As we move forward into 2013 the global pharmaceutical market can be best described as transitory. The U.S. ethical drug manufacturing market found itself experiencing some déjà vu from the 1980s with more drug manufacturers in regulatory action. And with an election year behind us the hope would be that the direction forward would become clearer yet looming uncertainties remain. 2012 was a year of change in many respects. The U.S. presidential election underscored the philosophical division that clouds our path forward as a nation. This uncertainty is echoed in Europe with the financial instability of Greece, Spain and now France presenting a very real threat to the solvency and future of the euro and the EEC. One of the most significant players, China, had a changing of the guard as Hu Jintao stepped down and Xi Jinping took up the reins as president of the country that represents the second largest pharmaceutical market in the world. Within the U.S. we saw a renewed level of enforcement by the FDA and a surprising level of non-compliance was revealed amongst ethical drug manufacturers. Also looming on the horizon is the potential impact of the Patient Protection and Affordable Care Act, or Obamacare as it is commonly known. An ideological and philosophical battle remains to be fought in the U.S. as the next steps of this plan begin to roll out.
In the U.S. the number of major mergers has slowed somewhat but the aftermath of rampant consolidation of the last five years has still been felt. It is difficult to isolate the contribution M&As have had on the collapse of Quality Management Systems in 2012, but it reasonable to assume they did play a role. Leadership and corporate focus are the first to be challenged when merging two cultures and corporate philosophies, resulting in some period of stabilization and recovery as new systems and business focus sharpen. Expect this to continue in 2013.
So what can we expect to see in the New Year? There is no question that we will see continued movement as the emerging markets graduate to their next level of maturity and the Next 11 jostle for position in the global pharma marketplace. Given these realities the industry can expect the following:
1. The U.S. quality challenges will continue. The current state of disrepair amongst ethical pharma will continue into 2013. 2012 revealed a surprise departure from the basic tenets of CFR 210 and 211 amongst many of the large pharmaceutical companies. The response to these efforts has been typically slow and costly. While the industry has begun to find its bearings again the depth of the departure is not fully realized yet and it can be expected that satellite organizations, the associated CMOs and CROs that support primary pharma operations will come under intense scrutiny. The recovery of the venture capital market has largely affected post-revenue based start-ups and has had a little impact on pre-revenue start-up opportunities. Given the chaos of large pharma markets created by escalating FDA enforcement and compounded by the patent expiration of major drug therapies the interest in in-licensing promising new chemical entities will be high. The issue will be, can promising new start-ups hang on for a licensing deal with pharma’s focus so divided?
2. China’s market will continue to grow. The Chinese economy, which slowed to approximately 7.6 percent growth in GDP in 2012, will recover with a target estimate of 8.8 percent in 2013. The basic tenets of the GMP 10 guidance are beginning to take root in some of the larger pharma operations in China, albeit slowly. Last year I mentioned that Chinese pharmaceutical companies are looking to the U.S. and Europe for their equipment which is a very positive step forward in terms of equipment capability and reliability. In addition, most large pharma organizations and freshly public companies understand that basic User Requirement Specifications and Equipment Qualification protocols will have to pass western regulatory muster. Unfortunately, the usual response to this requirement is to contract the equipment manufacturer to develop both the URS and equipment IQ and OQ protocols diluting the verification that the equipment can truly meet the needs of the process and product. Secondly, while the Chinese start-ups are enjoying unprecedented IPO success, the basic tenets of measuring business performance are not present. Standard cost modeling and cost-of-poor-quality targets are analytics that are non-existent in most start-ups. This draws into question the ability of these lofty IPOs to demonstrate and achieve their business plan. U.S. pharma companies that have entered into this market have such basic components in place prior to making the capital investment and will be able to continue to exploit their advantage in the Chinese and emerging markets. The largest segment of growth in the Chinese market will be from the growth of biosimilars for both the Chinese and world markets.
3. The impact of the New Process Validation Guidance will continue. The FDA has been clear in terms of its intent to enforce the new guidance issued in 2011. The industry has been slow to adapt to the new concepts within the guidance. The challenges in establishing a meaningful and effective Stage 1 process validation will continue to evolve. Commensurately, the basic tenets of Quality Assurance will begin to transform to accommodate the more specific characterization analyses required for Stage 1 and the process specific acceptance criteria required for Stage 2 Process Performance Qualification. If the industry embraces the founding principles behind this new guidance there will be the beginnings of a transformation that ICH Q8, 9 and 10 were not able to achieve. If instead the industry attempts to address the new guidance by justifying poor process understanding with higher order statistics, the journey to compliance will be a long one.
4. Payer pressure will continue to drive generic drug growth worldwide. The Affordable Health Care Act will once again take center stage as Washington grapples with the issue of rising health care costs. It is likely that the pressures on cost control will intensify. The interesting balance will be how the FDA manages the growth of generic drugs amidst this new mantra of process understanding and product quality. At the ISPE 2012 Annual Meeting in San Francisco, an FDA representative threw out the idea of replacing inspections with a survey. I believe this would be a big mistake. Generic companies have not historically had rigorous development programs, focusing on achieving bioequivalence rather than process understanding. It is important to remember that many of the quality tools we use, such as USP monograph methods and statistical sampling plans like those derived by ANSI Z 1.4-2008, assume a basic level of process capability. In the absence of that basic capability these methods cannot ensure product performance. I think this is a basic tenet that has yet to fully take root in the generic industry.
5. Information security concerns will continue to escalate. As the industry moves toward cloud, social media and mobile technologies to access and share information, this cyber-supply chain will come into focus as a true threat to business performance and patient safety. To deal with the rapidly evolving array of threats, IT infrastructure and architecture will have to move from being an after-thought to a core component of any global supply chain. The industry has been very slow to deal with the cyber-supply chain issue. As organizations move toward ever larger data platforms handling secure access to large volumes of fast-changing data, the ability and sophistication to handle the escalating challenge begins to diminish in-house and organizations will turn to outside contractors and service providers for added expertise. Understanding the threat model will be central to managing the threats to product quality and to securing both the physical and cyber-supply chain.
While 2013 promises to be another rocky ride, it will be one where we get an inkling of how the global markets, including the U.S, are to mature. To date we have witnessed the massive consolidation in the U.S. that has driven some of the quality system failures we have historically taken for granted and we have watched the emerging markets grow at an astounding rate over the last ten years. Now, these markets are beginning to grapple with the same health care cost issues the U.S. and Europe have for decades, but without the history and experiences that formed the basic GMP requirements of the U.S. and EMEA. It will be interesting to see how the next three to five years pay out and if the transition can be successfully bridged between a promising IPO and a bona fide business performer.