Sunday, August 17, 2014

Landscape Disrupters Are Becoming Part of the Pharma’s Playing Field

In recent years genetic testing has been introduced (23andme, Navigenics, deCODE and others). It has caused a bit of for and against uproar. Information from this testing could be used for changing the lifestyle that could avert diseases one might encounter with age or even could be used for personalized medicine. Better lifestyle could lower pharma sales and an unacceptable scenario by the current players. Others consider that the generated information could be abused and invade privacy and would want to block such testing.

Similarly companies like Theranos and Nanobiosym are introducing low cost, efficient and speedier diagnostic testing. This is happening due to better application of existing physical sciences and engineering principles along with advances in microchip technologies. Speed and lower costs are causing quite a bit of angst at the companies who are currently involved in this work and had thought what they do cannot be done by anyone else. 

Diagnostic test results with newer technologies offer wide range of information that may not require repeated or additional testing if the physicians want to have supplementary information. Using the existing technologies additional testing would be necessary if such information. New companies will impact the revenue base of the existing companies since their costs are lower. These technologies will lower healthcare costs and are a perturbation.

Above are few of the disruptive companies that are changing the pharmaceutical diagnostic playing field and giving people opportunity to manage their life style. The established players frown upon loosing control of large population base and revenue. Privacy and other concerns are being raised to limit wide spread use of methods. Every possible legal argument and scare tactic is and would be made against information that could improve our health and lifestyle. Different pro and con arguments and lawsuits will come through till all involved understand value of testing and privacy safeguards are put in place. After adequate safeguards these companies will eventually succeed.

Driverless car is a technology leap that is causing a perturbation in the automotive field. Google’s thrust has been formidable and is well known. Automotive companies could have fought the technology but have decided to join in. They do not want to loose the customer base. Microchips with smartphones have changed global lifestyle landscape. Origami engineered robots being explored at Harvard and MIT once commercialized could revolutionize the global industrial landscape.

Edison, Gates, Jobs, Ford, Musk and others created new landscapes. History tells us that change is possible and if the industry does not change, revolutionary and free wheeling explorers who are not part of the current landscape make the change. They create a very different business model because the current model does not serve the need they envision.

It is ironic that many see a similar change is needed in pharmaceuticals to make the drugs affordable to about additional 40% (2 to 3 billion people, my conjecture) of the global population. Existing pharma companies will like to capture this customer base on their terms of drug availability and pricing. However, their current business strategies and practices are making this extremely difficult. Families have to decide how to manage their money between food and medicines and are a roadblock to pharma’s ambitions. Alternates to achieving the goal do exist but need different business strategies.  

Additional mavericks similar to diagnostic or lifestyle changers are needed for the pharmaceuticals. I am not sure anyone has taken up that role. Its time may have come. Companies like Emerald Therapeutics could assist or be the game changer. Wouldn't it be interesting if few outlier companies (small molecule active producers and their formulators) could create a business model that will have a larger customer base for limited drugs just to show what all is possible and in turn lower drug costs and have high profits? Such an opportunity would be worth exploring.  

Girish Malhotra, PE
President

EPCOT International

Friday, August 1, 2014

Why Fitting a Square Plug in a Round hole is Profitable for Pharma and Most Likely Will Stay?

In 2005 I had raised a question about Batch or a Continuous Process: A Choice. At that time it seemed like a logical question and still is. However, I left part of the question unanswered. Missing was the discussion of components of pharma manufacturing, API manufacture and their formulations. Generally most of the discussion about pharma manufacturing focuses on formulations. API manufacturing an important orphan is not discussed.

In this discussion I have used Synthroid, # 1 prescribed and # 59 by revenue drug from top 100 US drugs from 2013 to review both segments of manufacturing and related options. Information could be used to create a better business model that will incorporate better manufacturing technologies and move away from ‘regulation centricity” to “process centricity”. End result would be improved profits and expanded global healthcare and coverage with lower costs. If properly done global pharmaceutical landscape will change.  

API manufacturing and their formulations need to be dealt separately as the technologies involved (unit processes and operations) are different. However, they influence the total business process. First has reactive processes along with purification. Resulting products could be solid or liquid. Formulation in the simplest form is basically mixing of excipients and creating dose that delivers the expected performance and can be easily dispensed and consumed. Packaging is part of the formulation.

Why Continuous Manufacturing of API’s would be a challenge:

In the last few years many on increasing frequency have chimed in for the continuous processes for API. However, it seems like that the rational principles of chemical engineering have not been applied in coming to that conclusion. Continuous usually means operating 24 hours per day, seven days per week with infrequent maintenance shutdowns, such as semi-annual or annual. Generally 15% downtime is acceptable. Anything short of this definition is not a continuous process. Continuous process also means starting with raw materials and producing finished salable product.

The following dictate the rationality of what type of process would produce lowest cost and highest quality products.

  • Product volume per year
  • Process
  • Equipment
In the development of a commercial process chemist/chemical engineer have to know and understand these. They can have the best process but equipment and product volume dictate the course of action. Generally the first thought is to use the existing equipment if the volume does not justify a continuous process. We all know and understand that a continuous process most of the times means capital investment.

