Nano car, when conceived was the joke of the night shows and most of the news broadcasters. Earlier this week reporters wanted to touch and feel “Oh my God” no radio, no air-conditioning and it is a tin can. May be it is. It might be bottom of the rug but it illustrates what is feasible. We have a new point to go forward from.
It is a HUGE paradigm shift not only for the automobile industry but also for every manufacturing industry. Gives 55 miles per gallon and gets you from point A to point B. Yes, it has its deficiencies but still we all talk about it over a drink.
Nano shows us that “Element Human Hu” can do unique things. It can go to point “x” which is out there, beyond our imagination, if we put our mind to it. Is it new iPod of the manufacturing industry? May be.
At the turn of the twentieth century, the four-wheel gasoline buggy fascinated us. Did we ever think in nineteen eighties that we will have laptop that can launch a missile? Most of us will say NO. We have driven film photography to a Technology Museum.
We are now looking at the next generation of adventure. Human creativity is beyond control and Nano is a rendition of possibilities of manufacturing and technology innovation. It should be celebrated. Hats off to the Human element.
Can we do anything? Yes we can!
Pharmaceutical, Specialty and Fine Chemicals and Coating process and manufacturing technologies have to be simple to have the best possible process. Processes have to be safe and best of the methods need to be included to minimize the environmental impact due to air, water or soil discharges. Conservation is a necessity. Simple and good technology will result in a profitable and consistent quality product. This is the intent of every developer, chemist and chemical engineer.
Friday, March 27, 2009
Thursday, March 26, 2009
Pharmaceuticals and Return on Investment (ROI)
Every reader is an investor. Investors know that there has to be a good return on their investment irrespective of the place of investment.
We have all been taught that different risks necessitate different ROI. For “low risk investments,” ROI of 10-24% is suggested, 24% being in Pharmaceuticals. The ROI range for “average risk” is about 15-40%. Again, 40% is for pharmaceuticals. ROI for high-risk investments should be 24-56% with 56% for Pharmaceuticals (1).
In the past few weeks, three major pharmaceutical mergers have been announced. Total investment is about $156 billion U.S. dollars. If the total investment is equally distributed between the three companies and each would like to have a “Five years ROI”, then [due to high risk] one should expect “before tax” return of about $20 billion dollars per year per deal. Another way to look at earning $20 billion/year is that the each company will have to have 10-20 blockbuster drugs on the market beginning in 2010. Based on each company’s pipeline, I just do not see such a gusher. Unless the acquiring players know something we do not know, I believe these are risky investments considering that less than 5% of drugs become blockbusters and past acquisitions and their assimilation have not been stellar.
I would like the readers to opine on the recent pharmaceutical investments, share their thoughts and what they think are the short and long-term options for pharmaceutical companies?
(1) J. Frank Valle-Riestra, Project evaluation in the chemical process industries, McGraw Hill 1983 p 433.
We have all been taught that different risks necessitate different ROI. For “low risk investments,” ROI of 10-24% is suggested, 24% being in Pharmaceuticals. The ROI range for “average risk” is about 15-40%. Again, 40% is for pharmaceuticals. ROI for high-risk investments should be 24-56% with 56% for Pharmaceuticals (1).
In the past few weeks, three major pharmaceutical mergers have been announced. Total investment is about $156 billion U.S. dollars. If the total investment is equally distributed between the three companies and each would like to have a “Five years ROI”, then [due to high risk] one should expect “before tax” return of about $20 billion dollars per year per deal. Another way to look at earning $20 billion/year is that the each company will have to have 10-20 blockbuster drugs on the market beginning in 2010. Based on each company’s pipeline, I just do not see such a gusher. Unless the acquiring players know something we do not know, I believe these are risky investments considering that less than 5% of drugs become blockbusters and past acquisitions and their assimilation have not been stellar.
I would like the readers to opine on the recent pharmaceutical investments, share their thoughts and what they think are the short and long-term options for pharmaceutical companies?
(1) J. Frank Valle-Riestra, Project evaluation in the chemical process industries, McGraw Hill 1983 p 433.
Thursday, March 5, 2009
Global Fine/Specialty Chemical industry and its challenges:
Current situation:
Global chemical industry is going through multiple transformations under the current economic environment is not helping either. It needs to address the following.
1. How to react to the current slow down?
2. What are their long-term prospects?
Companies in Europe and US innovated and developed many unique molecules that have improved our quality of life and life style. Products include pharmaceuticals, polymers, additives, flavors and fragrances, fertilizers and list goes on.
