All opinions are my own.

Friday, December 12, 2008

Is "Creative Destruction" the way to go for the Pharmaceuticals?

Roche Chief Warns of a Likely Shakeout makes an interesting admittance of the need for the change in the pharmaceutical industry.

World is seeing the automobile (premier) industry requesting salvation from the government as they drove themselves in a ditch. Are the Pharmaceuticals heading in the same direction?

Recent Wall Street article "How Detroit Drove Into a Ditch" is an excellent review of the auto industry. It clearly suggests that they lagged innovation and are suffering. Recent admissions by management of General Motors also stated that. Only way out is to innovate and do it in a hurry if they want to survive. Only time will tell but based on their past record, future looks bleak.

Pharmaceuticals have lived on the "blockbuster model" and have won. One player of the team has led them to victory for many years. Now it is time for the whole team to play together.

Unless R&D and Manufacturing become strong, Ethical Pharmaceuticals cannot compete in the global market. Marginally better drugs and personal medicines will not generate the revenue stream once the patents have expired. It is time to compete on the global scale i.e. serve the needs of 6.2 billion by serving across the globe rather than a small percentage of the population. Manufacturing and R&D need to innovate.

Dr. Severin Schwan, chief executive Roche Holdings AG is correct. It is time to change the business model. Are Pharmaceuticals Antithesis of Creative Destruction?
I do not think so. We need to innovate for the long term survival.

Sunday, November 23, 2008

Is Auto Bailout a prelude for others to ask for help and an admission of “lack of vision”?

Head Line:

"An Auto Bailout Would Be Terrible for Free Trade"
Does anyone really expect other countries to ignore our subsidies?"

American automobile industry gave the world automobiles and held everyone in awe. However, the dire straights of automobile industry suggest that it never thought much of the future. German cars were always considered a luxury and quality product and never considered a threat for the mass producers. It was the Japanese followed by the Korean cars who really changed the playing field by bringing quality from the get go. Their quality, styling and innovation were the first threat to the survival of the US automobile industry. However, the US automobile industry has been slow to catch up. A recent article in Wall Street Journal How Detroit Drove Into a Ditch gave an excellent overview of how the industry has arrived at its current state.

Japanese brought quality to the masses of the world and the world jumped on quality without paying luxury prices. World was hungry for quality and fuel efficiency and did not get it from American carmakers.

Now the American carmakers are in trouble asking for the government help. If they are given a straw would they ask for more? Would other industries that are not able to compete with quality and cost would ask for government help and protection. It is very possible.

Why are we there? Blame would lie squarely on the management of the companies for the lack of their foresight in innovation and delivering to the customer anticipated fuel efficiency. Whatever happens in the auto world, it will work out for the good of the country. Better management is the answer. Asking for a government handout is taking advantage of the current economic woes rather than being responsible for their own inability.

If we step back and see any similarity with any other industry that has served the human kind but is experiencing some turbulent waters. It is the Ethical Pharmaceuticals.

Since 2005 the Ethical pharmaceuticals have been facing head winds with their age-old “blockbuster” model. They will loose about $60 billion dollars in revenue in the next three to four years. They have very little in their pipeline. They are scrambling to determine how they can sustain their revenue growth. The Generic pharmaceutical companies are also challenging them on their turf.

Would pharmaceuticals be the next in the handout line if they cannot solve their challenges i.e. start growing their revenue with new drugs? History is repeating for the pharmaceuticals as it did for the chemicals, textiles and steel industry. Chemical and textile industries have mostly moved overseas. Steel industry innovated its technologies to survive. May be the time has come for the pharmaceuticals to innovate their R&D and manufacturing technologies which they have acknowledged needs attention.

Tuesday, November 4, 2008

Is Pharmaceutical Consolidation on Horizon?

