Description about The Pharmaceutical Industry

?The following are the major Political, Economic, Social and Technological trends outlined in the case, The Pharmaceutical Industry: Challenges in the New Century that affect the US Pharmaceutical industry: Political The growth of generics had been fuelled by the 1984 Waxman-Hatch Act, which reduced the barriers to generic entry by accelerating the approval process for the drugs.

Instead of forcing generic drug makers to conduct their own lengthy and costly clinical trials, Waxman-Hatch mandated they show only that their drugs were chemically and biologically equivalent to the original patented versions.Medicare Prescription Drug Improvement and Modernisation Act – it would create Medicare approved drug discount cards beginning in May 2004 that would enable participants to save between 10% and 25% on some prescriptions drugs. Participants with incomes below $12,567 (single) and $16,862 (married) would receive a $600 per year credit. The discount cards were a temporary measure that expired in 2006.

Beginning in 2006, Medicare participants would chose to participate in privately run drug coverage plans. Participants would pay a monthly premium of $35 and the first $250 in yearly drug costs.Beyond $250, participants paid 25% of the drug costs up to $2,250, 100% of drug costs between $2,250 and $3,600, and 5% of remaining drug costs. 1 The drug development process was monitored carefully by the U. S.

Food and Drug Administration (FDA) and comparable institutions around the world. Any delays or a rejection in an application had a monetary impact. The FDA required drug companies to monitor drugs after they reached the market and report on any safety issues. Problems that were not evident during the approval phase could arise after a drug was used by a larger number of people.

The FDA occasionally pulled such drugs from the market or asked their manufacturers to voluntarily pull them. In addition to reviewing drugs, the FDA also monitored the drug-manufacturing process and could fine companies and / or close plants that did not meet manufacturing regulations. The FDA Modernization Act of 1997 sought to reduce the review time by requiring drug companies to pay fees totalling approximately $700 million between 1997 and 2002 so that the FDA could hire more personnel and upgrade its systems.In 1997, the FDA made a significant change that greatly increased the importance of advertising to consumers.

Under the new regulation, marketers of pharmaceuticals were allowed to name a prescription drug and the illness it treated in direct-to-consume television advertisements. This regulatory change also impacted how technology was used in marketing i. e. the use of television advertisements. The 1994 European Community decision to grant Pan-European product approval for prescription drugs were making it easier for the biotechnology companies to take their innovations to market.Economic Parallel trade, the reselling of drugs across borders, was a growing market factor U.

S. residents living near the border often went to Canada to buy their medications to reap the savings. Residents in other parts of the country were beginning to buy from Canadian mail-order and Internet pharmacies. Free Rider Concerns.

Because drug prices in the U. S. generally were the most expensive in the world, there was a sense that U. S.

consumers paid the high cost of drug development to the benefit of consumers worldwide.Downward pressure on prices coincided with a growing complexity in drug development and approval cycles, which drove up R&D and capital expenditures. The high risk and research intensiveness of the pharmaceutical industry made drug development costly. Intense competition and price pressures in global pharmaceutical markets had fuelled on-going merger and acquisitions activities that were consolidating the industry. In the mid-1990s, no company held a 5% market share, while in 2003 the top three companies exceeded this mark.

Through mergers and acquisitions, firms sought global scale and scope advantages in research, manufacturing, marketing, sales and distribution. In addition to mergers and acquisitions, pharmaceutical companies were seeking out strategic alliances and joint ventures. From 1986 to 1993 the number of strategic alliances in the pharmaceutical industry increased from 121 to over 400. By 2001, there were 425 pharmaceutical alliances in the first six months of the year, not counting an additional 383 alliances with biotechnology firms during the same six-month period.2 Major pharmaceutical companies started outsourcing clinical trials to a new type of company referred to as a contract research organisation (CRO). Clinical trials were the cost part of the drug development process, and drug makers hired CROs to develop faster and cheaper ways of conducting the trials, some of which occurred in multiple countries simultaneously and involved hundreds or even thousands of patients.

