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Pharmaceutical Manufacturing and Packing Sourcer

The Past, the Present and the Future

PMPS celebrates its 50th edition by looking at the pharmaceutical industry 12 years ago, now and in 12 years time – a period spanning the first edition of PMPS was published to when the centenary edition will be released in 2023

This milestone for PMPS makes me wonder about the different formats PMPS will be published in 12 years from now. It was published only in printed magazine format in 1998, but is now in print, online and on Twitter. In 2023,maybe we will find PMPS editions brought to readers via podcast, multiple mobile formats, carfriendly audio, or streamed to a separate window on your television.However, while the speed of technology is many times faster than the pace of the pharmaceutical industry, guided by multi-year patents as it is,we have seen some significant changes over the last 12 years, and I am sure we will see bigger changes in the next 12.

The Darling Days Are Over: Pharma Consumerises

During the 1990s, the pharmaceutical industry could not put a foot wrong. Blockbusters were key, confidence in drug pipelines was strong and pharmaceutical stocks were consistently outperforming the markets. I can remember working alongside colleagues in the industry who were watching their stock options grow daily.These were good times. The creation of companies like AstraZeneca, GSK, Novartis and Aventis were on the back of this strength, founded to fuel the next wave of industry success.

At the start of the 21st century however, it all started to come to a halt. Pipelines started to dry up, the merger integration cost synergies proved challenging to deliver and healthcare government funding became a more acute issue. Suddenly the industry was facing a new set of realities: stock prices stalled, stock options went underwater and valuations started to be based much more on operational fundamentals.

Today, the industry is at an interesting inflexion point.The Pfizer/Wyeth and Merck/Schering-Plough acquisitions bring further consolidation and scale, while the likes of GSK and Sanofi-aventis have pursued smaller ventures, and have targeted ‘bolt-on’ type acquisitions. Which approach will win, and where will the rest of the pack be headed in 2023? Perhaps 10 of the top 20 companies in 2023 will be gone, with only their brand names continuing.Or,maybe five of the top 20 will be generics companies, and three will be headquartered outside the currently dominant US, Europe or Japan. There may also be new entrants from allied sectors such as consumer goods or medical products, who may have built significant presence in the global pharmaceutical sector. But all of those surviving in 2023 will be consumerised, which will entail being much more costconscious, nimble and able to innovate at a higher pace – in other words, not resting on the laurels of a pipeline, but with the patient and healthcare professional at the forefront of their minds, similar to how the leading consumer goods companies have placed the shopper and consumer at the heart of what they do.

The Needle Wasn’t in the Haystack: Pharma Diversifies

The past was all about finding the next blockbuster, so 12 years ago R&D investment levels were primarily focused on fuelling growth in internal R&D capabilities. At that time, as per industry reports, Prozac represented 30 per cent of Lilly’s revenue and Norvasc represented 18 per cent of Pfizer’s. So, all we needed to do was find the next blockbuster, patent it, and the rest would be history.

But it didn’t work out that way. Between 2000 and 2010 there was growing acceptance that the days of the blockbuster were over. Different strategies were adopted to try and reinvigorate the pipeline, such as externalising discovery and ensuring all R&D functions went through massive restructuring. We are now seeing R&D having to operate in a much more diversified setting with biologics, consumer heath, generics and innovative drug delivery devices all taking on increasing importance for many companies.

So, what will R&D be delivering in 2023? Conceivably, companies will be selling add-on products and services alongside their traditional drugs offerings, directly to the consumer as well as to healthcare professionals. Furthermore, genetics could truly open up personalised medicines and diagnostics that are costeffective and widespread in mainstream medicine. Just think of the challenges of a ‘unit-of-one’ medicine. Pharmaceutical companies could even move into providing products and services to prevent or pre-empt illnesses, and to keep us well while we are younger and fitter. Ageing may even become a therapeutic indication.

Overall, R&D won’t be called ‘R&D’ anymore.The innovative pharmaceutical company model won’t disappear – truly differentiated medicines will always command premium pricing and margins, and there will be a handful of companies in the top 20 that will have specialised successfully in this respect. But the way innovation takes place will be different, and very much more based on information-enabled collaboration.

It’s Not All about the Patent: Pharma Will Like Generics

Over the last 12 years some of the world’s biggest brands came off-patent, such as Lilly’s Prozac in 2001, AZ’s Losec in 2001 or Merck’s Zocor in 2006. In the next three years alone, Accenture research finds drugs currently achieving $133 billion in sales will be coming off-patent; for example Lipitor in 2011, which currently has sales of $12bn, or Plavix with sales of $9.1bn.This has given rise to a much more vibrant generics industry. While India has typically been seen as a source of low-cost manufacturing for generics, with companies such as Ranbaxy and Dr Reddy’s growing rapidly, Teva – which is headquartered in Israel – has also grown at pace and is now reported as being on the list as one of the world’s 20th largest drug companies. The low-cost producers have arrived and are here to stay.