Recently I had opined the following. Since then I keep reading views at other websites. [http://www.pharmatimes.com/WorldNews/article.aspx?id=14672]. I still believe that a consolidation is needed to quickly fill the pipeline. Industry is venerable and the only reason Venture Capitalists have not moved in due to the current credit crunch. Once the monetary crunch eases, we should see the beginning of consolidation. Increasing layoffs are suggesting that financial preservation is a must but it is coming at the expense of the basic knowledge base which is going to be difficult to replace. R&D and Manufacturing technologies need to be brought to 21st Century. Even with that, the basic business model will have to be revised. With increasing global effluence, market size will increase. In the increased market size the need for generics will be higher than the ethical drugs.

"If one sifts through and compiles the news about the pharmaceutical companies, a clear trend with respect to their shifting business model starts to emerge. Slowly but surely, major pharmaceutical companies are behind the scene inching toward being a combination of "Block Buster, Bio-tech and Generic" model. This is their last and the only hope. Merck is experimenting a new business model of selling patented drug (Januvia) at one-fifth the US price level in India. Glaxo is venturing in South Africa and Egypt. These are undeclared secrets. Daiichi Sanyo has bought Ranbaxy. I am sure others are in the works.

I believe Ethical pharmaceuticals are not very clear about what they want to be. As a result, they are dabbling with every opportunity they see i.e. riding many boats with the hope that one will take them to the promise land. If they clearly define their mission, they might just need one big and strong boat (it could be a combination of blockbuster, bio-tech and generic) to take them to the goal. This will allow them to properly focus their attention.

Competing with the Generic producers is going to be a challenge for the Ethical producers. Their knowledge base is shrinking through lay-offs. Their manufacturing technology is not current. If the Ethical companies do want to go in serve ethical and generic markets, they will have to have very efficient manufacturing technologies that can offset generic producers cost advantages. They can achieve this by collaborating and/or acquiring Indian or Chinese companies. With the globe shrinking, second option is more likely. If this happens, it will lead to an eventual global consolidation in the pharmaceuticals."

Wednesday, September 17, 2008

US FDA citations to Ranbaxy are an excellent opportunity

I am sure the deficiencies of the Ranbaxy plants will be remedied. However, the US FDA citations should be considered a positive wake up call and an opportunity for Ranbaxy and rest of the Indian pharmaceutical companies. Only way they should rest easy is exceed any and every global standard. They have to take that extra step, walk the extra mile to establish and exceed the toughest standards. In fact, they could use the opportunity to establish a higher standard that could become a showpiece of the industry.

It is not going to be costly and/or a monumental effort to get to a higher plateau. It just takes resolve to get their. Economically it is not expensive and the return on investment will be significantly better at the higher standard. Customer will be pleased when their quality demand is exceeded. They will always come back even at a higher price.

While Ranbaxy is setting up to meet and/or exceed FDA standards, they and the other Indian pharmaceutical companies should consider producing single specification active pharmaceutical ingredient (API) and formulated product for every market rather than multiple specification API and products for different markets. It will simplify their manufacturing, reduce costs and would take away every bit of laxity, as they will have only one standard to follow.

Ranbaxy and other Indian pharmaceutical companies have to keep in mind that since 2005 they are catering to a much larger customer base. Their job would be simplified and will be cost effective if they catered every market with one formulated product rather than multiple formulated products using multiple specifications API.

If the formulation processes were converted from a batch process to a continuous process, which would be definitely feasible when using single spec API and excipients, many of the problems could be self corrected, as product uniformity would be there. Costs would be lower than a corresponding batch process.

These steps will simplify their total business process, inventory management, manufacturing methods and processes giving them higher profitability. Savings due to these steps would give the Indian companies an unprecedented competitive advantage.

Tuesday, July 22, 2008

Reshuffling of the global pharmaceutical drug deck

In the last five weeks, we have seen the global generic pharmaceutical playing field change with the acquisition of Ranbaxy and Barr.

