An Unconventional Analysis:

Can the Wrath of Most Favored Nation Pricing ⁽¹⁾ be Avoided by Bringing Pharmaceutical Product & Process Development and Manufacturing Practices to 21^st Century?

I have shared my learnings and experiences in process development, technology innovation, manufacturing and business practices ^{(2, 3, 4, 5, 6)}. With the looming threat of lowering the selling prices of the brand drugs through EO 14297, in this post I am sharing what are some of the things companies need to considered to avoid its wrath. Forcing brand drug sale prices by 50% or so to match e.g. European prices will have a significant impact on the P&L of every brand pharma company. However, I perceive this an opportunity for the pharmaceutical companies to lower drug prices, enhance their profits through increased affordability. Effort will simultaneously improve manufacturing technologies and reduce their environmental impact. 

 

I am not suggesting to follow and/or do what I am sharing but let your imagination and creativity take you/us to create products and processes that are our best effort. Discussion is applicable to every chemical business (fine/specialty, coatings, their younger cousin Active pharmaceutical ingredients and their formulations).  Perspective presented is mine and is not influenced by any for profit and non-profit entity.

 

My review is based on cost analysis. Our understanding of costs can assist us to improve processes and methods to enhance profits. I am not challenging any methods but suggesting that as part of continuous improvement, review of the current methods and practices for every profit and cost center can lead us to improve profits. Every little improvement is worth the effort. Readers are welcome to share their thoughts. 

 

To avoid the wrath of Executive Order EO 14297 ⁽¹⁾ pharmaceutical companies will have to review their research and development, commercialization, manufacturing and business practices. I am sure that most companies, first blush, would say it cannot be done. However, unless an ongoing concerted effort is made, the current and upcoming US Government administrations can force change of the current practices and they may not be to our liking. Litigations will ensue.  

 

US Drug Prices vs. Rest of the World:

 

For that last number of years there has been a conversation about the high brand drug prices in the United States compared to other developed and underdeveloped countries. The explanation given by the pharma companies is that price for each brand drug are the highest in their effort to recover the product development costs ($1-2 billion). Everyone has bought this explanation and believe it to be true. However, no independent body/person, has been given a verifiable explanation/justification for these costs. Prices in other developed counties are lower as their healthcare systems have been able to negotiate the sale prices. Prices in developing countries are low just for sheer volume of drugs needed. They pay for the fixed costs and keep the factories operating. Law of economics tell us that no company runs a charity and no one is going to sell their products at a loss unless we all missed the explanation/s.  

 

Proposed EO 14297, if enforced, would influence the balance sheet of every brand pharma company. In Table 1 company “X’’’s real drug, not identified, is analyzed. At this writing the world population is about 8.2 Billion ⁽⁷⁾. US population (347 million ⁽⁸⁾), is slightly less than 5% of the global population. It is interesting, just for numbers sake, to compare the sales of this hypothetical drug in USA vs. rest of the World. Numbers are estimates but are close to the numbers for a real drug. Anyone can do a similar analysis for any drug. 

 

Numbers in Table 1 tell us a story. It is logical to conclude that if the Company “X” is selling the drug at an average sale price of $0.75 per tablet in other countries and is not losing any money. This prices is less than ten percent of the US selling price. Prices ⁽⁹⁾ in other countries range from $3.00 to $0.55 per day for the 5 mg tablet. If the company has a 50% margin (this includes local pharmacist’s profits), the lowest factory cost could be ~ $0.18 per 5 mg. (based on my manufacturing and costing experience) tablet which includes the API and inert excipients. With this being the case, US selling price in a mutually subsidized healthcare system is alarmingly high. 

 

	United States	Global	Total
Population	347,000,000	8,200,000,000	8,547,000,000
Percent using (assumption)	0.42	0.42
Tablets per yr.	531,951,000	12,570,600,000	13,102,551,000
Average Price /tablet, $	9.83	0.75
Revenue, $/yr.	5,229,078,330	9,427,9500,000	14,657,028,330
Tablet, mg	5	5
API needed Kilo/year, kg	2,700	62,853	65,553

 

Table 1: Sales of a Real (unidentified) Drug ⁽⁹⁾

 

Table 1 shows the amount of API is needed to satisfy US needs vs. rest of the world. USA population’s API needs are less than 10% of the global population’s needs. Even if it was 10%, still the API volume is small. Drug for US needs can be produced at a single site. API for US demand could be imported and formulated. However, the API for rest of the world is being produced outside US and its formulation taking place at one or more sites outside USA. Without the global market, US selling price of the drugs will be higher than the current prices. 

