As we move into 2014 the global pharmaceutical market can breathe a sigh of relief that the worst seems to be behind us. The hit to the marketplace due to patent expiry reached its peak in 2012 when approximately $38 billion in revenue evaporated1. Since then nearly $85 billion of forecasted new drug sales has been approved by the FDA, signaling an end to the market contraction that had been the hallmark of the last five years.
Even if emerging markets are still driving growth, it remains to be seen if China can maintain the kind of GDP expansion it has enjoyed for the last decade. The latest projections in China forecast an annual GDP of 7.4% for 2013 with higher GDP projection numbers in 2014, ranging between 14-15%2. But ongoing anti-corruption efforts are affecting growth as China widens the net in its investigations, resulting in a virtual standstill of any promotion activity in the country. China is a country in transition. The internal commitment to move away from dirty, heavy industry where the Chinese have been the low-cost provider of labor and services to higher value market sectors is a gamble. China’s shifting demographics complicates the issue, with the working age population set to decline starting in 2015. The announcement late in 2013 that the Chinese government will relax their one-child policy and finally allow families to have two children, as long as one parent is an only child, is not likely to have any meaningful impact for several decades. In fact, it will likely have a negative one as more parents step out of the workforce to care for their growing families.
Compounding this situation is China’s long-term drive to transform the country to what it calls its pillar industries: energy conservation and environmental protection, new-generation information technology, the biotech industry, and high-end equipment manufacturing. Pharma is captured as part of the biotech pillar and this expansion from a regulatory perspective has been perceptible over the last five years. With market maturation, internal efforts to elevate the capabilities of homegrown drug manufacturers to compete in the world marketplace create more local competition and drive up costs for multi-nationals looking to enter the Chinese market. While China is still on course to become the second largest pharmaceutical market by 2015, the strategies for tapping this market remain fluid. Escalating resource costs, the weight of bureaucracy in key government agencies and corruption remain irascible components of success in China.
As the U.S. moves out of a very dark period of market doldrums, consolidation and quality issues relating to the interdependence between the European, U.S. and Chinese markets has never been more apparent. Deutsche Bank AG forecasts an overall GDP growth for 2014 of 4%, driven primarily by growth in the U.S. economy and to a lesser extent China’s. If anyone were to stumble it is safe to say the chain reaction would not be good, and would be felt by all market segments.
So what can we expect to see in 2014? Given the realities of the implementation of the Affordable Care Act in the U.S. and the evolution and maturing of emerging markets, the industry can expect the following in 2014:
1. Impact of FDA and High Court Rulings. Several decisions made by the Supreme Court in 2013 could have a profound impact on the longterm engine driving the U.S. industry. For Generic pharma, in Federal Trade Commission v. Actavis, the Court confronted the law governing a controversial pharmaceutical marketing practice known as reverse payment agreements - or pay for delay - in which brand-drug companies basically pay generic companies to delay commercialization of their products. The result will mean increased branded drug competition earlier in its commercial lifecycle. This is good for consumers, and not so good for innovator companies.
In another key decision, Mutual Pharmaceutical v. Bartlett, the Court ruled that generics manufacturers are substantially immune from civil claims regarding injuries caused by their products. This decision basically eliminates the primary incentive for evaluating safety and design defects before marketing a generic product. This last ruling is threatened by a proposed shift in FDA position on generic drug labeling. The FDA has submitted a proposed rule that would allow generic companies to change their labelling under appropriate circumstances, just like brand companies. FDA’s Proposed Rule would allow generic manufacturers to independently update product labeling through the “changes being effected” (CBE-0) supplement process currently only available to branded drug manufacturers for product safety labeling. Under the Proposed Rule, generic manufacturers could unilaterally change their safety-related product labeling, and those changes could take effect simultaneously with the companies’ notification of the FDA and of the branded drug manufacturer. No prior approval would be required.
If this rule is adopted the regulatory and liability landscape for the generic drug industry will be completely transformed.
2. China’s market matures. Drug makers have poured resources into China over the past dozen years and rising incomes have made health care more affordable for many. The Chinese government’s stimulus efforts will raise the number of Chinese earning $5,000 or more per year to 339 million by 2016, according to projections from the IMS Institute for Healthcare Informatics. Meanwhile, the government has spent $180 billion since 2009 to advance its goal of providing basic care for more than 90 percent of its citizens. With these achievements comes the necessary policy decisions linked to the rising cost of health care in China. There is no doubt that the level of sophistication of Chinese manufacturers is evolving but there is a long way to go. Currently only 300 Chinese companies are registered with the government as certified to Chinese GMPs out of the 7,000 drug manufacturers present in the country. It presents a conundrum for the government as the growing middleclass begins to demand a higher level of quality and service. Large capital projects are on the rise in China. Seven years ago there were approximately five large pharm/biotech related capital projects in the Shanghai area. Today there are over 55!