Some of the old giants have disappeared. Recent re-factoring of the European companies to rationalize their businesses has caused more turmoil than solved as the companies are still loosing money. Some are trying to find themselves and some have given themselves new names after reorganization. Some of the new entities have not found equilibrium.
Lack of growth (i.e. growth equal to GDP growth is no growth) has been a challenge [some segments have had higher than GDP growth but many are lower]. On the other hand growth better than plan has been exhilarating. These have impacted their profitability.
As the world grapples with the current slow down, more so in the developed countries than the developing countries, the future looks murky. To conserve profits companies have selectively shuttered their plants. This might be prudent for the short-term but mothballing plants might not solve the long-term ills.
Impact of expiration of the pharmaceutical patents and lack of new drugs in the pipeline will reposition the global fine chemical industry. We will begin to see a sea change in the second half of 2010.
What is the recourse for the future?
Current markets for the chemical products can be categorized as follows.
• Slow or no growth [growth equal to or less than GDP]
• Growth [growth greater than GDP]
In the current economic down turn, the human and social impact of shutting down and/or moving R&D and manufacturing from the slow and/no growth countries to the growth countries can have significant negative connotations. However, such moves might be necessary for the multinational companies. In the slowing global economy, due to political sensitivity moving from developed countries and investing in growth markets is a going to take longer than normal time and effort. Lack of rapid decision-making might further complicate strategy development.
Until few years ago growth in the under-developed countries was slow and these markets could be supplied from the developed countries. However, with much higher growth in these under-developed countries, it has become necessary for the multinationals to fulfill the market needs either by opening R&D and manufacturing sites or collaborate with local partners. This poses an interesting dilemma for the multinationals. Should they consolidate their plants and supply the needs of the developed countries, if possible, from the plants in the developing countries and shutter their operations is the developed countries? This option has its own challenges. How to explain to its shareholders including its employees of such moves and how to blend in the local culture and nuances.
Multinationals face another challenge in the developing countries. It comes from the local enterprises that have served the local and global markets. These enterprises might not be technologically strong but is a matter of time when they could become fierce competitors.
More than 50 percent of the global population lives outside the developed countries. In the next few years, growth is going to come from these markets. They might not require the technologies currently used in the developed countries. Technologies to suit the local market preferences and environment might have to be developed. A joint collaboration between the local companies and multinationals can be a fast track option. Go alone could be an option also. However, it would require understanding of the local markets. In addition, multinational companies will have to invest in technologies and capacities that are economic and can meet the market needs from fewer plants. This could be a challenge but is necessary for the survival.
Manufacturing of commodity (slow or no growth) products will move to the lowest wage countries. India and China could benefit from such moves. Only offset to such moves is the development of better manufacturing technologies for commodity products e.g. plastic additives, flame-retardants, corrosion inhibitors, rubber chemicals to name a few. They have to be such that they offset the lower labor cost advantage offered by low cost countries.
The newest technology (growth better than GDP) products will be developed in the labs in the developed countries and could be manufactured anywhere to serve their respective needs.
World is changing faster than we can strategize and implement.
Global chemical industry is going through multiple transformations under the current economic environment is not helping either. It needs to address the following.
1. How to react to the current slow down?
2. What are their long-term prospects?
Companies in Europe and US innovated and developed many unique molecules that have improved our quality of life and life style. Products include pharmaceuticals, polymers, additives, flavors and fragrances, fertilizers and list goes on.
Some of the old giants have disappeared. Recent re-factoring of the European companies to rationalize their businesses has caused more turmoil than solved as the companies are still loosing money. Some are trying to find themselves and some have given themselves new names after reorganization. Some of the new entities have not found equilibrium.
Lack of growth (i.e. growth equal to GDP growth is no growth) has been a challenge [some segments have had higher than GDP growth but many are lower]. On the other hand growth better than plan has been exhilarating. These have impacted their profitability.
As the world grapples with the current slow down, more so in the developed countries than the developing countries, the future looks murky. To conserve profits companies have selectively shuttered their plants. This might be prudent for the short-term but mothballing plants might not solve the long-term ills.
Impact of expiration of the pharmaceutical patents and lack of new drugs in the pipeline will reposition the global fine chemical industry. We will begin to see a sea change in the second half of 2010.
What is the recourse for the future?
Current markets for the chemical products can be categorized as follows.