 

Pharma companies need rest of the world market to absorb the fixed costs and maximize their profits. Claim that US brand pharma bear the cost of new drug may be right but in reality rest of the world bears significant portion of the ongoing costs and that is not well understood and/or recognized. We have to acknowledge that the US sales volume is not large enough and the sales to other countries contribute to each line item of the balance sheet and maximize every company’s profits. In other words they contribute to keep Pharma companies in business. US alone cannot be in business of inventing new drugs. Simply it is a “mutual appreciation society”.  

 

Pharma companies suggest that to develop a new drug it can take up to TWO billion dollars. These numbers to me are a hearsay as I have not been able to verify these by an “independent” entity. If EO 14297 ⁽¹⁾ is implemented i.e. reduce the selling price for this drug by 50% in USA, it can wipe out significant funding for the discovery of a “NEW DRUG”. To recoup the loss would mean that pharma will have to look at each line item of its balance sheet i.e. how to conserve. This means business model change. 

 

Pharma: What to look for?

 

Pharma companies, if EO 14297 ⁽¹⁾ is implemented most likely will have to reconfigure their business model. Every “t” and every “i” will have to be meticulously crossed and dotted for marketing, sales, product and process development, and manufacturing. It is time to shed 50+ years old business model. It needs to change as the WORLD has changed.   

 

Marketing and sales expense along with every line item will have to be reviewed. My speculation is that if a new drug for a disease is more effective than any existing drug, it will sell by word of mouth. Advertising might have to be minimized and that will be a line item savings. Let the best drugs sell based on the efficacy and performance rather than force feeding what majority of the customers do not understand. 

 

Most likely Research and Development would have to be treated as a profit center instead of a cost center. This would require each company to review their product discovery, processes development and manufacturing methods to lower their costs. “Village”^{(2, 3, 4, 5, 6)}, unlike the current tradition, would have to be involved from inception of every product development as there will be no opportunities to re-invent and optimize the drug’s manufacturing processes after the product enters clinical trials and is commercial. Effort to re-invent the manufacturing process for a brand drug i.e. under patent would be expensive as the regulators most likely would ask to reconfirm its efficacy and characteristics. 

If the above is implemented pharma landscape will change from inception. My expectation is that complete command of the product and process will reduce the regulatory approval time and lead to longer NDA “in-patent” time meaning instead of patent expiring in approximate 10-12 years might get additional 4-5 years of patent life. This could compensate lost revenue due to EO 14297’s inclusion.

 

I don’t know how many chemists and chemical engineers associated with any pharmaceutical product, process development and manufacturing are familiar with the cost analysis but it would be enlightening and of great value if the VILLAGE ^{(2, 3, 4, 5, 6)} gets involved in the product development from the start of product discovery. It is expected that some of the village members would be able to share the value of “what if” of the product development, process stoichiometry and manufacturing before a sample is submitted for clinical trials. An optimized process before it is scaled up for rigorous testing does not take time. This information can and should be used to optimize the process and minimize its environmental ill-effects. (references).

 

My conjecture is that inclusion of EO 14297 ⁽¹⁾ on pharmaceutical landscape will be beneficial to the overall pharma landscape and could reduce drug shortages and lower prices. It is best if the pharma companies took the reins and saddled the horse. Government intervention should be the last resort. Direct marketing is another option. Besides pharma companies the biggest obstacle will be the US private sector, Pharmacy Benefit Managers (PBMs) who along with their influencers will make sure EO 14297 ⁽¹⁾ it is not implemented ⁽¹²⁾. 

