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MBT-204

Pharmaceutical Management


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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


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Pharmaceuticals: what the termpharmaceutical encompasses

1) medicinal products 2) Vaccines 3)contraceptives 4) diagnostics 5)medicalsupplies


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Pharmaceutical Management:

It is the set of practices aimed at ensuringthe timely availability and appropriate useof safe and effective quality medicines,health products and services in anyhealthcare setting


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Evolution of PharmaceuticalIndustry

Origins of the pharmaceutical industry- the chemical industries ofdye stuff (of the late nineteenth century) in the upper Rhine Valley ofSwitzerland

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.


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1920s and 1930s - Key discoveries-insulin andpenicillin

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 withthe introduction and success of penicillin andother innovative drugs in the early forties


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World War 2 (1939-1945)-huge advances in medicineand surgery were made

Penicillin was used on wounded soldiers and civiliansmen-With the use of a penicillin dressing, the chance ofa wound getting infected was vastly reduced and survivalchances greatly increased war forced companies todevelop a way of making the highly effective medicine onan industrial scale

mass production of penicillin proved to be vital tosoldiers- 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 wherefighting was occurring


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Standards of clinical search

In1964-after the thalidomide tragedy, theWorld Medical Association set standards forclinical research

Pharmaceutical companies were required toprove efficacy and safety of the drug in clinicaltrials before marketing them

1960s - attempts were made by the U.S. Foodand Drug Administration (FDA) to increaseregulation of pharmaceutical industries


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Patents

The new regulations revoked permanentpatents and established fixed periods onpatent protection for branded products


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1978-India took over as the primary centerof pharmaceutical production of bulk drugsand products for generic drugs (without

patent protection)


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Evolution of Indian pharmaceutical industry

Indias first pharmaceutical company-Bengal Chemicals &Pharmaceuticals Limited (BCPL), established in 1901, founder-Dr. PrafullaChandra 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-playeda pioneering role in the growth of the Indian drug industry base

.


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1970-1980 (Phase II)-Government Control

Indian Patents Act1970 (IDPL and Indian patents Act gavemomentum towards self-sufficiency and self-reliance in the field of drugsand pharmaceuticals)

Essential and life-saving drugs-Tetracyclines, Antifungals, Sulphonamides,Vitamins, Analgesics, Anti-hypertensives, Diuretics, Hypnotics, Antimalarialsand Fluoroquinolones

Drug prices capped

Local companies begin to make an impact


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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


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2000-2010 (phase V), Innovation and Research

New IP law

Discovery Research

Convergence


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Indian Industry-dramatic progress

1947-2005( 10 crores production value toRs 4098 billion )

India manufactures over 400 bulk drugs

and 60,000 formulations


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Pharmaceutical Industry in India-Growth

The Indian Pharma sector leads the science-basedindustries in the country

The pharmaceutical sector has the capacity andtechnology pertaining to complex drug

manufacturing Around 40% of the total pharmaceutical produce isexported

55% of the total exports constitute of formulationsand the other 45% comprises of bulk drugs

The Indian Pharma Industry includes small scaled,medium scaled, large scaled players, which totalsnearly 300 different companies

There are several other small units operating in thedomestic sector


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Role of Pharmaceutical Industry in India GDP-Facts

The Pharmaceutical Industry in India is one of thelargest in the world

It ranks 4th in the world, pertaining to the volume ofsales

The estimated worth of the Indian PharmaceuticalIndustry 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 pharmaceuticalingredients (API) in the international arena

The Indian Pharma sector leads the science-basedindustries in the country


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The pharmaceutical sector has the capacity andtechnology pertaining to complex drugmanufacturing

Around 40% of the total pharmaceutical produce isexported

55% of the total exports constitute of formulationsand the other 45% comprises of bulk drugs

The Indian Pharma Industry includes small scaled,medium scaled, large scaled players, which totalsnearly 300 different companies

There are several other small units operating in thedomestic sector


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Pharmaceutical Industry in India-Growth

As per the present growth rate, the Indian Pharma Industry is expectedto be a US$ 20 billion industry by the year 2015

The Indian Pharmaceutical sector is also expected to be among thetop ten Pharma based markets in the world in the next ten years

The national Pharma market would experience the rise in the sales ofthe patent drugs

The sales of the Indian Pharma Industry would worth US$ 43 billionwithin the next decade With the increase in the medical infrastructure, the health services

would be transformed and it would help the growth of the Pharmaindustry further

With the large concentration of multi national pharmaceuticalcompanies 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


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Role of Pharmaceutical Industry in India GDP-CRAMS

