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Pharmaceutical Manufacturing and Packing Sourcer

Eastern Promise

On 28 September 1928, fortune struck when Sir Alexander Fleming discovered he had accidentally left the lid off a petri dish containing Staphylococcus. Putting two and two together, the doctor concluded the bluish mould growing inside the dish was inhibiting the bacteria’s growth, and so penicillin was discovered. Or so the story goes. Today’s pharmaceutical landscape is very different from Fleming’s world and, although accidental discoveries still take place, the approach to new drug development is much more complex.

Global industry trends have brought on significant changes in the way pharmaceutical companies operate. Business models have to be adapted continuously to respond to shifting healthcare patterns and increasing regulatory compliance requirements. Drug R&D is moving faster than ever before, and pharmaceutical manufacturing is incorporating greater levels of industrial automation.

The Big Picture

The pharma industry is at a critical junction. The global population is rising rapidly; average life expectancy is growing every decade; and the middle class is becoming a more prominent population segment in emerging markets. Furthermore, the demand for healthcare services is amplifying daily. In this sea of opportunities, it is only the most agile businesses that will survive and grow.

One thing pharma knows better than any other industry is that behind every opportunity lies a hidden threat. Increasingly, strict regulatory compliance, along with product security and complex supply chains, are the main concerns when it comes to cost management. According to the latest UPS study of the pharmaceutical supply chain, firms are trying different approaches to reduce their manufacturing and delivery expenditure (1). The results show that 66% of respondents have been growing their technology investments with the aim of making R&D, manufacturing and testing more costefficient and flexible in the long run.

Pharmerging Markets

Over the last few decades, emerging markets have been regarded as the promised land, with their total value expected to amount to a third of the global pharma market by the end of 2020. In 2013, IMS Health identified 21 geographic regions it considered essential for the growth of pharmaceuticals, and these countries were given the name ‘pharmerging markets’ (2). The classification was based on per capita GDP, combined with market data forecasts from IMS Market Prognosis. The conclusion was that between 2012 and 2017, pharmerging markets will have growth rates far higher than mature markets. In fact, they are predicted to expand from a fourth of the global pharma market in 2012 to a third by 2017. The main drivers of industry growth were government and private healthcare investment, as well as the increasing burden of chronic diseases.

As is always the case in industry, some pharmerging markets have more potential than others and classifications differ. According to the IMS Health report, the only tier one market is China, expected to account for nearly half of pharmerging market growth. The tier two countries are Brazil, India and Russia, while tier three unites countries with a wide array of income levels and healthcare sophistication, including Turkey, Saudi Arabia, Vietnam, Indonesia and Thailand.

PwC’s Pharma Emerging Markets 2.0 report uses a different classification system to describe this dynamic – yet highly diverse – group of countries (3). Here, tier one comprises of the BRICMT group, meaning Brazil, Russia, India, China, Mexico and Turkey – countries that are now comparable in size to mature Western counterparts. Second tier markets include economies from Eastern Europe and Southeast Asia, like Indonesia, Vietnam and Thailand. Finally, the third group is made up of African countries which are highly populous but still have relatively small market sizes.

Common Traits

Regardless of which classification you prefer, several common traits can be identified between most of these markets. For one thing, the balance between the young and old within a population is shifting. If in 2010, only 10% of the global population was aged 60 or over, by 2050, the number is expected to grow to 21%. Two-thirds of people aged 60 or over have at least one chronic condition, meaning they require some form of healthcare or medication.

Rising income levels in these countries are also likely to result in a shift towards lifestyle diseases, with different cardiovascular and respiratory conditions potentially on the rise. According to Frost & Sullivan, the estimated number of diabetics in India will grow to 70 million, with China not far behind with a total of 50 million (4).

Finally, growing public and private investments in healthcare and pharmaceuticals are likely to drive the market even further. Similar to the US and Western Europe, the integration of pharmaceuticals, diagnostics, medical devices, patient monitoring and IT is likely to result in minimal risk, lower costs and safer healthcare.

While the road is certainly long and difficult, changing business models have already begun to take shape. Two of the most obvious trends in pharmerging markets – particularly the Asian ones – are increased investment in R&D and improved manufacturing standards. The aim is to reduce the time dedicated to clinical trials and, ultimately, move towards just-in-time manufacturing and flexible production facilities – like the ones used by the automotive industry.

Automation and Control

Industrial automation and control systems integrate IT technology with mechanical systems. One of the biggest advantages of this is that it helps standardise products, while reducing waste, saving energy, and continuously monitoring production efficiency and product quality. For these reasons and others, industrial automation solutions are crucial for the pharma industry, particularly when it comes to the manufacturing and packaging stages.

North America is currently leading the industrial automation revolution, but Asia is expected to see high growth rates over the next five years. In fact, China and India are predicted to become the fastest automation and control system markets in pharma and biotech, despite challenges like an insufficiently skilled workforce and increasingly uncompromising industry standards.