• Slow or no growth [growth equal to or less than GDP]
• Growth [growth greater than GDP]
In the current economic down turn, the human and social impact of shutting down and/or moving R&D and manufacturing from the slow and/no growth countries to the growth countries can have significant negative connotations. However, such moves might be necessary for the multinational companies. In the slowing global economy, due to political sensitivity moving from developed countries and investing in growth markets is a going to take longer than normal time and effort. Lack of rapid decision-making might further complicate strategy development.
Until few years ago growth in the under-developed countries was slow and these markets could be supplied from the developed countries. However, with much higher growth in these under-developed countries, it has become necessary for the multinationals to fulfill the market needs either by opening R&D and manufacturing sites or collaborate with local partners. This poses an interesting dilemma for the multinationals. Should they consolidate their plants and supply the needs of the developed countries, if possible, from the plants in the developing countries and shutter their operations is the developed countries? This option has its own challenges. How to explain to its shareholders including its employees of such moves and how to blend in the local culture and nuances.
Multinationals face another challenge in the developing countries. It comes from the local enterprises that have served the local and global markets. These enterprises might not be technologically strong but is a matter of time when they could become fierce competitors.
More than 50 percent of the global population lives outside the developed countries. In the next few years, growth is going to come from these markets. They might not require the technologies currently used in the developed countries. Technologies to suit the local market preferences and environment might have to be developed. A joint collaboration between the local companies and multinationals can be a fast track option. Go alone could be an option also. However, it would require understanding of the local markets. In addition, multinational companies will have to invest in technologies and capacities that are economic and can meet the market needs from fewer plants. This could be a challenge but is necessary for the survival.
Manufacturing of commodity (slow or no growth) products will move to the lowest wage countries. India and China could benefit from such moves. Only offset to such moves is the development of better manufacturing technologies for commodity products e.g. plastic additives, flame-retardants, corrosion inhibitors, rubber chemicals to name a few. They have to be such that they offset the lower labor cost advantage offered by low cost countries.
The newest technology (growth better than GDP) products will be developed in the labs in the developed countries and could be manufactured anywhere to serve their respective needs.
World is changing faster than we can strategize and implement.
Wednesday, February 25, 2009
A Fine Chemical Version of Chernobyl? Patancheru, India: An opportunity for Quality by Design and Environmental Sustainability
A study by Dr. Joakim Larsson etal (1) in September 2007 has suddenly become an eye of a storm in India (2, 3, 4, 5, 6, 7). There are denials of the scientific study as it exposes weak links. For the long term, these issues have to be addressed. If the problems are not corrected, the area could be equated to Chernobyl of the fine/specialty chemicals and pharmaceutical industries. There is a solution out of this quandary.
Solution touches the heart of manufacture of active pharmaceutical ingredients and their subsequent formulations. Using Professor Larsson’s study, I have presented potential scenarios for Patancheru problem and solution (8). The process yield can be improved. Effort is needed. Depending on total ciprofloxacin capacity, which is a quinolone, the companies can collectively reduce out fall by 30-60 kg/day. This might not look a big number but based total daily production this is big. Based on toxicity this is significant. Similar saving can be achieved on other quinolones and other drugs.
In the recent brouhaha ciprofloxacin has been identified as the culprit. Actually the problem is much bigger. There are other quinolones and actives pharma ingredients being produced and formulated by many companies in the Hyderabad and vicinity. Not only there are producers of these products, there are suppliers of the necessary raw materials for these products in the area. Effluents from these chemical plants also discharges in water bodies of the area. Even if the effluent meets the established local standards of chemical discharge, no one has established the toxicity of every chemical that is trickling in the ecosystem.
If we want to salvage the Patancheru eco-system, we should establish toxicity levels of associated chemicals and use them rather than the current chemical limits to control effluent. We have to recognize that every active pharmaceutical ingredient is toxic to varying degree and their toxicity kills the disease causing bacteria. The lessons learnt from Patancheru could be applied globally.
Why we have a problem?
High levels of chemicals entering the effluent treatment plant point to inefficient manufacturing technology and low yields of the manufacturing process. Questions should be asked that why we have a problem and if the yields could be improved to reduce the effluent load, why it has not been improved. There is a simple answer to these questions and it encompasses the following.
1. Since high profit margins are made with the existing processes, there is no incentive to improve them. If the companies can meet the local water, solid and air effluent standards, there is no need to worry about the eco-toxic or toxicity effect, as there are no standards.