The largest segment of growth within the Chinese market will come from the monoclonal antibody (mAb) and biosimilars programs for both the Chinese and world markets. TB vaccine development programs have grabbed the attention of the Gates Foundation and Aeras as a means of addressing global healthcare issues. China may well seize this opportunity to be a significant contributor on the world healthcare stage.
3. Quality Risk Management (QRM) will be more broadly deployed. The International Committee of Harmonization (ICH) issued its ICH Q8, Q9 and Q10 guidances between 2005 and 2009. Despite these frameworks the industry has been slow to adopt these principles as part of its core drug development philosophy. The issuance of the new Process Validation guidance in 2011 formally began the agency’s push to instill the concepts of scientific understanding and risk management as a basis for product design and quality. The road has been rock, to say the least, as the list of companies under warning letters or consent decrees continues to lengthen. Several factors are driving the change - if seemingly at a glacial pace. First is the growing realization that the industry must get better at identifying and developing new drug therapies to remain competitive. This has prompted the industry to start looking at formalized decision-making tools as part of their risk management process. Second, in Asia, risk management is becoming a central component of any regulatory inspection and regulatory filing. While in the U.S. the focus has been on clinical risk management via its REMS program, Asia is focusing on risk management tools for tactical components like facility design qualification, equipment selection, and commissioning and qualification. This is driving the integration of risk management tools as part of the overall project planning exercise rather than a checkbox activity. In the U.S. many large multinationals are transforming their development programs to leverage knowledge management and utilized formal risk management tools. This trend can only help move the industry toward a more scientifically-based development philosophy.
4. Drug serialization will gain momentum. Anti-counterfeiting activities are rapidly becoming the central focus of many countries’ regulatory landscape. Global pharmaceuticals face counterfeiting problems as well as theft, diversion and false returns to manufacturers. The World Health Organization (WHO) estimates counterfeit drugs to constitute approximately 1% of the supply in developed countries and 30% to 40% in developing countries. While this 1% figure seems small, it means millions of prescriptions in the U.S. alone.
In November 2013 the Senate passed the Drug Quality and Security Act (H.R. 3204). The culmination of nearly 10 years of effort by the Health Distribution Management Association (HDMA), this act will preempt all state laws relating to drug pedigrees and track-and-trace systems, to assure the security and safety of our nation’s drug supply chain. The rollout will take place over the next decade with the goal of acheiving unit level traceability for all drugs manufactured in the U.S. Serialization regulations are in place today in Turkey, India, China, Brazil, Argentina and South Korea. At the latest Global Track and Trace Roundtable3 held in October 2013 almost every major pharmaceutical market stated plans to formalize serialization between now and 2017.
2014 promises to be a year for recovery for the industry. As markets around the world mature industry best practices will begin to converge and true solutions will surface. Looking ahead, organizations capable of recognizing trends such as the integration of QRM in program planning will become the foundation for future quality arguments and will be more broadly integrated into product development practices. Markets will continue to evolve and while China’s participation will still play a role, in 2014 the Europe and the U.S. will step up to contribute more to the overall symbiotic growth of the market.
1. EvaluatePharma, “World Preview 2013, Outlook to 2018-Returning to Growth,” June 2013
2. Armstrong, Drew “China’s Pharma Potential Diminished,” www.businessweek.com, Nov 14, 2013
Global Pharma Outlook for 2014, by Bikash Chatterjee, Pharmatech Associates (Dec 2013)
About the Author:
Bikash Chatterjee, is President and Chief Technology Officer of Pharmatech Associates Inc.
He has been involved in the bio-pharmaceutical, pharmaceutical, medical device and diagnostics industry for over 30 years.
Mr. Chatterjee has guided the successful approval of over a dozen new products within the U.S. and Europe and is a frequent speaker at industry and regulatory events. He has published and is a regular editorial contributor to several internationally recognized industry journals. Mr. Chatterjee has spoken and published extensively on the application of PAT, Lean Six Sigma, Quality by Designand Process Validation approaches within the regulated life sciences industry.
He is an ISO 9000 certified Lead Assessor and Six Sigma and Lean Manufacturing Master Black Belt. Mr. Chatterjee has developed and transferred products and processes to satellite operations and Contract Manufacturing Organizations for much of his career. He has extensive experience with design and implementation of systems to satisfy the requirements for ICH Q8, Q9, and Q10 as well as e-pedigree and the application of risk based approaches in the area of validation. His experience in complex product and process development and technology transfer has resulted in the development of a six sigma based methodology to support the PAT initiative and has successfully tailored the principles of Lean and Six Sigma for application in the pharmaceutical R&D environment resulting in reduced program risk and reduced time to market.
Mr. Chatterjee is a member of the USP National Advisory Board and is the Past-Chairman of the Golden Gate Chapter of the American Society of Quality. Mr. Chatterjee is a member of Healthcare Information and Management System Society Technical Advisory Board and sits on several private Scientific Advisory Boards.
Mr. Chatterjee holds a B.A. in Biochemistry and a B.S. in Chemical Engineering from the University of California at San Diego.