Twelve years ago, the term ‘generics’ was often considered to be a bad word to big pharmaceutical companies as they searched for the next branded blockbuster. Now generics are starting to co-exist in harmony inside big pharmaceutical companies as part of the diversification strategy. For example, Pfizer has recently acquired rights to 16 US generics developed by Akorn-Strides JV, and in May 2010 Abbott acquired Piramal’s health division and became India’s largest domestic pharmaceutical company. As consumerisation takes place,we are also starting to see the wholesalers introduce branded generics lines. For example, within the UK, Alliance Boots has its Almus branded generics portfolio. Additionally, there are further movements by consumer goods orientated companies into the pharmaceutical sector – indeed, it has been reported that Reckitt Benckiser already has revenues approaching $1 billion directly from drugs.

In the future, generics will play an even more significant and integrated role in our industry. There will still be the dedicated generics companies, but perhaps over 75 per cent of the traditional big pharmaceutical companies will have generics as a key element of their model. For us in the supply chain,we will need to operate in two quite different worlds – a highly responsive, low cost, money-driven generics environment as well as the more traditional and stable patentprotected world. Some companies will take this challenge on internally, but will split their manufacturing and supply functions into separate businesses to be able to respond to the quite different challenges. For others, outsourced manufacturing will become much more dominant – perhaps five of the top 20 companies each outsourcing over 75 per cent of their production, to provide the agility and cost point sought.

Emerging Markets Get Richer: Pharma Truly Goes Global

While we have traditionally thought of the pharmaceutical industry as a global one, it today still remains prominent in North America and western Europe. For example, industry reports indicate that BMS still has 63 per cent of its revenue coming from the US. With low predicted growth rates in these regions, the industry has now started to focus its attention onto emerging markets. Historically,many pharmaceutical companies have not had relevant and affordable products to sell in these regions, but the diversification strategies adopted by a number of companies are starting to address this. But how will the industry operate? I am surprised how many regional presidents do not actually sit in the region they serve but rather in corporate headquarters. As the industry consumerises, intimacy with the market will become even more important.

So imagine a pharmaceutical company where the US represents only 20 per cent of its revenue. Imagine clusters of regional headquarters operating as part of a much more virtual organisation overlaying across global brands teams. Imagine we spend a third of each day working with colleagues in different continents via Telepresence technology. Imagine a menu of supply chain service offerings that provides cost-effective solutions in response to many local market requirements. It will be a truly global affair.

Sales Reps Are Done: Pharma Sells Digitally

Twelve years ago the doctor was the primary source of most medical knowledge. Facebook, Blackberrys and iPhones did not exist. In technically advanced countries you could dial-up at home and surf the internet, but you were often constrained by the availability of good content and download speeds. Now information is everywhere,we are highly connected and can even be better informed around a specialised disease area than perhaps our own doctor. If we are the one that is ill,we will often spend as long as it takes to learn everything we can about our illness via a vast array of media and information sources.

In parallel,we have seen the economics of large sales forces, with each sales representative conducting only a handful of five minute details a day, being challenged. For example, it was reported in November 2010 that Roche has planned in the 2011-2012 time period that it would shed 4,800 employees, or six per cent of its workforce, of which 2,650 will be from the sales force. Many other companies have followed suit.

Formularies are placing a much greater focus on identifying which products will be funded and which will not, so as a sales representative you are not even selling to the doctor anymore. Additionally, much more complex payfor- performance relationships are being established, with payers eager for payment backed by outcomes data. We are also starting to see heavy investment in digital marketing and launch, which is predicted to grow at a double-digit rate in 2011. So the role of the sales representative we saw in the late 1990s and early 2000s is over. And for us in supply chain, you will be able to fulfil your prescriptions and get them delivered, and have your GP monitor your condition and treatment, without even having to leave your home or the workplace. It is a new digital world.

The New Frontier Awaits

Whatever you believe will happen,we cannot deny that we have challenging and interesting times ahead over the next 50 issues of PMPS. I look forward to seeing which of my predictions come true and how our industry ultimately shapes itself for the future that lies ahead.


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Bruce Horton is an experienced Partner at Accenture’s UK practice. He acts as a consultant to a number of the global heads of supply chain management within both the pharmaceutical and the biotechnology sectors and specialises in operating model design, strategy and implementation. His expertise covers the complete supply chain spectrum from procurement/ contract manufacturing, manufacturing excellence, and into distribution through the pharmaceutical and wholesale networks. He has worked across pharmaceutical affiliate and plant organisations, and graduated from the University of Bristol, with a Masters in Mechanical Engineering.

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