For batch or continuous process complete command of the operating conditions and methods is necessary to produce repeatable quality product. Anything short impacts product quality and business process.

Batch cycle time exceeding 48 hours necessitates a thorough review and effort even going back to the lab bench to reduce the cycle time. Long batch processes impact asset utilization and the whole business process. Every effort needs to be made to minimize the batch cycle time. In pharma extended API manufacturing batch cycle times are normal as there is no “process centricity”. “Regulation centricity” rules and is an impediment to innovation.

Table 1 is self-explanatory and presents very interesting numbers. There are some extrapolating assumptions. It is assumed that 5% of the global population uses synthroid. This most likely is a high number. Thus the actual demand for the active ingredient would be less than illustrated.

Table 1 illustrates that at 112 microgram dose at 100% formulation efficiency about 15,000 kilograms of the active would be needed to satisfy the global demand. A continuous API plant operating [24X7X350x0.85 =7,140 hrs.] would produce at about 5.00 pounds per hour, an extremely low production rate for a continuous process. Use of currently available equipment would pose many challenges and be really trying to fit square plug in a round hole. If a continuous process plant were to be built, it will require special equipment and process controls that might not be available.

All said and done there is no justification to have a continuous plant for the manufacture of active Levothyroxine (synthroid). I have not looked into it but I am sure that today multiple plants are producing the active ingredient. Each possibly has low process yields, are inefficient, have variable site to site and batch to batch product quality. Significant and expensive manpower would be needed to have consistent quality product. In reality a single plant using a batch process would satisfy total global demand.

Synthroid (Levothyroxine) sales number and prescriptions [Table 2] present another interesting hypothesis. We can reverse calculate the price of the active ingredient. It would be based on certain assumptions and would give us a picture of profitability at different levels. US sales per prescription per month are about $3.05. These compare to sale price of $4.00 for thirty or $10.00 for ninety day supply at Walmart and Target etc.


2013 Sales, $
2013 # prescriptions
Dosage
858,725,708
23,452,848
[One prescription per person]
There are eleven different doses between (25-200 microgram) available. To facilitate calculations an average dose of 112 micrograms has been used.
Since synthroid has to be taken every day of the year we can calculate the total micrograms needed assuming 100% formulation yield. One prescription = one patient
Total API needed, micrograms per yr.
=23,452,848x112x365= 958,752,426,240
One kilogram = 1,000,000,000 micrograms
Total API needed to serve US population, Kilograms per yr.
958.75
US population taking Synthroid
(23,452,848x100)/320,000,000* = 7% [*US population]
Extrapolating number to project global Synthroid API demand per year
Global population seven billion. Assumption 5% takes synthroid = 350,000,000
Total Synthroid global API need Kg. per year
=(350,000,000x958.75/23,452,848) = 14,308

Table 1: Levothyroxine active ingredient needed for Global and US population


Sales, $
# Prescriptions
858,725,708
23,452,848
Avg. US patient cost $ per month = 858,725,708/(23,452,848x12) =3.05
Avg. dose, micrograms =112
API, Kg needed to fill US need = 958.75
Per Table 1
Profit assumption at wholesale level
100%
Sale price at wholesale level, $
= 0.5x858725708 = 429,362,854
Formulation profit 40%

Formulation level factory cost
=0.6x 429362854 = 257,617,712
Excipient and conversion cost
70% of Factory cost
Total API Purchase price, $
= 0.3x257617712= 77,285,313
API Selling price, $ per kilo
= 77,285,313/958.75= 80,610

Table 2: Reverse calculation of Levothyroxine selling price

Reverse calculation using US sales numbers suggest that active ingredient Levothyroxine cost to the formulator should be about $80,610 per kilo. Current selling price of levothyroxine on the world market is less than $3000 per kilo. This suggests even after generous profit margins being factored in Table 2 everyone in the supply chain has significant profits. These margins also indicate that all of the inefficiency costs can be passed on and there is no incentive to improve manufacturing practices. Average sale price of $3.05 per month would considered low by US standards but it might be considered expensive in the developing countries even when it is sold at $1.00 per month’s.  

Formulation Processes

Since dosages are in micrograms or milligrams, one kilogram can go a long way. One kilogram can make one million of one milligram and one billion of one microgram tablets at 100% yield. It tells us that a large volume of high value product can be produced from a small quantity. Using 10,000 kilograms Table 3 illustrates different production rates. At 100% yield we can produce ten billion of one milligram or 10,000 billion tables containing one microgram active ingredient.

Tablet dose
10 milligram
100 microgram
10,000 Kilogram
10,000,000,000 Milligram
10,000,000,000,000 Microgram
# Tablets
1,000,000,000
100,000,000,000
Hours per year using 85% operating time

=350*24*0.85= 7140
Minutes per year using 85% operating time

=7140*60= 428,400
Tablets production rate per minute
=1,000,000,000/428,400
=2,334
=100,000,000,000/428,000 =233,426
Production rate Synthroid, 112 microgram tablets per minute

=233,426*1.43/1.12=298,202

Table 3: Formulation production rates

Review suggests that a single plant could produce the necessary active ingredient to fill global synthroid demand. However, it would take multiple tableting lines/sites to convert the active in salable product. Since multiple doses are needed it would be worth to have parallel tableting lines. Multiple lines would give flexibility to meet the customer demand. 