Until recently, the blockbuster model has worked for the ethical pharmaceutical companies, but with about $80 billion of ethical drug patents expiring in the next four years and with not much in the pipeline of major pharmaceuticals their business model needs a re-look.

Major pharmaceuticals need to consider a strategy that would allow them to develop new drugs and also serve a large market that needs low cost drugs whether they are patented or otherwise. It could be the last opportunity for the majors to get in the generic business (similar to Novartis).

Recently Merck US took a bold step in this direction without declaring a shift in its blockbuster model (Merck’s low-priced diabetes drug might change a few rules). If they are successful, it would have other majors consider similar options. Acquisition and assimilation of the generics could be an option also.

In order for Merck to have success in selling their patented drugs at a lower price and maintain their profit margins, they will need to lower their API manufacturing and formulation costs. This will require a complete overhaul of their manufacturing technologies i.e. moving from “quality by analysis” to “quality by design.” Depending on Merck’s success, other companies could follow the lead. This would be a giant leap for the pharmaceutical companies from their current manufacturing practices.

Thursday, July 10, 2008

Opportunities for Private Equity companies in India

Ranbaxy-Daiichi deal has opened many doors and possibilities especially for the private equity (PE) companies in India (PE firms review plans after Ranbaxy deal). Some PE companies are participating in the pharmaceutical ventures. However, there are large number of Indian companies that could be ripe for PE participation.

The opportunity:

Many of the Active Pharmaceutical Ingredient (API) and Pharmaceutical companies have been producing API and generic drugs before India joined WTO. These companies have flourished as they were supplying to major pharmaceuticals, competing against them, and satisfying the need of low cost generics and ethical drugs. Entrepreneurs who are now approaching their golden age started these companies.

With WTO participation, new set of entrepreneurs have joined in to capitalize on the growing opportunities. These new companies are based on narrow niches.

Entrepreneurs who started many of the companies have majority holdings in these companies. As the time has progressed, succession has been an issue and will continue to be an issue. This is especially true in India. Recent examples are Singh’s at Reliance, Birla’s, Singhania’s, Bajaj, Piramal and the list goes on. Lupin Pharmaceuticals, Sun Pharmaceuticals, Wockhardt, Neuland Labs, Shasun Chemicals, Dr. Reddy’s, Biocon, Hetero Group, Cipla, Cadila Pharmaceuticals, Aurobindo Pharma Ltd. etc. for that matter any of the Indian companies with a majority single family holding can be in play.

With India’s pharmaceutical companies participating in the competitive global world, it is necessary for them to operate at their peak levels even if there are succession issues. Sometimes it might become necessary for the promoters to dilute their holdings or bring in an outsider (e.g. Mittal Steel diluted their holding as part of the Arcelor acquisition, Ranbaxy brought in a GSK veteran, Dr. Brian Tempest), to placate the markets or the corporate governance needs.

PE firms have invested in Indian companies as long as they have confidence in original entrepreneurs/promoters (Emcure Pharmaceuticals-Pune: Blackstone Gr.; Granules India- Hyderabad: ISP Investco, Ridgeback Capital Investments).

PE firms are well versed with Specialty Chemicals. Thus, their foray in API (specialty chemicals with a disease curing value) companies in India is the easiest entry and presents them with a huge opportunity. In India, PE companies could hold a majority position but the operations might have to be operated by the local management as they know the political and social climate and can maneuver in it. Individual options will have to be reviewed.

Wednesday, June 11, 2008

Ranbaxy and Daiichi Sankyo relationship

Ranbaxy and Daiichi Sankyo relationship is going to change the pharmaceutical landscape. Not only these are two different companies originating from two different (Japanese and Indian) cultures but also two different work methodologies with one common element i.e. to make money for the stakeholders.

Ranbaxy has had confrontational (challenged patents) and friendly relationships with challenged companies. This has worked for them but the question would be how the two cultures marry to make the relationship successful. Takashi Shoda, President & CEO of Daiichi Sankyo Company, Limited has said “While both companies will closely cooperate to explore how to fully optimize our growth opportunities, we will respect Ranbaxy’s autonomy as a standalone company as well.”