 

Girish Malhotra, PE

 

EPCOT International     

1.  EO 149297: Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients  

2. Malhotra, Girish: Chemical Process Simplification: Improving Productivity and Sustainability, John Wiley & Sons, February 2011 
3. Malhotra, Girish: Chapter 4 “Simplified Process Development and Commercialization” in “ Quality by Design-Putting Theory into Practice” co-published by Parenteral Drug Association and DHI Publishing© February 2011
4. Malhotra, Girish: Research Report: Strategies for Improving Batch or Creating Continuous Active Pharmaceutical Ingredient (API) Manufacturing Processes, March 2017
5. Malhotra, Girish: Active Pharmaceutical Ingredient Manufacturing: Nondestructive Creation De Gruyter April 2022

6.   Malhotra, Girish: Profitability through Simplicity

7.   Current World Population https://www.worldometers.info/world-population/

8.   United States Population (live https://www.worldometers.info/world-population/us-population

9.   Pharmacy Checker.com  https://www.pharmacychecker.com/

10. Malhotra, Girish: Active Pharmaceutical Ingredient Manufacturing (API) and Formulation Drive to NET ZERO (Carbon Neutral)? Profitability through Simplicity, April 29, 2021

11.  Malhotra, Girish: NET ZERO for Active Pharmaceutical Ingredient & Fine/Specialty Chemicals: Nondestructive Creation, Profitability through Simplicity, November 7, 2024

12.  Malhotra, Girish: Implementing Executive Orders on Domestic Production of Critical Medicines and Achieve Most Favored Nation Pricing, Profitability through Simplicity, June 11, 2025

Manufacturing Technology Innovations in Pharmaceutical Manufacturing:

If we look at the history of disease curing products aka drugs, we will see that they started to appear about 80-90 years ago. Rapid discovery of disease curing value of existing and new disease curing chemicals and ease of their manufacture in the existing equipment being used to manufacture dyes and colorants led to an accelerated growth of the pharmaceutical industry ⁽¹⁾. Discussion presented here is my own with the hope that any and all ambiguities I have will be clarified. Discussion is not influenced by any for profit, non-profit or regulatory body. 

 Pharmaceutical manufacturing technologies and methods: 

 

About 80-90 years ago chemical processing equipment was available and being designed for the dye and colorant industry. Many fundamentals of chemical engineering and unit operations ^(2,3,4,5) were explained and applied for the manufacture of various organic chemicals also called fine/specialty chemicals. They simplified manufacturing processes. Chemical engineering principles, manufacturing technologies and chemistry teachings of yester years are still the fundamental building block in every chemical manufacturing process. Active pharmaceutical ingredients (API) and their formulations are part of the same domain.  Some may disagree with this statement but one cannot change fundamentals as the methods are the same. Bio drugs are not part of the discussion. 

 

Competition and profitability has played a significant role in the development of the pharmaceutical industry. APIs, life span extenders, synthesized use same or similar equipment that was used in 1940-1960s. Except for normal enhancements/innovations with time, basic unit processes and operations have not changed. Fundamental processes and synthesis methods have not changed also. Execution methods might have changed. 

 

Fine specialty chemical companies, from (1940’s-’70s) who discovered disease curing molecules re-branded themselves as drug/pharmaceutical companies. They patented their molecules and formulations. This is very simple explanation of the landscape change. Except stricter regulatory requirements there in not much differences between fine/specialty and disease curing chemicals. Some may not agree but that is a historic reality.  

 

Due to extended time expended in discovery of disease curing molecule and regulatory approval companies have a limited patent life. To maximize profits, speed to the market is the utmost necessity. Ability and creativity of chemists and chemical engineers for use of existing equipment has been the operating mantra. Process inefficiency (low conversion) and equipment downtime ⁽⁶⁾ which can amount to as much as 50% of the available yearly equipment use time are accepted. All of these costs are passed on to the patient. 

 

Discussion here is focused on API manufacture. For formulation operating tactics, needs and philosophies are different and not part of the conversation. In the production of every product whether it is an organic additive chemical or a drug molecule annual volume of the product is important. They are based on economics and dictate manufacturing technology and methodology. No one is going to invest in any equipment and technology that is specifically designed for a product and is going to be used for a short time e.g. few weeks per year unless it is a monopoly case, patented product. Company find an alternate method/way to produce the product if any alternate equipment is/was available or modify the process to produce the product. This has been the operating philosophy in the pharma’s active ingredient (API) manufacture. As soon as the patent expires many may jump in with better manufacturing technologies. 

Still with opportunity to use better manufacturing technologies for API and their formulations innovation has stalled due to speed to market, profits and regulations. For innovation, there has to be grass root effort. Unfortunately brand companies do not have the time as their focus is speed to market and immediate profits. Generic companies have the opportunities but they have followed methods and practices of the brand companies and have not spent time to investigate/practice technologies that are better than practiced by the brand companies. My conjecture is that drug purchasing model used especially for USA drug distribution has prevented manufacturing technology innovation ⁽⁷⁾. If the generic companies could sell directly to US patient base, innovation in manufacturing technologies and methods ⁽⁸⁾ will change the landscape and shortages could be minimized and/or disappear ⁽⁹⁾. 