A growing concern with the growth of managed care organisations (MCOs) / managed care systems forced doctors to see many more patients and often at less pay.This left doctors with little time to listen to detailers and company reps. Managed care systems also employed formularies (lists of approved medicines to control costs) that limited the doctors ability to choose which drugs to prescribe. These forces could make it harder for companies to drive a drug to blockbuster status. Social The growth of managed care organisations (MCOs) pressured drug makers to reduce drug prices. MCOs used their increased buying power to extract price concessions from drug manufacturers.

MCOs also used formularies, or lists of approved medicines to control costs. Social pressure to lower prices of drugs to poor nations. By 2003 many pharmaceutical companies had signed agreements to provide reduced-cost HIV / AIDS medications for use in poor nations. The industry feared, as a result of this practice, low-price or free drugs would find their way back onto the black market and undercut prices in developed markets. Access to doctors by sales reps was becoming more challenging.

Visits were difficult to schedule and often very short.To overcome these challenges, drug companies invited doctors to dinners, ball games, educational seminars, or other events at which they hoped reps would get more time. The reps also provided gifts, such as pens or mugs with company logos, and occasionally more valuable gifts such as vacation trips. Many reps and physicians did not feel comfortable with this system, and it was increasingly receiving negative attention in the press. In mid-2002, the pharmaceutical industry began to agree on a voluntary code to eliminate many of the excesses in the system.MCOs began offering “disease management programs,” which offered comprehensive disease treatment guidelines for health-care providers and patients.

Pharmaceutical companies used the disease management programs to demonstrate the cost effectiveness of prescription drugs relative to hospital-based care and to combat poor compliance rates for patients taking prescription drugs. Poor compliance was believed to have large economic costs, as measured by the increased frequency of hospital admission and readmissions and costs associated with poor preventative health care.Technological Pharmaceutical manufacturers were also under attack from generic substitutes for their flagship patented drugs. Generic drugs were priced typically at a 30% to 90% discount to the price at which brand-named drugs sold prior to patent expiration. Generic’s share of the U. S.

prescription drug market rose from 19% in 1984 to 47% in 2000 and it was estimated that this share would increase to 57% by 2005. 3 This increase was driven largely by cost-containment by MCOs, which routinely substituted generic products for patented drugs when possible.Two technological trends were also beginning to appear, e-detailing and e-prescibing. With e-detailing, doctors and reps could communicate over the Internet using Web cams. This gave reps greater access to doctors. Also early evidence also suggested that e-detailing meetings were much longer than the average face-to-face meeting – close to ten minutes than two.

4 The emergence of the biotechnology segment of the pharmaceutical industry beginning began in 1976. Companies such as Genentech, Amgen, Chiron and Genzyme were among the first to demonstrate that competitive barriers in drug discovery could be breached.In addition, regulatory changes such as the 1994 European Community decision to grant Pan-European product approval for prescription drugs were making it easier for these entrants to take their innovations to market. During the 1990s and into 2003, pharmaceutical companies, biotechnology companies, and academic institutions developed scientific knowledge and laboratory techniques which increased the speed and efficiency of testing compounds against disease targets. As a result of the multitude of new technologies and approached, big pharmaceutical were outsourcing an increasing portion of their R&D efforts.

In 2002, some companies were allocating close to 30% of their R&D budgets to outsourcing – compared with an industry average of 16% in 1996 and 8% in 1990. 5 The new genetic technologies developed by the biotechnology segment added pressure to the manufacturing side of pharmaceutical companies. Under traditional R&D methods, the product was discovered early in the R&D process so companies had years to develop manufacturing techniques and could estimate early on what manufacturing developments were needed and what they might cost.With genetic engineering and rational drug design, the product was largely unknown until much later in the development process. It was more difficult to estimate what it might cost to manufacture the drug, and it was conceivable that an effective drug could be discovered only to find it was cost prohibitive to produce.

Overall, a variety of new technologies were impacting and improving all phases of drug discovery and development. These techniques required new approaches to operating and managing drug company laboratories.The importance of information technology activities and their integration into laboratories was increasing. Where, historically, scientists had worked largely independently, R&D in the new environment required more collaboration.