The Indian Pharmaceutical Industry is one of fastest emerginginternational center for contract research and manufacturingservices orCRAMS

The main factors for the growth of the CRAMS is due to theinternational standard quality and low cost

The estimated value of the CRAMS market in 2006 was US$ 895million 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 HealthcareRegulatory Agency (MHRA) standards


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With all these development India is posed tobecome the biggest producer of drugs in theworld

Some of the major domestic players in this

sector are Paras Pharma, Bal Pharma,Unijules Life Sciences, Flamingo Pharma,Venus Remedies, Surya Organics andChemicals, Centaur Pharma, Kemwell, CoralLabs

The contract manufacturing market in Indiapertaining to the multinational companies isexpected to worth US$ 900 million by theyear 2010


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Role of Bio-Technological Industry in India GDP-Facts

Indian Bio Technology sector is among the five risingbiotech 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 modifiedto contain a natural toxin created by a bacteria whoseinitials are BT)

The Bio Tech industry in India has the maximum numberof companies operating under it

There are 325 different companies with the Indianbiotech industry The total revenue generated annually is around US$ 2

billion


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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 BioTechnology sector

Bt cotton is one of the most significant genetically modifiedcrops grown extensively in India

The total area under the cultivation of Bt cotton in India is morethan 6 million hectares

The growth of the transgenic crops sector is highest in India,nearly 200 %, where as the international average growth in thissector is 13%


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Role of Bio-TechnologicalIndustry 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 researchpertaining to biotechnology, with the establishment of the GenomeValley project

The Genome Valley project earns a foreign exchange of US$ 1.24billion 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


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The exports pertaining to the Bio-Technological Industry in India isincreased by 47% according to the Biotech Industry Survey

The investments in the Biotech Industry was mare than US$ 580million 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 andrepresented a growth of 27% with the sales amounting to US$ 1.46billion in 2006-07

The bioservices sector accounting 21% of the industry registered agrowth 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 andmanufacturing, collaborative research and development, which wouldprovide tremendous boost to the Biotech industry


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Role of Bio-Technological Industry in India GDP-Government Initiatives

The Government of India recognized the potential ofthe biotech sector in the development of theeconomy of the country

The National Biotechnology Board (NBTB) was setup in the year 1982 as the premiere agency to

formulate long term developmental plans for thebiotech industry

The Department of Biotechnology (DBT) was set upin the year 1986 as a government department

The Government of India has allowed 100% foreign-

based investments for the manufacturing of all kindsof drugs apart from cell-targeted therapies andrecombinant DNA products


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Role of PharmaceuticalIndustries

Solution for existing medical problems andrequirements

To improve efficiency or safety ofmedicines

Becoming innovative rather than imitative

R & D strategy is changing from reverseengineering to patent driven approach


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Organization and Governanceof 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)


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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 theDrugs Enquiry Committee to regulate the import of drugs

into British India. This Bill was referred to the SelectCommittee and the Committee expressed the opinionthat a more comprehensive measure for the uniformcontrol of manufacture and distribution of drugs as wellas of imports was desirable

Thereupon the Drugs and Cosmetics Bill was introducedin the Central Legislative Assembly.


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Drug Policy (1986)

Under guidance and leadership of our prime minister Mr.RajivGandhi, 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 andpromoting the rational use of drugs in the country

creating an environment conducive to channelising new investmentinto the pharmaceutical industry to encouraging cost-effective

production with economic sizes and to introducing new technologiesand new drugs

Strengthening the indigenous capability for production of drugs


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Comparison

Indian Patent Act 1970

Process patent

5 years for food, drugs,medicines etc and 14 years for

other inventions Indian market became

undesirableto the MNC

Focus on generic and neglectof new drug discovery

Development of expertise inreverse 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 enjoyedelsewhere

Shifting of focus from generic

to innovative drug discovery


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Drugs Price Control order(DPCO) 1995

The Drugs Price Control Order (DPCO), 1995 is an orderissued by the Government of India under Section 3 ofthe Essential Commodities Act, 1955 to regulate theprices of drugs. Provides list of controlled drugs

The Order provides the list of price controlled drugs,procedures for fixation of prices of drugs, method ofimplementation of prices fixed by Government andpenalties for contravention of provisions among other

things. Powers of the government have been vested in the

National Pharmaceutical Pricing Authority (NPPA)


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The essential features of DPCOcovers the following questions:

How are the prices of drugs and medicines in the controlledcategory regulated? There are two prices for this fixed by the NPPAas per the provisions of DPCO- Ceiling and Non Ceiling Price .

Ceiling Price is the single maximum selling price fixed that isapplicable 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 packsize of scheduled formulation of a particular company.

