Towards more affordable and innovative pharmaceuticals

Abhijit Mukherjee explains the current woes currently facing the pharmaceutical industry.

The last decade of the 20th century could well be termed as the golden decade for the pharmaceutical industry, with mega-blockbuster drug launches, growing pipelines and unmatched profit margins. With the turn of the clock into the 21st century, this has given way to a decade of challenges. The pharmaceutical industry today finds itself in the midst of the perfect storm – R&D productivity is at historic lows, the patent cliff of 2012 looms, and the most profitable market, the US, is due for major healthcare reforms and soaring healthcare cost, resulting in unprecedented price pressure.

To add to the woes, the current global economic turmoil has left its mark on our supposedly recession proof industry. IMS Health predicts that in 2009 pharmaceutical sales in the US will decline between one and two percent, while the global pharmaceutical market is expected to now grow by only 2.5 - 3.5 percent.

What then are some of the main consequences of this new, unfamiliar and changing environment? One of the most immediate consequences has been the wide ranging re-assessment and restructuring of the extensive manufacturing infrastructure within the pharmaceutical industry in a bid to improve utilization rates and sustainability. Outsourcing will continue to be a critical element of every pharmaceutical company’s business strategy and the extent to which companies outsource key activities will only grow. This follows a trend already quite common in many other industries.

Finally, pharmaceutical companies are increasingly looking at emerging markets to sustain growth. A new world order is apparent as the IMS-coined ‘pharmerging’ markets of Brazil, Russia, India, China, South Korea, Mexico and Turkey grow collectively at a 13 – 16 percent pace through 2013. However, operating in emerging markets calls for a complete rethink of existing business models of large pharma companies. Successful strategies in emerging markets need not incorporate the most innovative medicines. In these regions, most drug spending is out-of-pocket and there are high levels of income disparity. The ability to provide both low-cost as well as high-cost medicines therefore has advantages.

An interesting and unprecedented fallout of the focus on emerging markets has been the blurring of the traditional roles companies play: customers and suppliers, innovators and followers. For example, there have been several recent acquisitions by large pharmaceutical companies of generic companies, such as Sanofi’s acquisitions of Zentiva in Central Europe, Kendrick in Mexico and Medley in Brazil.

But perhaps what is most interesting for us is the development of partnerships and strategic relationships which would have been unthinkable just a year or two ago; partnerships designed to drive innovation, improve costs and to make better medicines more widely available.

Dr. Reddy’s, for example, traditionally would have been seen as a generic pharmaceutical company. Through our Custom Pharmaceutical Services business, however, we are now an established player for providing contract manufacturing and services to innovators, in particular lifecycle management. We actively engage with innovator pharmaceutical companies, using our skills, expertise and speed of development in generic API manufacture and formulation to help in the development of the next wave of advantaged and enabling combination therapies. Dr Reddy’s also has large global manufacturing capabilities, making us one of the largest suppliers of API to the industry. Finally, we have tremendous experience of operating in emerging markets. This has most recently culminated in a strategic alliance with GSK for developing and marketing branded generic products and differentiated formulations across emerging markets outside India. 

So with a changing world we have a changed pharmaceutical industry. The norms and conventions of past decades have all but gone, replaced with innovative business models and collaborative partnerships focused on the most efficient means to innovate and manufacture pharmaceuticals. It is such partnerships that will allow for cost effective innovation to return to the industry and for medication to reach the furthest corners of the globe and usher in a new era of sustainable growth for the pharmaceutical industry.

Abhijit Mukherjee is President, Pharma Services and Active Ingredients for Dr. Reddy’s Laboratories.