Very precise and high degree of process control is needed at every step in each line. Various technologies to produce and package tablets exist. However, blending of excipients and actives to deliver a uniform product requires precise controls.  

Analysis:

Point of this exercise is not to suggest that continuous processing is dead. Each manufacturing component has to be looked at separately to see what is the best for business and patient base. Going continuous for formulations is much easier than for API. Basis is ONE kilogram active ingredient can produce ONE million milligram tablets that will serve about 2,700 patients per year.

Many companies produce same API. Processes for these APIs are generally inefficient. Square plug in a round hole scenario for such molecules will exist unless a concerted business effort is made to alter the landscape through consolidation. If we look around out of thousands of small molecule drugs may be less than ten APIs are produced using continuous processes.

Going from “B”(batch) to “C” (continuous) is not like going to the next alphabet. It will require a significant change in business thought process. Omeprazole, metformin hydrochloride and HCTZ (hydrochlorothiazide) are some APIs that could be produced using continuous process. For that matter any API that has a global requirement of more than 350,000 pounds per year could be produced using continuous process. Breakthrough chemistry and brilliant execution would be needed. Use of any API that is produced at these volumes (350,000 pounds per year or more) suggests that their consumption could be increased if costs come down. Pharmaceutical is the largest business segment where cost reduction can increase consumption by 20-30% i.e. by billions.

I am not giving up hope for continuous processes. I hope you don't either. It will take effort.

Girish Malhotra, PE
President
EPCOT International

Wednesday, April 23, 2014

Sun Pharma’s Exotic Challenge: How Real?

Since Sun’s acquisition of Ranbaxy Business-Standard, Economic Times and other papers have published many stories related to good and wonderful nature of the deal. I am sure everyone in India wants this to be a success and recoup the lost pride in Ranbaxy’s demise. However, no one wants to address or publish or discuss anything about the challenges Sun will face to get everything running full speed. Some of issues, especially personnel, Sun will have to deal with are generally considered taboo.   

In India businesses started are generally passed on to the coming generations. Before the launch of economic revolution in 1991 handful of companies were interested in India. Not very many companies are bought and sold in Indian culture. A sale to a competitor basically meant the entrepreneurs had failed, a setback in community. With that context acquisition of Ranbaxy by an Indian company has caught everyone by surprise and even pride. Ranbaxy has come home. Ranbaxy was part of the elite; the biggest pharma in India and its sale to Daiichi Sankyo was a loss. 

Sun’s acquisition of Ranbaxy besides financial benefits creates unprecedented opportunities to change the global landscape. It will face significant issues that any other Indian companies have not encountered on its scale. For its success it will have to deal with them. How they will manage and handle assimilation will determine Sun’s success.

Sun’s highest priority is get the sites approved from USFDA and other regulatory bodies ASAP to earn the trust and revenue it needs to implement changes. To achieve success Sun will have to deal with technology and human side of the organization. They will have to be dealt with very gently. I believe such an endeavor on this scale that has global implications has not been dealt in Indian business. 

On human side, personal and personnel issues may become the biggest hurdle. Colleagues of yesterday could challenge boss-subordinate relationships of tomorrow and that may impede assimilation. Sun’s way of managing and cajoling Indian psyche would be put to ultimate test. It might have to invent new and different ways and methods to develop strong and cohesive teams that will deliver on its goals.

On technology side Sun has to figure out how to move from every pharma company’s practice of “regulation centricity” to “process centricity” i.e. have complete command of the processes so that they can exceed regulations. This is a unique opportunity and not very many get it. It could be called once in a lifetime opportunity to change the global pharma playing field by showing how quality can be produced while lowering costs and improving profits. Complete and parallel review of the business model could create a model that could deliver quality and quantity on patient demand.

Benefits of process centricity if adopted can change the playing field in many ways. Stakeholders will have command of the processes and that means they will be able to rationalize global businesses for their products. Economies of scale will lead to commercialization of the best technologies which in turn would mean the producers will know that they have control of every aspect of manufacturing, quality and supply chain. Used technologies will exceed regulations and that would be something new and unheard of especially in pharma. Quality will be built in their processes rather than achieved through “trial and error” process.

Sun could step out of the pharma’s “me-too” model box and show how “process centricity” can change the playing field as it exceeds regulations and produces quality products with minimal in-process analysis. Such an achievement could change the global playing field forever. Ranbaxy had this opportunity in 2008 but did not take advantage of the opportunity. May be Sun will avail the opportunity and put the pride back for Indian management.

For assimilation to happen perfectly each wheel will have to turn at speeds to deliver the combined expected result. I am sure Sun’s team is well aware of the challenges they will face and were part of the acquisition consideration equation. I hope they have the resources and are willing to tap into resources to achieve their objectives.