Whether NPPA has any role to regulate prices of non-scheduleddrugs (drugs not under direct price control)?

What margins are allowed to a Wholesaler and a Retailer as perDPCO, 1995?


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Pharmaceutical Policy (2002) The main objectives of this policy are:-

Ensuring abundant availability at reasonable prices within the country ofgood quality essential pharmaceuticals of mass consumption.

Strengthening the indigenous capability for cost effective quality productionand exports of pharmaceuticals by reducing barriers to trade in thepharmaceutical sector.

Strengthening the system of quality control over drug and pharmaceutical

production and distribution to make quality an essential attribute of theIndian pharmaceutical industry and promoting rational use ofpharmaceuticals.

Encouraging R&D in the pharmaceutical sector in a manner compatible withthe countrys needs and with particular focus on diseases endemic or

relevant to India by creating an environment conducive to channelising ahigher level of investment into R&D in pharmaceuticals in India.

Creating an incentive framework for the pharmaceutical industry whichpromotes new investment into pharmaceutical industry and encourages theintroduction of new technologies and new drugs.


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The draft National PharmaceuticalsPolicy of 2006

This policy says about the the government plans for the following actions to facilitateand 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 bemade exempt from service tax for a period of 10 years up to 2015.


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Regulatory Bodies

Ministry of Health & Family Welfare(MoHFW)

Ministry of chemicals and Fertilisers(MoC&F)


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Main agencies of MoHFW

Central Drugs Standard ControlOrganisation (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 theDrugs Controller General of India (DCGI)as the executive head

-


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DCGI-governs issues like productapproval and standards, clinical trials,introduction of new drugs, import licenses

for new drugs and enforcing new druglegislation


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Major factors of future growth

numerous advancements in science andtechnology, including those in the healthcare industry, life expectancy in the

developed countries has been steadilygrowing. As the result, growing proportionof elderly people promises further growth

of demand for healthcare products.

Ph ti l I d t i


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Pharmaceutical IndustriesOverview

major players

current trends

challenges


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Major players of the worldpharmaceutical industry

fifteen multinational companies dominatingthe industry


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2004 revenues from the sales ofpharmaceutical products

Table 1.1. Major pharmaceutical companies.

CompanyHQ

location

Revenue of

pharmaceutical

segment, mln USD

Total sales, mln

USD

Share of

pharmaceutical

segment, %

Pfizer NY, U.S. 46,133 52,516 87.85%

GlaxoSmithKline UK 31,434 37,324 84.22%

Johnson & Johnson NJ, U.S. 22,190 47,348 46.87%

Merck NJ, U.S. 21,494 22,939 93.70%AstraZeneca UK 21,426 21,426 100.00%

Novartis Switzerland 18,497 28,247 65.48%

Sanofi-Aventis France 17,861 18,711 95.46%

Roche Switzerland 17,460 25,168 69.37%

Bristol-Myers Squibb NY, U.S. 15,482 19,380 79.89%

Wyeth NJ, U.S. 13,964 17,358 80.45%

Abbott IL, U.S. 13,600 19,680 69.11%

Eli Lilly IN, U.S. 13,059 13,858 94.23%

Takeda Japan 8,648 10,046 86.09%

Schering-Plough NJ, U.S. 6,417 8,272 77.57%

Bayer Germany 5,458 37,013 14.75%

Source: 2004 Annual Reports of the companies


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Geographical headquarters of majorpharmaceutical companies areapproximately evenly distributed between

the U.S. and Western Europe with onlyone Asian company in the list

I d T d


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Industry Trends

Here we examine structural changescausing significant transformations, majorfactors leading to strong future sales

growth, and point out the industrys strongreliance on research and development

S l h


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Structural changes

Besides economies of scale in manufacturing,clinical trials and marketing, bigger companiescan allow investments in more research and

development (R&D) projects that diversify theirfuture drugs portfolio and make them muchmore stable in the long term. As the result, top-companies in the industry were active

participants ofmergers and acquisitions(M&A), new joint ventures and spin-offs of non-core businesses.


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The largest acquisitions in the industry duringlast 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-Synthelaboand Aventis)

t t i lli d j i t


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strategic alliances and jointventures

Another form of structural change in the industry wasestablishing of new strategic alliances and joint ventures.So far as the research and development process foreach drug take many years and requires significantinvestments, and the outcome of these investments oftime and financial resources remains unclear until thefinal approval of the drug, Big Pharma companies areconstantly looking for synergies that they can get fromcooperation with their competitors. Last years gave

multiple examples of such initiatives. For example,cooperation of Sanofi-Aventis and Bristol-Myers Squibbresulted in production of Plavix, which is currently one ofthe top-selling products for each of these companies.

