inhouse (as in the case large corporations). Thus, there are also companies that are involved only in the R&D stage. This practice of standalone R&D, in recent times, has given a boost to a complimentary sector (Biotech). Drug manufacturing is the actual production of developed and approved pharmaceutical products to be sold in the market. Based on the type of drug manufactured and customer targeted the manufacturing process varies. The production process in this industry is highly regulated and monitored by various bodies demanding high levels of safety and process standardization. Drug marketing includes advertising, marketing and lobbying. Usually large pharmaceutical companies spend large amounts on all these three components to mitigate the huge risk involved in R&D ($19bn spent annually in the US for marketing)

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Practices, processes and techniques

The process of drug creation is standardized in most countries. The major processes and techniques are similar throughout except a few minor variations regionally. NCE (New Chemical Entities) or NME (New Molecular Entities) are compounds which emerge from the process of drug discovery. These will have promising bio-medical activity but their safety, toxicity, pharmacokinetic (medical reaction) and other characteristics are unknown. These NCE are analyzed in preclinical trials (animal trials; in-vitro trials) for various characteristics (toxicity, pharmacokinetic etc.) and a recommendation is made based on which human clinical trials are commenced. Clinical Trials Phase I: On healthy patients, to determine safety and dosing. Phase II: Analyze efficacy and explores safety on small population of patients Phase III: Large trials to determine safety and efficacy in sufficiently large numbers of patients API (Active Pharmaceutical Ingredients) are the precursors of prescription drugs. They are synthesized from the NCE or extracted from already known remedies. Certain pharmaceutical companies specialize in manufacturing only APIs and selling them to other manufacturers. Bulk drugs are usually APIs or mixture of APIs which are the raw materials for formulations. These can also be specifically manufactured by certain companies. Rarely APIs and Bulk Drugs may also be administered directly as therapeutic agents and thus they are not just raw materials but sometimes also the actual medication. Formulation (dosage form) is a mixture of active drug component(s) and nondrug component(s) which is prescribed or administered for therapeutic/preventive reasons. Formulation may either refer to the drug or the chemical formula of the drug. This is usually the final medical product that is prescribed, purchased and consumed/administered. DMF (Drug Master Filing) is a document containing complete information on an Active Pharmaceutical Ingredient (API) or finished drug dosage form. It is filed by a company as proprietary information (usually for its patented product) to protect its intellectual property from its partner while complying with regulatory requirements for disclosure of
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processing details. It contains factual and complete information on a drugs chemistry, purity, packaging, safety and the common Good Manufacturing Practice. Patents are particularly important in the pharmaceuticals industry where they are used to protect the large R&D investments. They can be obtained during any stage of R&D or manufacturing on any compound (NCE, API, Formulation etc.). They are a core instrument used in the competition between companies. DMF and patents are not to be confused: DMF is to disclose information according to regulatory standards without disclosing proprietary information while patents are filed to obtain exclusive rights over the drug. Generic drugs are manufactured by companies other than the originator company (company holding the patent for the drug) after the patent has run its course. Thus, generics are similar to original patented/branded drug in dosage form, quality and performance characteristics, and intended use. The company marketing a generic is called a generic company in reference to that particular drug. ANDA (Abbreviated New Drug Application) is an application for a generic drug approval for an existing licensed medication or approved drug. CRAMS (Contract Research and Manufacturing Services) is the outsourcing of research/manufacturing of products to low-cost providers with world class standards, in line with international regulatory norms. It is becoming a growing industry in semiregulated developing markets like India. On an average in a mature and regulated market like USA the time taken for a drug to be discovered as a NCE to the time it is readily available in the market as a formulation is about 12-15years. This may vary in a semi regulated market like India usually lesser by 2-3 years.
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The average cost of bringing out a new drug containing a NCE to the market ranges between $800million to $2 billion based on the type of market and drug (average peaked at $1.7billion in 2003). This is over and above the huge risk involved in R&D as mentioned earlier. Present cost of R&D of a single NCE is $1.8billion. Industry wide R&D (in US) reached $65.3billion in 2009. All these figures cannot be substantiated accurately as the market is flooded with subsidies from different agencies and private trusts in developed markets like USA and Australia; while the players are numerous and market very fragmented in developing countries like India and China.

