Over the years I have been writing about the indicators of change both within the FDA and the industry. Few can argue with the fact that in today’s society, change is inevitable. The organizations that embrace it and integrate it as part of their strategic thinking usually end up in the best position to leverage new opportunities as they arise or, more importantly, as they are created. As we wrap up 2011, we see that it has been another difficult year for the industry. The marketplace watched complacently as nearly 30 billion dollars of products came off patent. Amidst rising payer pressure and ever increasing public and government enthusiasm for generic products, the near term projections for industry growth are not rosy, to say the least.
The last six years have been dubbed the Era of Scarcity1 as the industry has struggled to bring on average 22 New Molecular Entities (NME) to the marketplace compared to the previous eight years— dubbed the Era of Abundance—which averaged nearly 36 NMEs. More noticeable has been the lack of blockbuster products, driving the average value of a new drug cohort down by nearly 50% over the previous era.
2011 will not be remembered for its achievements, but rather for what it portends for the future of the industry. Seven years ago we speculated what the impact of the emerging markets would be on the global pharmaceutical marketplace. Today there isn’t a major U.S. pharmaceutical company that does not include some element of the emerging markets. The ramifications of extending the pharmaceutical supply chain overseas was felt in earnest in 2008 when Baxter recalled its multi-dose and single-dose vials of heparin sodium for injection, as well as HEP-LOCK heparin flush products. The root cause was a total breakdown by Baxter on controlling its suppliers and supply chain. Baxter lost the first of its lawsuits in 2011 and will be dealing with the consequences of their cost saving decision for years to come.
Low cost competition in the emerging markets has pushed the industry for the last decade to become more competitive. One could easily argue that it was exactly this competition that has driven consolidation on such a massive scale in the U.S. The need to rapidly bolster the drug development pipeline has forced the industry to look for quick fixes that will drive revenue. Complicating matters is the escalating role of government in influencing market dynamics. The last two administrations have thrown considerable weight behind reducing the cost of healthcare, with U.S. drug manufacturers squarely in the bulls-eye of these efforts. As a result 78%2 of all prescriptions in the U.S. are for generic drugs. As rules around generics continue to cannibalize patent protection, the payback window for innovation continues to get smaller. Authorized generics, i.e., generic drugs manufactured by a brand company through a generic division or a third party, are the latest to come under fire as Congress has introduced legislation (H.R. 573) and claims that these products violate the Hatch-Waxman Act. How long can brand industry continue to pump a billion dollars into drug development in hopes of 750 million dollar return in the fifth year?
Another ugly reality of this escalating market pressure has been the incidence of fraud and malfeasance. The Department of Justice realized nearly three billion dollars in fines from big Pharma in 2011 alone. High profile missteps like GSK’s Cidra plant, closed for failing to implement fundamental levels of GMP, embarrassed not only the company but has provided the FDA with the ability to reinforce the fact that they now have put teeth behind their sanctions.
In many ways the industry is to blame for the emergence of the FDA as an enforcement organization in addition to being a regulatory entity. The heavy shift to generic drugs has created high profile drug shortages for many life sustaining drugs. The problem escalated to a point where President Obama enacted legislation to basically try to give the FDA the authority and ability to manage and prevent shortages. The generic industry has repeatedly stated it takes shortages very seriously, but has produced little in terms of a concrete plan to prevent them. If Congress grants the agency the ability to manage shortages it should be interesting to see how far their reach truly can extend.
The irony is that the industry has been aware of the tools and techniques to drive product development and manufacturing efficiency. Other industries have been very successful in adopting principles such as lean manufacturing and Six Sigma, but pharma still struggles. The emphasis on product development illustrates the industry’s focus to try to improve the odds of new drug development. Programs such as Design for Manufacturability (DFM), Design for Six Sigma (DFSS), and quality by design (QbD) have found little traction, despite the fact that industries with similar complex product development processes, such as the semiconductor and chemical industry, have been very successful.
The issuance of the new FDA guidance on process validation in January 2011 was the most significant shot across the bow of industry that things must change and they must change now. The vigor with which the agency has been enforcing the new guidance underscores their commitment to changing the concepts of product development and product quality in our industry.
So as we move into 2012, what can we expect? Payer pressure will only escalate as we move into an election year. Expect the cost of healthcare to be front and center as Obamacare becomes a central topic of the presidential debates. The FDA will continue to step up enforcement as government will want to maintain its 3 billion dollar gravy train. So the question is, what will industry do about it? An old saying points out that “doing the same thing over and over and expecting a different result is the definition of insanity.” If the U.S. pharma industry is going to weather this storm, it will need to change its thinking. It’s high time for a new game plan.
- Oliver Wyman, Beyond a Shadow of a Drought: The Need for a New Mindset in Pharma R&D, 2011
- IMS Institute for Healthcare Informatics http://www.imshealth.com/portal/site/ims
Bikash Chatterjee is the president of Pharmatech Associates, Inc. He has been involved in the bio-pharmaceutical, pharmaceutical, medical device, and diagnostics industry for over 20 years. His expertise includes site selection, project management, design, and validation of facilities for both U.S. and European regulatory requirements.