Some pharmaceutical companies used CROs that offer “virtual” clinical trials. This approach promised to further speed development and perhaps partially address the growing problem of finding enough patients to participate in clinical studies. How benign are these trends?Many of these trends and challenges still exist within the Pharmaceutical Industry today and over the years since this case was produced in 2004. Increasing numbers of low-cost and substitute products. Intense cost pressures.

Falling prices and profits. Dramatically higher R&D costs. Fewer new, innovative products. High-quality products with little differentiation. Single-digit sales growth. 6 No other US industry has as many stakeholders as pharma.

Virtually every American uses ethical drugs at some point in his or her life.A variety of healthcare professionals and other entities are involving in assessing, prescribing, distributing, managing and dispensing products. Numerous regulatory agencies regulate and monitor all aspects of the industry. Other government officials, policymakers, and payers have direct or indirect oversight and influence. These and numerous other stakeholders – such as the media, lawyers and politician’s, have forced pharmaceutical companies to spend enormous amounts of time, money and other resources in responding to their demands, resulting in reduced efficiencies, sales and profitability.

6 Political The US government wants to promote the use of generics in an effort to control costs and is promising a crackdown on anti-competitive practices in the industry. These include "pay-to-delay" payments made by patent holders to generic producers to persuade them to delay the introduction of competing generic products. This issue is set to be considered by the Supreme Court. Mr Obama's reforms included the creation of a clear and abbreviated pathway for regulatory approval of biosimilars—generic versions of biotech drugs.His legislation, however, also lengthened the patent protection period for biotech drugs to ten years, delaying the launch of generic versions. 7 The US president, Barack Obama, and congressional Democrats passed a significant overhaul of the healthcare system in 2010, extending coverage to most of the 47m people without healthcare insurance.

To redress this lack of healthcare coverage, the Affordable Care Act - amended in the Healthcare and Education Reconciliation Act and signed into law by President Barack Obama in March 2010 – prohibits health insurers from refusing coverage based on the patient's medical history.Additionally, insurers will not be allowed to charge higher premiums or exclude coverage for medicines or treatments for pre-existing conditions. For children, this provision became effective for policies issued on or after September 23 2010. However, for everyone else, the legislation will take effect on January 1 2014.

8 Economic The lack of new products compels companies to rely almost exclusively on existing markets and products. Regulatory restrictions have made it increasing difficult to expand markets.Payers limit pharma’s ability to raise prices, while patent challenges and generic products have reduced the duration of product exclusivity. 6 Major pharmaceutical companies continue to seek strategic alliances and joint ventures. In March 2009, Pfizer announced an expanded relationship with Indian firm Aurobindo.

In May 2009, Pfizer announced another deal with Aurobindo, as well as a deal with Indian injectable generics specialist Claris Lifesciences. In July 2008, UK-based GlaxoSmithKline (GSK) spent $410m to acquire a 16% stake in South Africa-based Aspen.In October 2008, French major Sanofi-Aventis acquired Czech Republic-based Zentiva for $2. 6bn.

In April 2009, Sanofi bought Medley, of Brazil, for $664m and Mexico-based Kendrick for $30m. 6 Most healthcare insurance is paid for by employers. As a result, recent high unemployment has denied insurance cover to a substantial share of households. Even people with insurance are often deterred from getting medical help, because of the high level of co-payments or deductibles. Healthcare coverage is in the process of being expanded to many of the remaining uninsured with the implementation of a 2010 reform.

This uses a combination of an expanded federal healthcare programme, Medicaid, and an individual health insurance mandate to extend cover to around 30m previously uninsured Americans. The aim is to increase coverage from around 85% of the population at present to around 95% by 2019. Parts of the reform were designed to be fiscally neutral, but the full costs to public finances are not yet apparent. Costs to individuals are also likely to rise, given that new households will now have to buy insurance and because taxes will rise for those receiving high-value insurance from their employer.Social Pharmaceutical companies have been raising prices surreptitiously in the US to offset greater rebates and industry fees, and slower sales growth - which are partially due to unemployed or uninsured people not filling their prescriptions due to costs.

8 In Q210, health insurers, lab-testing companies, hospitals and doctors all reported fewer patient visits, drug prescriptions and procedures than in the corresponding period of 2009. This has also been witnessed in patients taking dangerous actions such as missing doses in order to save money.