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
In terms of Origin
and
recent Developments.
Distribution

Marketing of Prescription Drugs

* Author of the case had invited to consider the trends for the future.
 Creating New Pharmaceuticals
(Source: Tufts CSDD)
Idea Early Research
Clinical
Phase of FDA

Submission

Approval
& Preclinical

30 Days Wait
Patemts
Submissions Supplemental

FDA
NDA
Reporting

Patemts
Granted

IND Filing
Filed
Phase I Phase II Phase III Phase III
Phase of Clinical Clinical Clinical Clinical
Phase IV
(Postmarketing.
Chemical
Development Pre—Clinical (Safety) (Efficacy) (L/T AEs &
(Cont.) (Clin.
Synthesis Testing &
Efficacy)
Education etc.)
Pharmacology

Toxicology 6 5 3 1-2
10 1
5,000
#compounds
10,000
Non-Clinical
Pharmacologic Screening
Pharmacology Pharmacodynamics
Pharmacokinetics Chronic toxiclty
&
Toxickinetics Carcinogeniclty
Toxicology Acute toxicity Reproductive Toxiclty
Subchronic Toxiclty Additional Genotoxiclty
Studies
Genotxiclty Special Toxiclty

Cost
$313+Million
(1998)
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
• Price Increases began to be outlawed. systems
(Canada, Italy, Spain
• Pharma Industry lacked the Public or Political Support to resist and U.K)

above changes.

sy rity
• Startup of small biotech companies.

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• 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.
.
 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

STRONG R&D GLOBAL SALES

ETHICAL MARKETING AND INFRASTRUCTURE

OTC DIRECT TO CONSUMER MARKETING

SUPPLY CHAIN MANAGEMENT

GENETRIC &
MANUFACTURING COST LEADERSHIP

CREATE AND DEFEND

BIOTECH 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 Generics actively encouraged in European union Markets.

(25%)
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.

R & D in decline.
Innovative
Stringent regulatory hurdles.

Clinical trials became very expensive.

Patentable ETHICAL Differentiated

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

Rapidly
 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 sanofi-
synthelebo & 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..