On the API manufacturing and technology landscape few new terms have been recently introduced. I am told that they are the new technologies and simplify chemistry, process development and reduce commercialization time. These are:  

1.     Flow Chemistry

2.     Continuous manufacturing

3.     Process intensification

I do not find them anything close to new innovation but new names for well-known and practiced methods/technologies that have existed and practiced for the manufacture of chemicals for the last eighty years. I call these “fancy dance foot work” but the dance or the music has not changed. 

Flow Chemistry: I have asked for definition and clarification but have not been given a plausible answer. Folks who mention this on their curriculum vitae have not been able to explain and give definition of the term and/or an example and compare with traditional methods. Internet search suggests “Flow chemistry involves the use of channels or tubing to conduct a reaction in a continuous stream rather than a flask” ^{(10, 11)}. 

It is suggested that “Flow Chemistry simplifies chemistry and process development. I am not sure of this claim. I just wonder how solids would flow unless they are in liquid or solution state. Solids will have to be solubilized and that is no different from the current methods. In addition, based on the illustrated schematics it seems significant pre-engineering and investment would be need for the equipment needed. I wonder how versatile will be the applicability of the assembled equipment for different chemistries. Could they be used for other process developments? Would modifications be needed? I am not sure. 

Reviewing suggested process development methods based on use of flow chemistry ^{(10, 11)} they look to be expensive and cumbersome. This is based on the fact that information needed and used in traditional process development methods, knowledge of the physical properties of chemicals and their mutual behavior ⁽¹⁾ would still be needed before “flow chemistry” based process contraptions described in ^{(10, 11)} can be assembled and used. A side by side economic analysis of the “flow chemistry” and traditional methods is necessary. My speculation is that the proposed methods will turn out to be financially expensive and time consuming. I hope use of term “Flow Chemistry” is not being used to impress others. 

 

Based on literature search and what I understand, incorporation of the proposed methods if possible, will be complex, expensive and time consuming. Results will be no better than what can be accomplished by current and proven methods. 

 

Based on my more than half a century of experiences in the chemical industry as a chemical engineer, generally there is methodology followed for development of chemical synthesis processes. Most of us are familiar with the methods. Reactants in appropriate solvent are added to a round bottom flask or similar equipment with its agitator and condenser and other necessary equipment. Reaction feasibility and safe operating conditions are defined. Chemist/chemical engineer generally  try different process conditions for process optimization. Next step is scale up and commercialization. 

 

Information i.e. physical, chemical properties, mutual behavior of chemicals used and produced, reaction kinetics i.e. fundamentals of chemical engineering ^{(3, 4, 5)} have to be collected by the village ^(1,13) and used for process development. My conjecture is that if all this is done, time needed for economic process technology development would be significantly reduced. Companies developing manufacturing technologies have to make process technology development a group activity ^(1,13).

 

My conjecture is that exploring what is called “flow chemistry” is an unnecessary stop i.e. prolonging process development and commercialization time. API developers/manufacturers need to think very hard on the value of proposed methods. There is an easy way to address and answer the question and it is “would the developer chemist/ chemical engineer invest their own money to develop the information that can be produced by simpler and quicker methods? 

 

We have to remember that majority of the APIs are produced using batch processes as they are fitted in the existing equipment. Information generated by “flow chemistry” methods might satisfy lab curiosity but may have minimal commercial value. Existing methods/practices can generate the same information faster. 

 

Continuous Manufacturing: In recent years “continuous processing” ⁽¹⁴⁾ is being touted as the way to produce APIs. No one has been able to give a satisfactory definition of “continuous processing”. When asked the definitions are confusing and they end up calling a batch process a continuous process. 

Following is my understanding of any continuous process. In every continuous chemical related process raw materials are introduced in appropriate equipment and using different unit processes and unit operations they are converted to the desired product. Each step has to be time independent. If there is fluid movement interruption, the process ceases to be a continuous process. We cannot modify established principles to suit our fancy. This also applies to drug formulations.   

Every continuous process is product specific and if another product process does not use the same unit operations, it cannot be produced year round in the same equipment. No one is going to invest in product specific equipment that is not operating year round. It is not going to have the desired financial return. 