My conjecture is that the two strong cultures would have differences and assimilation will take time and would be interesting for all of us to watch. Another question is “Is the Singh family bailing out”?

Would Ranbaxy Daiichi Sankyo marriage open door for other relationships? If they are to happen, they would be between Indian companies and non-American and non-EU companies. Time will tell us.

Wednesday, April 16, 2008

Ranbaxy, AstraZeneca, Nexium and NEW opportunities

We may not know who is the winner and looser today or in the near future in this settlement of the Nexium deal between Ranbaxy and AstraZeneca. The deal allows AstraZeneca (AZN) to keep its sales of $30 billion for the next five years. However, I believe Ranbaxy had a big win.

In addition, a new way to settle a drug dispute was established.
  1. A generic producer sued and eventually settled with the ethical drug manufacturer of API to produce the API and formulate. They also received benefits of distribution of other drugs. Ranbaxy win.

  2. If AZN did make any payments or concessions to Ranbaxy as part of this settlement, we would eventually come to know. It would be another win for the Ranbaxy.
Would similar settlements happen in the future? The answer would be “why not?”

Ranbaxy is a big winner, as they would have the API and formulation know-how and capabilities. They can optimize their manufacturing processes before the patents expire and keep others a bay.

Teva and Dr. Reddy’s may have been stopped for Nexium but they and other generic companies can use the current resolution model to scout for other opportunities.

How many “genies” have been uncorked by the Nexium deal?

Sunday, March 23, 2008

New Management style: New experiment in Management?

Merger, Indian Style Buy a Brand and Leave It Alone. Is this story a preamble of new way to manage as the world economy globalizes?

Mr. Mohandas Karamchand Gandhi aka Mahatma Gandhi.” He took on Henry David Thoreau’s non-violence and civil disobedience philosophies, modified them to shake the British Empire, and delivered the “unthinkable” independence to India. He had stepped out of the sand box.

Are Tata, Essar Global, Bharat Forge, Infosys, Wipro are also stepping out of the traditional management box and creating a new management style, which combines the proven management philosophies with the wisdom of empowerment and trust giving people the power to shape their own destiny?

Acquisitions following the proven management styles result in layoffs, as cost cutting accelerates the realization of their desired return on investment. This has worked for many companies but the social and intellectual downside is enormous. It is a major disruption to the company personnel, associated communities, and its knowledge base. It is not easy to monetarize the financial value of these occurrences. Communities readjust and recover. However, the knowledge base is lost forever. Companies in the developed countries are grappling with these especially with the intellectual losses.

If the Indian companies mentioned in the article and other companies are successful with their experiment and succeed in achieving their goals, they will strengthen the social structure and win many friends. It would be a new management style for the twenty first century. It will be an amalgamation of different cultures and philosophies, a real globalization.

Wednesday, March 19, 2008

Heparin Contamination: effort to maximize profits?

FDA Identifies Contaminant Found in Baxter's Heparin makes an interesting story.

Let us assume that the identified contaminant, oversulfated chondroitin sulfate, appears at the same point as Heparin on chromatographic analysis. If the cost of this chemical is significantly lower than the cost of Heparin API, it presents an argument that how much of this contaminant was added to lower the total cost of the Active being shipped. This was all in an effort to increase profits. If people lost their lives, it did not matter to the API producers.

There has to be a minimum threshold below which side effects of the contaminant were not noticeable. Could it be that the API producers did not know the highest safe threshold? Since they did not know the safe threshold, stepwise increasing amounts of the contaminant were added by overzealous entrepreneurs to lower the cost and maximize their profits. Unfortunately, the recent lots the additive reached the threshold where the side effects were pronounced, some people lost their lives, and others became sick.

We can blame FDA for non-inspection, ill inspection, and Baxter for not having the necessary protocol in place. They are not to be blamed 100%.

