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Changing Paradigms of the Pharma Industry — Global Economy or Tougher Regulatory Standards to Blame?
Jack Aurora
Hisun Pharmaceuticals, China

In 2011, I wrote a review article on the generic industry and the way the industry was changing colors, I made a commitment to update readers with the latest happenings and trends in the generic industry. But since then I have observed that it is not only the generic industry that is going through economic pains but rather the entire pharmaceutical industry including the Big Pharma's. Therefore, I changed my mind and decided to write a pharma industry review and share with you my perspective. As we all know, no one has that magic “crystal ball” in hand to predict the future but still, we can share experiences and lessons learnt to prepare ourselves to meet future challenges.

Since 2010, the “patent cliff” is more like a mountain for generic industry players. In this rat race, some players with their in-depth of technical knowhow, experience and luck have managed climbing from one off-patent blockbuster to another, adding million and millions to their bottom line sales figures. A recent and interesting example was from Ranbaxy who had collected a fortune and reaped US$500 million in sales from its knockoff of Pfizer's cholesterol pill Lipitor during its 6 months of exclusivity in the US market. Another example from Asia is Dr. Reddy's Laboratories, whose boosted sales moved up to 34% on generic versions of Pfizer's “Protonix” and Eli Lilly's top selling “Zyprexa” amongst others. Watson Pharmaceuticals is another atypical example who has rolled out from one blockbuster generic after another, from authorized generics of Johnson & Johnson (J&J) drug “Concerta” to its authorized generics of Lipitor leading to a growth rate of 46% in 2011. Another example worth mentioning is Sagent Pharmaceuticals, whose sales grew 106% last year despite growing via a different but interesting and effective strategy. The chosen strategy was partly because of some savvy choices: Sagent has differentiated its products with “PreventIV” labels and packaging that are color-coded and labeled to help reduce medical errors. And it has zeroed in on niche markets where drugs are running short. The point I wish to make is that a number of generic players have capitalized the falling “patent cliff” and have proven their effectiveness in strategy and depth of technical strengths.

In this era of change, to stay and survive, Brand companies have been diversifying to make up for plummeting sales of their exclusivity expiring mega-drugs. Sometimes, this may mean joining hands with the generic companies, to take advantage of their low cost production capabilities and broader access to markets in the developing world. It is like a double dose of growth serum for the generic manufacturers who were neglected in the golden days of Brand companies.

This is sort of a synopsis of the recent history of the pharma industry. The global drug sales outlook looks good for generics but quite gloomy for Brands. The growth in generics is expected to depress overall pharma sales growth and may bring it down to half over the next 5 years or so, as lower priced generics will replace the high end top-dollar brand names. According to the new numbers from IMS Health, average annual sales will grow from 3 to 6% through 2015 to nearly US$1.1 trillion. This may sound good but it is much slower than the average growth of 6.2% during the last 5 years. The emerging markets will take the major global growth share with projected US sales growth by 3% maximum and the EU may not get more than 3-4% either.

Every now and then reports from opposite sides of the globe underscore the shift in pharma companies (including basic R&D) to move to greener pastures in Asia. In Asia, both China and India are competing for a piece of the pie. It is a fact that China is a key market in global strategies for a number of pharma companies and the investments are a reflection of strategic initiatives. Various companies from around the globe are turning their attention to one of the biggest emerging markets on the planet. It is my personal belief; the biggest driver is the lower cost advantages that China offers due to their infrastructure and a few other logistics reasons, including lucrative governmental initiatives.

Having said that, China has its own set of challenges and difficulties to go through and address so as to continue on the path of success and ongoing growth plans. Most recently, it was found that a few of the gelatin makers for the pharmaceutical products were using industrial grade rather than food grade gelatin. China is now imposing tougher rules to audit excipient suppliers as a result of the recent incident. In addition, the FDA has not yet forgotten the heparin episode of 2008 when tainted product from China led to patient deaths. With this in mind, the FDA in collaboration with local regulators has been imposing new rules on drug makers as well as to monitor heparin suppliers. From the experience of such episodes, the China government, and drug makers are collaborating behind the scenes to bring the country up to the level of excellence and success. It is hoped that such initiatives improve the image of the country both at national and international fronts.