Certain existing API products that are produced by batch process can be produced using continuous processes but for them business and operating model would have to change ⁽¹⁾. It is my perspective that under pharma’s current sales and distribution model APIs do not have the volume to be produced continuously. An outlier producer and a different sales and distribution model ⁽⁸⁾ will be needed for continuous API production. Yes, formulations can be operated continuously but can be a challenge.  

Process intensification: This terminology is a new one for methods that have existed since the advent of chemical manufacturing and been used at least since 1960s for the manufacture of fine/specialty chemicals. If use of venturi flow, plate and frame heat exchangers, static mixers, eductors and restricted spaces to improve and enhance mixing of liquids to improve reaction chemistry is considered process intensification then this is not a new technology. It is an old art. Creativity and imagination help. Equipment economic analysis is a must.  

 

I hope we have not forgotten fundamentals of chemical engineering. Renaming existing methods that have been and are commercially used as new technologies is not ethical. Microreactors are capital intensive and have limited use. Similar results can be achieved by using existing alternate equipment.  

 

Since I am still learning, any verifiable examples are welcome. Intent here is not to challenge anyone’s knowledge or creativity but learn and augment knowledge. I have been able to use the wisdom taught by wizards of chemical engineering ^(3,4,5). I believe flow chemistry and process intensification are application of principles of chemical engineering that have existed and used but are worded differently to attract attention to be new. 

 

All said and done we have to remember what works in the lab does not necessarily work in the plant. Everything has to be proven before it becomes commercial. I welcome any and every meaningful discussion. API manufacturing platforms, that exist and have been continually improved, need to be judiciously considered and applied ^{(2, 3, 4, 5)}. New names for the existing methods are not going to win any laurels. 

 

Judicious involvement of village ⁽¹⁾ is needed from product inception state. This concept of technology development unlike science, is a group activity ⁽¹³⁾. Some of the processes that are the result of such village/group activity are reviewed ⁽¹⁾. Unless there is change in how the process and technology is developed and used to commercialize better API manufacturing technologies, not much will change. Calling established processes and/or methods by new names is not new technology and is not going to reduce process development and commercialization time.

 

 

Girish Malhotra, PE

 

EPCOT International

 

1.     Malhotra, Girish: Active Pharmaceutical Manufacturing: Nondestructive Creation De Gruyter April 2022 Accessed February 17, 2024

2.     Unit Operations Accessed February 17, 2024 

3.     Unit operations of Chemical Engineering, McCabe, W.L. Smith et. al McGraw Hills Inc. 1993, Accessed February 17, 2024

4.     Walker William H. et al Principles of Chemical Engineering, McGraw Hill Book Co. Inc. 1933

5.     Levenspiel, O: Chemical Reaction Engineering, John Wiley & Sons 1999

6.     OEE Benefits for Pharmaceutical, BioTech and Medical Device Manufacturers in Life Sciences, Pharmaceutical Technology August 27, 2015

7.     Malhotra, Girish: USA’s Annual Ritual of Drug Sourcing/pricing and Shortages, Profitability through Simplicity, November 25, 2023 Accessed February 15, 2024 

8.     Malhotra, Girish: Simplified Process Development and Manufacturing of Fine/Specialty Chemicals & Active Pharmaceutical Ingredients, Profitability through Simplicity, Feb 14, 2023 

9.     Malhotra, Girish: Roadmap to Reduce Drug Shortages and Bring Pharma Manufacturing Home (US) Profitability through Simplicity, October 30, 2023 Accessed February 17, 2024

10.  Plutschack M. B. et al: The Hitchhiker’s Guide to Flow Chemistry Chemical Reviews, 2017, 117, 18, 11796-11893 Accessed February 17, 2024

11.  Guidi, M.  et al How to approach flow chemistry Chem. Soc. Rev., 2020,49, 8910-8932, Accessed February 17, 2024

12.  Malhotra, Girish: Chemicals tell us how to exploit their behavior for better processes. Clues are ignored. Should we? Profitability through Simplicity, June 20, 2023 Accessed February 17, 2024

13.  Kalam, APJ Abdul, Wings of Fire: An Autobiography of APJ Abdul Kalam, Sangam Books Ltd, 1999 Accessed January 31, 2024

14.  Continuous Processing   Accessed February 12, 2024