Chinese Champion

Although it is not really an emerging market any more, China is definitely worth mentioning when discussing opportunities and challenges for pharmaceutical manufacturers. A visit to any Chinese city will leave you astonished at the scale and development of modern China; at the same time, its remote rural areas will impress by how well it has conserved a way of life irrevocably lost to the modern world. Similar – if less poetic – contradictions can be identified in China’s pharma industry.

To deal with the largest elderly population in the world, China’s out-of-pocket and private insurance healthcare payments have been increasing steadily over the last decade. Government healthcare payments are also on the rise. After the US, China ranks second for the number of FDA-registered drug establishments, and sixth among the largest providers of drugs and antibiotics to the US.

Large international players are already present in China and have seen increasing competition from local companies. To address the growing pressure, many Western pharma firms have upgraded their production sites. Pfizer, for example, recently announced that a $90 million facility will be built at its Suzhou site. It is hoped that this new plant will address a growing demand for dietary supplements and multivitamins in the first stage, with the option of expanding to other production ranges in the future (5). The new facility is also expected to feature a state-of-the-art R&D lab.

This is by no means a solitary example. The biggest industry names, including, Roche, Bayer, Merck KGaA, Johnson & Johnson and Sanofi, all have projects under way to try and reach the growing – and ageing – middle-class population of China.

Duplicating Efforts

But it is not all milk and honey when it comes to the Chinese pharmaceutical market. Falsified drugs are a huge problem in any emerging market – and China is no exception. In fact, counterfeit medicines originating in the country are often so expertly copied that only laboratory analysis can distinguish between real and fake. In addition, because of its ‘copycat culture’, China often faces questions even when it comes to the quality of genuine pharmaceutical products. This is still an opportunity for Western companies that are either exporting to China or have a joint venture set up with domestic manufacturers.

Despite intense cost pressures, branded generics marketed in China by Western producers are still in high demand because they are typically associated with uniform specifications, rigorous testing and stable formulas. However, this demand is starting to fade. Pharma innovation in the country has traditionally been slowed down by lack of expertise, shortage of manufacturing facilities, and even a slow review process by the China Food and Drug Administration. Perhaps its great potential lies somewhere between innovation and duplication. One thing is certain: with the number of R&D and production facilities on the rise, China is more than just a vast market opportunity; it is an agile and fierce competitor.

Indian Innovation

The situation is similar in the Indian subcontinent, where the industry is witnessing healthy foreign direct investment and joint ventures. Representing up to 80% of the pharma retail market, branded generics dominate – but what is currently missing is an increase in R&D budgets. According to a recent statement from the Health and Family Welfare Minister, Indian pharmaceutical manufacturers are spending less than 2% of total turnover on R&D (6).

New opportunities – such as patented products, consumer healthcare, biologics and vaccines – also appear to be emerging. Rising affordability and public health budget increases will be the primary drivers for these developments. For the time being, multinational companies are the ones making meaningful investments in this area.

However, this year, the medical sector has seen a new drive with the announcement of India’s first medical device industrial park in Gujarat, and discussions are currently under way for a second park in the south Indian state of Tamil Nadu. India currently imports 70% of its medical devices, but with government initiatives like Make in India, it is increasingly likely that domestic industry will start accounting for more of the market, in both the medical and pharmaceutical segments.

Indonesian Investment

In January 2014, the Indonesian government launched an ambitious new project aimed at establishing a compulsory national health insurance system that would make healthcare available to all by 2019. Criticised by many as an overly ambitious plan, the Jaminan Kesehatan Nasional scheme has proved popular with the wider population and independent surveys have shown a relatively high level of customer satisfaction.

The introduction of this scheme is symptomatic of an expanding market that has seen recent investments in the pharma sector. A report compiled by CPhI South East Asia found that Indonesian pharmaceutical manufacturers are operating at capacity and do not yet have the ability to expand quickly (7). This represents an opportunity to gain a foothold in the market for Western firms.

Local Focus

To succeed in emerging markets, companies need to become more agile and change the business models that have made them into what they are today. Whether it involves adapting to local demands, understanding the culture, or adapting the production process to make it more flexible and efficient, a paradigm shift is clearly happening in the pharmaceutical sector. After all, the industry needs to evolve and look to the future. There is no way of going back to the days of Doctor Fleming’s accidental discoveries.

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Jonathan Wilkins is the Marketing Director of obsolete industrial automation components supplier, European Automation. A professional brand advocate and commercial marketing strategist, he focuses on delivering growth via a multi-channel approach that has had a significant positive impact on business. Jonathan has been part of the European Automation team since its humble beginnings five years ago and has more than a decade of experience in marketing.
Jonathan Wilkins
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