Pharmaceutical Industry 2008 – turmoil and revolution?

1) the ever increasing cost of health care including medicines supply,
2) new solutions & innovations for unmet medical needs.

There is also some good news:

1) Opportunity to manufacture at lower costs in other geographies like India
2) Opportunity to sell to large new markets (mainly BRIC) where wealth and consumption of drugs is increasing rapidly
3) Global medicine value will continue to grow and provides for a healthy business foundation.

The winners will be those who are able to revolutionize their current operations and replace obsolete assumptions and dogmas.

Re-thinking dogmas
Industry and regulator also find themselves in a vicious cycle of increased scrutiny resulting in fewer approvals and ever increasing costs.

It is clear that the regulatory framework in combination with new industry commitments needs revision to both stimulate R&D into unmet need and increase patient safety post-launch. I will exclude this topic from the scope of this article.

Effective change requires replacing many of the industries current dogmas and assumptions which dictate strategy and business models. These typically cover deeply founded beliefs surrounding saving patient’s lives and avoiding risks.

Companies essentially chose from 2 behaviours; denial and waiting for better times, or embracing change energetically and inventing new business models across the value chain.

Advances in IT technology, global logistics, trade agreements, and global guidelines such as ICH have made many dogmas obsolete or greatly reduced their validity to perhaps a few exceptions.

The pharma industry is perhaps one of the last industries to be hit with severe pressures and globalization effects after a period of steadily growing and healthy profit generation.

It is time for a revolution of the current costly and slow business models and taking a fresh look at what solutions globalization can offer. Learning from other industries, where business models were changed years earlier, is another healthy way of revolutionizing. For example, the automotive industry turned itself into a design, assembly and marketing machine from a fully integrated manufacturing model.

Globalization is another major trend with Asia, and in particular India, emerging as a growing manufacturing participant as well as market place. These regions have benefited from western inventions in medicine to treat its population. Today’s economic growth and increased R&D participation will mean that the region will start to contribute to innovation in the next few years, thus offering western society new solutions for unmet needs. In addition new pharma business potential is emerging, allowing the industry to capture global value.

With its huge resources and relatively young population India is especially well positioned to add and support pharmaceutical innovation in partnership with traditional innovators and thereby address what should be the 2 main industry focus areas, health care cost reduction and innovation.

A pool of bright and eager scientists and engineers in India is ready to join the cause of speeding up innovation of new NCEs as well as offer significant cost reduction potential in the manufacturing of Drug Substance and – Product.

In addition the well developed generic expertise can actually add innovator value as well as offer the necessary health care cost improvements. Think in this respect of the large number of development projects combining generic APIs with patented drugs and novel and improved drug delivery solutions at the end of the product life-cycle. Many generic companies have developed additional intellectual property creating new versions of products.

Conflict of interest or the business model of the future?
Dr Reddy’s Laboratories combines both a generic business model and an innovator pharma services business (CPS).

Through its CPS business organization, innovators can now benefit from years of experience developing additional IP in generics as well as the company’s market coverage in emerging economies, while offering its impressive development and manufacturing skill set to innovators. This reconciliation of the generic and innovator model is best observed through the NDA filings containing both a generic API with a still patented NCE. Dr Reddy’s amongst others can play a role in such partnerships.

In addition, by combining its in-house IP with innovator developments, additional value can be created either through faster time to market or expanded options in Life-Cycle management of mature or so called sunset products. With its experience in many delivery systems, Dr Reddy’s is well positioned to support innovators re-formulation efforts and improve patient compliance through a variety of options. This integrated and wide scope of capabilities goes well beyond the traditional boundaries and creates new value during the entire product life-cycle of a new medicine.

Once innovator pharma companies discover the Life Cycle Management (LCM) options and solutions such new partnerships can offer, they can increase focus on discovery and development of new drug candidates.

Observing trends in the top 25 innovators, there are signs of several companies announcing and acting on streamlining their in-house manufacturing and CMC development capabilities in order to enhance their ability to bring innovation to the market. They are searching for broadly skilled partners which complement this business model.

It seems the revolution in our industry has started and efforts to address its significant challenges are in progress. The fundamental health of the industry is good. The results will depend on how well new business models are developed and implemented. Looking beyond the obvious is a pre-requisite.