Finding the sulfate contaminant is a case of pure adulteration. It is very similar to the pet feed contamination, where melamine was added to increase the nitrogen content of the pet food.

Low or no value additives can be added to bulk up the product hoping that no one will notice. Some very smart people are involved in these issues. They know how to use the knowledge base for profit. Greed comes into play. Unfortunately, people lost their life.

Pharma companies and regulatory agencies have to increase their due diligence and understand mindset of the people who are willing to “make a buck” at any cost.

Saturday, March 15, 2008

“Quality by Analysis” cannot compete against “Quality by Design”

FDA Orders Heparin Shipments to be tested at the U. S. Border is the only choice but it is a manifestation of material failure of “quality by analysis” methods.

The explanation of “contaminant being a heparin-like molecule” begs me to ask questions. This is not a comforting explanation but seems like an attempt to placate the audience. Complete details showing the scientific details need to be in print.

Pharmaceutical industry has to implement “Quality by Design” NOW. Had the production of Heparin been done using “QBD” methods, we would not have seen the current global dilemma.

I have said repeatedly that “QBD” is based on “complete understanding” of the manufacturing process, which is the “P” of the PAT. Unless we understand the “process,” we cannot produce quality.

Based on my experiences, complete understanding the processing steps allows one to repeat the mistakes and that is where we need to be rather than playing “Monday morning quarterback.”

Sunday, March 9, 2008

Drug safety, side effects, FDA, and its challenges

Recently USFDA announced "Safety First" program for the drugs that are in the market. WSJ reports, “Top Food and Drug Administration officials said this week consumers should expect to see more advisories and warnings from the agency about drug-side effects.”

It is an interesting and an intriguing program. I am not sure of its efficacy and how it will help the consumers. The side effects of drugs that are commercial are public information and available. If one is expecting that the database is going to list every and all side effects, it is not going to do it and is going to come short of what everyone will expect.

We need to revisit and understand what the drugs are. Drugs are toxic specialty/fine chemicals. Fine/specialty chemicals, to a chemist are organic molecules that are mostly heterocyclic ring/s with nitrogen, sulfur, halogen, phosphorous and/or oxygen incorporated in the ring/s and/or in their side chains. It is very likely that they have unsaturated bonds.

Drug evolution, development, and regulatory review process leads to the introduction of many drugs. I am sure during the development process close attention is paid to how the drug will interact with human body. There are checks and balances in place and only the drugs that have no or minimum ill effects enter the approval progression process. I do not believe that the interaction with every possible drug on humans take can be identified and quantified.

Developers and/or the regulators do not know or have where-with-alls of how an unsaturated complex organic molecule is going to interact with another unsaturated complex molecule/s and acid/alkali of the human body. I do not know if anyone speculate and/or can conjecture how the molecules will breakdown and possibly recombine to create a new complex molecule in the human body. Only way to make a scientific conclusion is to actually study the effect of combination of drugs.

Since the interaction of the drugs is happening in the human body, the resulting chemicals cannot be sampled and studied for their good and/or bad effects. We all know that the human body is a well-controlled reaction system. Every bad effect on human body is manifested by an illness, which is called side effect.

Why did USFDA take on this task? They are the “FOOD AND DRUG SAFETY PATROL” and this additional task is being taken on to placate its critics. Everyone eventually is going to treat FDA database as gospel and indicator of all ill effects. It is going to come short on expectations and FDA again is going to be blamed.

In addition, I do not know how they will carry out this enormous task when it does not have sufficient money and/or the manpower to higher priority tasks. This task is impossible at best. It is a loose-loose situation at best.