M i l f


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Massive sales of non-pharmaceutical businesses

Finally, Big Pharma companies in order tomaintain strong sales growth and meetprofitability expectations of their shareholderswere actively selling low-profitability or non-core

businesses. For example, in 2003 Merck sold itslow-profitability Medco Health Solutions thathelped to increase its profitability margin.Massive sales of non-pharmaceutical

businesses by Takeda also were compatiblewith its strategy to concentrate its financialresources on its core pharmaceutical business.


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For example, only about one third of theU.S. population who requires medicaltherapy for high cholesterol is actually

receiving adequate treatment. As it isexpected, the Medicare Prescription DrugImprovement and Modernization Actstarting from the beginning of 2006 will

increase access of senior citizens to theprescription drug coverage, thusincreasing pharmaceutical sales.


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Although developing countries at the moment have asmall portion of world pharmaceutical sales, thesecountries also have a significant potential for thepharmaceutical industry in the future. Fast growingeconomies in Asia, South America and Central &Eastern Europe suggest an increasing solvency ofpopulation and make these markets more and moreattractive for Big Pharma companies. Further reformsof legislation systems in the countries of these regions,

especially regarding patent protection issues, willinevitably result in growing pharmaceutical sales.


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Strong emphasis on R&D

One of the distinctive characteristics of the BigPharma companies is a very high level ofinvestments in research and development. Onaverage, it takes about 10-15 years, and millions

of dollars to develop a new medicine. Accordingto industry statistics, only about one in tenthousand chemical compounds discovered bypharmaceutical industry researchers proves tobe both medically effective and safe enough to

become an approved medicine, and about halfof all new medicines fail in the late stages ofclinical trials. Not surprisingly,


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Key Challenges

The main challenges for drug companies come from fourareas:

First, they must deal with competition from within andwithout.

Second, they must manage within a world of pricecontrols that dictate a wide range of prices from place toplace.

Third, companies must be constantly on guard for patentviolations and seek legal protection in new and growingglobal markets.

Finally, they must manage their product pipelines sothat patent expirations do not leave them withoutprotection for their investment.


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First, obviously, Big Pharma companies compete

among themselves

almost all of them are active in R&D andproduction of drugs in the segments withthe highest potential such as treatment

of infectious, cardiovascular, psychiatric oroncology diseases


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Secondly, Big Pharma companies

experience significant profit losses due tocompetition from the generic drug

manufacturers.


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Opposite to the research-oriented pharmaceuticalcompanies, which invest significant financial resourcesand time to develop new medicines, generic drugmanufacturers spend minimum resources on R&D, andstart manufacturing already developed by othercompanies drugs after their patent expiration. Becausegeneric drug manufacturers do not have to recoup highR&D costs, prices of their products are usually muchlower then those of major pharmaceutical companies; as

the result, after patent expiration, generic drugsmanufacturers capture significant market share,dramatically decreasing revenues of the Big Pharmacompanies.


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Finally, the whole pharmaceutical industrycompetes with other health careindustries. In this case, pharmaceutical

companies should not only demonstratehigh efficiency of their products, but alsoprovide obvious proof of cost advantages

in comparison with other forms of care.


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Price control

One of the most important aspects of government regulation forpharmaceutical companies is price regulation, and differentcountries have different policies on this issue

In the United States the largest and the most attractivepharmaceutical market currently there is no direct price control fornon-government drug sales. At the same time, it is expected that

Medicare Prescription Drug Improvement and Modernization Act willpotentially 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; allprices 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 cansignificantly differ in different countries.


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Protection of patents

Generic drugs manufacturers represent a significantthreat to research-based pharmaceutical companies. Forexample, Schering-Ploughs Claritin patent expired in2002; as the result of generic drug competition, sales ofClaritin 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 startproduction of patent-protected drug analogues evenbefore a patent expires. Although research-orientedcompanies in many cases are able to protect their

patents, they do suffer from lost revenues. Therefore, protection of patents is one of the keyconditions necessary for further development of thepharmaceutical industry.


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Drugs portfolio management

most important determinants of long-termprosperity of research-orientedpharmaceutical companies

Projects that the company starts today willdetermine its financial performance 10-15years later. Therefore, careful planning of

R&D projects is very important for thelong-term stability of the company.


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Second, insofar as patents keepexclusivity of drugs only during a limitedtime, and soon after the expiration of the

patent the sales of the drug sharply godown, the company has to carefullymonitor its patent expiration dates, and

insure that new products become availableby that date.

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