Here are a few of the new headlines in recent months wherein Big Pharma are turning towards Asia, particularly China. Companies like Pfizer, Roche, Sanofi and most recently Covidien are a few examples to quote. Pfizer eliminated R&D jobs in Europe and the USA and Roche is slashing close to 1000 jobs and shuttering its 80 years old facility in New Jersey USA. Roche, believed and trusted as a “pharma gaint” with one of the biggest R&D operations in the world with a budget of US$9 billion last year is now streamlining its research group to cut R&D costs. Sanofi is another example that is eliminating thousands of jobs in France.

In this race of moving to greener pastures, Contract Research Organizations (CRO's) are not lagging behind either. Instead, it is becoming rather more important and meaningful since the Big Pharmas are consolidating their resources and are leaning towards outsourcing models in their efforts to reduce end cost and increase the pace of development and manufacturing. Sanofi, Eli Lilly and Pfizer have led the way in reaching out to CRO's for help amid tight budgets and layoffs. Recently multinational CRO, Quintiles is stepping up its game in China's fast growing drug development arena with plans to blueprint a new Shanghai R&D centre. The company is also partnering with a local clinical research group and is building its regional head quarter facility in Shanghai, China, having been operating in China for the past 15 years or so.

It may be worth noticing here China's ambitions to expand health coverage for its rapidly rising middle class, promises to sustain pharma growth for years to come. A number of companies including the Big pharma's want to ride that wave of growth as they build up their ranks in Asia while downsizing in Europe and US. The focus for these companies is to develop newer and better medicines to serve China's enormous unmet medical needs and thereafter take these line extensions to developed countries including but not limited to the EU and USA markets.

What we are seeing recently is that the old bricks-and mortar approach to building R&D is being replaced by a new research ecosystem wherein more work is outsourced and investigators labor in a more open R&D environment. As big facilities close-up, ideas and efficiencies take its place. R&D continues a migration towards a global and more specifically Asian hub. The entire focus of restructuring and cost cutting was in manufacturing and operation a few years ago, and now it has shifted to the R&D sector. R&D has always been the backbone of any growing and innovative industry and now with restructuring and downsizing, it certainly is not a good sign for the future with regards to bringing in new drugs and innovations to support the unmet needs of our community.

A few of the news headlines that have made me quite uncomfortable; Roche will slash 1000 jobs by the end of 2013; Novartis will cut 2000 jobs nationwide; AstraZeneca will eliminate 7300 employees worldwide; Sanofi sharpens the R&D budget ax as it prepares to cut up to 200 jobs. We are not talking about new entrepreneurial organizations but rather these are well-established giants with a strong foundation in the pharmaceutical industry and have a wealth of management experience to run the business. “Where are we heading to?” I ask myself. Regulatory agencies around the globe especially the FDA, are becoming tougher day by day. It is not that the regulations are changing but rather FDA is seeing more and more incidences of customer complaints, failures and recalls. The alarming fact that is making the regulators concerned and worried is that these observations are coming from big and well-established pharma giants. A few examples to share; last year, Ranbaxy Laboratories signed an agreement ending its 3 years regulatory tussle with the US FDA due to data reliability and a few other problems at 2 of its plants in India. The company earmarked US$500 million to meet any potential civil or criminal liability in this connection. Last year McNeil Consumer Healthcare signed a consent decree with the FDA after it had recalled tens of millions of consumer products that were manufactured at plants that had a laundry list of problems. The recall and lost sales cost the company US$1.5 billion and more recently the agency cited another manufacturing plant of Johnson & Johnson (J&J) for failures over few problems to the extent that the plant racked up 227 complaints in 18 months. The GlaxoSmithKline (GSK) facility in Puerto Rico plant was closed in 2009 and ended up paying US$750 million in fines and penalties in addition to settling a whistleblower law suit over an ugly set of claims about manufacturing practices. It now has its manufacturing practices globally being scrutinized by the US Department of Health and Human Services (HHS) inspector general. There are other examples from many other relatively smaller and less experienced players to quote but the lesson here for us is to learn and perform better.