Tuesday, February 26, 2008

Heparin and Quality by Design

The Wall Street Journal February 19, 2008 published an article on Heparin.
Following are some excerpts.
“Baxter, which supplies about half the U.S. heparin market, said last week it had temporarily stopped production because of about 350 bad reactions, including four fatalities, potentially tied to the drug. About 40% of the reactions were classified as serious, ranging from stomach pain to vomiting and diarrhea, low blood pressure, speeding heartbeats and fainting.”
In pharmaceutical business, the current methodology to produce consistent performance quality drug is to follow “quality by analysis,” which is analyze everything. In the case of Baxter International, casualties and bad reactions are a clear failure of the prevailing “quality by analysis” culture.
Legislators and consumers are demanding increased inspections. The FDA does not have enough staff to inspect every drug that is imported in US. FDA inspects only 7% of the incoming drugs (FDA inspections). It will not only take increased funding but also time to train inspectors to achieve 100% inspection. We have neither luxury.
Even if FDA could do 100% inspection, they would be following “quality by analysis” methods, which FDA wants the pharmaceutical companies to abandon. It is well known that “quality by analysis” is an inefficient and expensive method of producing drugs. Consumer pays for every mistake, rework, and disposal, if the drugs do not meet their respective specifications.
It has been mentioned that USFDA or EU regulatory agencies should be stationed in China, India and/or other countries exporting drugs. This can only happen if there are agreements in place between various governments. We are nowhere close to such agreements.
If a supplier/manufacturer is behind schedule, there is pressure to release the drug to the market as soon as it is produced. In such circumstances, mistakes like Heparin are going to happen. As more drugs are imported in the future, we are going to hear more about the mistakes. Heparin mistake also suggests that there is a failure on part of the pharmaceutical importer to set up strict standards and stringent protocols. Laxity has to be completely eliminated.
Pharmaceutical industry has to move from “quality by analysis” culture to “quality by design (QBD)” methods. Until this happens, increasing FDA inspectorate and passing new legislation is not going to solve situations similar to the current situation. QBD builds quality in the product from onset. It will change the culture, improve quality and will significantly reduce pressure on FDA and/or any regulatory bodies. Someone has to make a move.

Thursday, February 14, 2008

Is close good enough? Heparin fiasco.

The recent fiasco of Heparin being sold by Baxter International is going to lay the blame of FDA (lack of inspection) and companies from China and India for making poor quality product and shipping it to US sellers. This is very myopic thinking.

Companies in EU or US who are importing active pharmaceutical ingredients (API) from China and India very well know which manufacturing facilities in these two countries have been inspected by USFDA and EU regulators. If they are importing API and formulated drugs from un-inspected facilities, then the blame of non-compliance has to be squarely put on the companies selling these products in EU and US.

It is well known that the regulatory agencies do not have sufficient staff to be inspecting every facility. With that being the case, the companies that are selling the pharmaceuticals have shrugged their “corporate responsibility” of selling products that have to meet regulatory standards.

We saw the case of melamine being incorporated in the dog food to enhance the superficial nitrogen content to give the analytical people the “good feeling” of meeting the necessary standards. No one has studied the toxicity of a substituted non-food product on human and animal health. Same thing happened with toothpaste.

Baxter International did not set up the proper protocol with their Chinese suppliers. I am sure they had set up the standards that have to be strictly met. However, there were sufficient laxities in the spec and/or the protocol for slightly off-spec API to pass through. I would not be surprised that the API met every spec but was slightly off spec that if not carefully reviewed would meet the set specifications.

Having manufactured products that have dual use i.e. food grade and non-food grade, I can speculate and speak from experience. In the case of Heparin, the API could not be reworked to meet the specs. Since it was marginally off specification and might meet the spec if overlooked must have been the case for the lots imported by Baxter International.

Press, legislators, and consumers have to look at the facts before they jump to conclusion that FDA is not doing its job and companies in China and India are bad. Any company anywhere if gets a similar opportunity will try to use a short cut and reduce rework, which cuts into profits.

Let us think rationally and understand the facts. Right or wrong, the seller has to be blamed no matter what the facts are. They did not live to their responsibility.

Girish Malhotra