Classification of products
Drugs can be classified based on a variety of factors like purpose of utilization, route of administration, dosage form etc. Sometimes, drugs are just broadly classified as OTC (over the counter) and Prescription drugs. The former can be bought at any pharmacy while the latter can be purchased only under clinical supervision or with a doctors prescription. The most useful classification of drugs to study their manufacturing economies would be using their purpose of utilization

Drugs

Preventive

Therapeutic

Vaccines
Prophylactic / Universal Selective Indicative

Acute
Anti-infective Gastro-intestinal Analgesic

Nutritive
Supplements Stimulators

Chronic
Cardio-vascular Respiratory

Industry Segments
The industry has been broadly classified as: i. ii. iii. Bulk drugs Formulations CRAMS

The critical success factors, drivers of growth and key players in each of these broad segments is given below.

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Bulk Drugs Domestic Low cost manufacturing through economies of scale and low labour cost Infrastructure availability- Indian industry has nearly 80 US FDA approved facilities for bulk drug manufacturing. Low cost bulk drugs equipment manufacturers in India High regulatory awareness of Indian companies Growing generics market due to patent expiries means a large demand by Indian formulations and other MNC companies for bulk drugs. A growing demand in Indian market due to increase in diseases due to change in lifestyle of people means an increase in demand for bulk drugs. Export Low cost manufacturing which transforms into a low outsourcing cost for foreign companies. High regulatory awareness and English skills of Indian workers which is absent in the Chinese industry. High number of Drug master files by Indian companies with US FDA More number of MNCs outsourcing their bulk drug production Patent expiries in foreign markets increasing the demand for cheap bulk drugs Demographic shifts in regulated markets. Entry into semi-regulated markets like Latin America The emergence of China as low cost manufacturer of APIs. Exchange rate fluctuations The slow growth rate prevailing in developed markets

Critical success factors

Growth drivers

Challenges

Key Players

Aurobindo Pharma, Sun Pharma, Lupin Laboratories, Sun Lupin Laboratories, Dr.Reddys Lab Pharma, Cipla, Dr.Reddys Lab

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Competition from China. There are worries about the increasing imports from china by the Indian and MNC pharma companies. The threat from China looms large given their ability to produce cheap bulk drugs

Formulations Domestic Indias ability to process drugs and re-engineer them. Low-cost manufacturing that makes the drugs available at cheap prices and making it affordable for the Indian people. Economies of scale and skilled workforce Increasing middle class population Rapid urbanization Changing lifestyle of people leading to occurrence of new chronic and lifestyle diseases Manufacturing cheap generic drugs brings in litigation problems Extremely congested market place with large number of players Export Ability to reverse engineer drugs at cheap prices A large number of US FDA approved facilities Cheap labour availability

Critical success factors

Growth

Rising usage of generics Indias share in ANDA approvals rising Drugs going off-patent

Challenges

Key players

Cipla, Piramal healthcare, India, GSK pharma

Exchange rate fluctuations Litigation by the companies regarding patents pose a significant challenge mainly in semiregulated markets ,Pfizer Ranbaxy, Dr.Reddys, Sun pharma, Wockhardt

CRAMS Critical success factors Growth drivers

Challenges

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Infrastructure availability- The most number of US FDA approved facilities Low cost production process Good experience and learning in generics market Rising costs and competition in developed countries leads to foreign countries outsourcing to countries where production is at low cost. A number of block buster drugs set to go off-patent resulting in a significant opportunity for contract manufacturing. Rising wages have become a concern as it spoils the low cost edge of Indian companies China has been improving in CRAMS market also and is a big threat that Indian companies have to watch out for. Rising rupee is another cause of concern.

Regulatory Framework
Patents play an important role in pharmaceutical industry. Patents are of two types Process patents and product patents. Before 2005, Patents were awarded for process and in 2005 this was changed to patents for products. This became a game changer in the pharmaceutical industry and invited many MNCs to enter the Indian market. As per drug pricing control order 1995, prices of nearly 74 out of 500 drugs are under the control of the government. If the number of drugs under control is increased it will have adverse impact on the companies as the prices of drugs in the sub-continent are already said to be too low. The pharmaceutical export promotion council pharmexcil is the representative body for export in India. This body talks to various ministries of the government and promotes the export of Indian pharmaceuticals. Many companies in India have US FDA approved facilities. With regulations becoming more stringent the cost increases for the company to improve infrastructure to abide by the rules. This FDA approval is important for the company to market the products in developed markets like US and UK.
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This report has been prepared by V. Bharath Ram, V. Parthiban and S.Vikram of the 27 batch of the PGP program at BIM, Tiruchirapalli and is based on publically available information.

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