A more serious issue is the billions rolling into the Justice Department off the Big Pharma's fraud settlements. The Foreign Corrupt Practices Act (FCPA) of US Federal law prohibits US companies from bribing foreign officials to get their business. Drug manufacturers have come under scrutiny because they are sometimes asked for so called “bribes” in return for business when marketing their products to state-run health systems. Official are getting increasingly frustrated as fines and settlements are growing because of repeat offenders. Just a few examples to quote to get an idea of the situation:. J&J agreed to pay about US$70 million to resolve claims; other drug manufacturers such as Eli Lilly, AstraZeneca, Bristol-Myers-Squibb and Pfizer are under investigation and discussion in this regard. Most recently Teva Pharmaceutical, the world largest manufacturer of generic drugs is also under investigation for possible violation of the same anti-bribery law. Recently US authorities settled a US$3 billion agreement with GlaxoSmithKline (GSK) to settle a wide variety of claims that it used (misleading marketing) and so called “bribes” to sell products. The recent GSK deal, at US$3 billion broke Pfizer's previous record, and Johnson & Johnson's (J&J) impending Risperdal wrap-up is expected to be in third place in this series.

When all said and done, it is my opinion that the global economy is the trigger and root cause for the changes that were and are still happening in the industry. In order to survive and keep paces, fierce competition has forced the organizations to enter into unknown and untested waters with different territories and domains. This has resulted in loosening controls on quality and making short cuts to reduce cost and speed up processes. The future looks quite gloomy and depressive. Having said this, there are many more encouraging updates and happenings in the pharma industry around the globe. As mentioned earlier, at the end, the future of Pharma industry is quite promising and has a potential to grow and expand. In this competitive, tough, and challenging environment all these situations are the wakeup calls providing us with lessons for future opportunities and business survival and growth.

About the Author

Dr. Jack Aurora is Ph.D. in pharmaceutical sciences with over 19 years of Quality and Compliance driven research and management experience to his credit. Dr. Aurora's research experience is in all the dosage forms including but not limiting to solids, semi-solids, liquids and sterile with special emphasis for Novel

Drug Delivery Systems including Controlled-Release and Nasal development and mfg. operations. At present Dr. Aurora is working in the capacity of Chief Scientific Officer, Generic Drugs for Hisun Pharma Co., Ltd. based in China. In this role, Dr. Aurora is responsible for the set-up and implementation of the

newly constructed facility for US FDA and EU submission, approval and commercialization aspects of generic drug development. Prior to this he has worked as VP Formulations Operations with Azopharma Product Development Group, and with Perrigo Company, Pharmascience, Labopharm, Patheon and Ranbaxy

(from where he started his professional career) in various management and technical capacities. Dr. Aurora is also a consultant with GLG Healthcare and Biomedical Council and Guidepoint Global, associations of leading physicians, scientists, and other healthcare professionals. He is also acting as adjacent faculty member and Prestige Appointment with School of Pharmacy; University of Toledo, Seneca College and Toronto Institute of Pharmaceutical Technology (TIPT) based in Toronto. Dr. Aurora is also member of visiting scientist program sponsored by AAPS. Dr. Aurora is also editorial advisory board member of various

scientific publications such as Drug Delivery Technology, Contract Pharma and Business Briefing scientific and business focused publications from US and Europe.

Dr. Aurora research focuses and wealth of experience include development of Controlled-Release Systems, Pelletization Technology, and NDA 505(b)(2) and ANDA developmental and regulatory approval pathways. In the field of controlled-release development, he has 3 US and EU patents to his credit and another four are in process. He has also successfully managed global research teams operating from different parts of world (with different work culture and practices) under one umbrella for cost and efficiencies management.

With the additional teaching assignments and speaker opportunities, Dr. Aurora has grown to a seasoned and matured professional with in depth technical and management strengths and excellence to contribute for the success and growth of an organization.

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