2. The current process with their current low yield produces a chemical that meets a certain impurity profile that has been approved the drug regulatory agencies. If the yield is improved, the producer should be able to reduce the chemical discharge load. This improvement could change the impurity profile of the active ingredient. Under the current regulatory laws of various countries (9), the producer might have to re-qualify the higher drug produced by an improved process for its performance and efficacy. This is an expensive and long drawn process. In addition, processes might have to re-audited. No one wants to invest any money in this effort.
3. Since the current processes are not efficient, the product quality is controlled at every intermediate step and this is called quality by analysis. Reasons of low yield i.e. high amount of chemicals in the effluent are that the processes are not completely understood. Lack of complete process understanding and control can result is a product that is made on day 100 of one year and day 200 of the same year to be slightly different or might not meet specifications. If the product does not meet the defined specifications that have been filed and approved, the product could be reworked or disposed. These products and their intermediates are equally or more toxic and could leach out in the soil and water. Quality by analysis insures high quality and this is expensive. These costs can be contained or eliminated if we understand have repeatable processes.
Problems identified by Professor Larsson do exist in many areas of the world where active pharmaceutical ingredients are produced. However, they have not been studied. I am sure we will find similar problems.
Solution:
Only solution out of the dilemma in Hyderabad is to improve the process manufacturing technologies. This has to be done for the short and the long haul. If the manufacturing processes can be improved, depending on the total capacity of the quinolone plants in Patancheru area, significant quantities of ciprofloxacin instead of going to waste water and solid disposal can be recovered as a product. It will make a big impact on the local ecosystem. Ciprofloxacin is one of the many quinolones being produced in Hyderabad. The plants producing ciprofloxacin also produce other quinolones. In addition, we have to recognize that there are ancillary plants in the area that produce raw materials for these products. Their effluent is part of the wastewater and solid sludge system. There are many other actives produced in the area and their levels have not been tested.
Manufacturing technology improvement is the only solution to reduce chemicals in the eco-system. Drug regulatory agencies have lately suggested that manufacturing improvements should be done. Formulators and producers of actives pharmaceutical ingredients claim that there are hurdles of bureaucracy and insufficient ROI. I have difficulty believing that. Meeting chemical effluent standards at Patancheru would be the first step. Unless effluent toxicity standards are established, not much will change. Intervention is needed to rationalize toxicity and address the “Patancheru problem”. We have to maximize our effort to improve manufacturing technologies.
1. D.G. Joakim Larsson, Cecilia de Pedro, and Nicklas Paxeus, Effluent from drug manufactures contains extremely high levels of pharmaceuticals; Journal of Hazardous Materials, Volume 148, Issue 3, 30 September 2007, Pages 751-755
2. Margie Mason, Associated Press, Drug waste creates highest disaster zone in Andhra Times of India, January 27, 2009
3. Rajeev Deshpande, TNN, PMO orders testing of Patancheru water, Times of India, January 28, 2009
4. Manjula Kolanu, TNN, Officials sleep as pollution sinks Patancheru Greens To Step Up Anti-Pollution Drive, Times of India, January 29, 2009
5. Times of India, Independent lab to test Patancheru water, Jan 31, 2009
6. Times of India, Silent streams turn Patancheru's sorrow, January 31, 2009
7. Times of India, Drug traces in Patancheru wells, February 17, 2009
8. Girish Malhotra, Pharmaceuticals, Their Manufacturing Methods, Ecotoxicology, and Human Life Relationship, Pharmaceutical Processing, pg 18-22, November 2007
9. Link to global regulatory bodies
Solution touches the heart of manufacture of active pharmaceutical ingredients and their subsequent formulations. Using Professor Larsson’s study, I have presented potential scenarios for Patancheru problem and solution (8). The process yield can be improved. Effort is needed. Depending on total ciprofloxacin capacity, which is a quinolone, the companies can collectively reduce out fall by 30-60 kg/day. This might not look a big number but based total daily production this is big. Based on toxicity this is significant. Similar saving can be achieved on other quinolones and other drugs.
In the recent brouhaha ciprofloxacin has been identified as the culprit. Actually the problem is much bigger. There are other quinolones and actives pharma ingredients being produced and formulated by many companies in the Hyderabad and vicinity. Not only there are producers of these products, there are suppliers of the necessary raw materials for these products in the area. Effluents from these chemical plants also discharges in water bodies of the area. Even if the effluent meets the established local standards of chemical discharge, no one has established the toxicity of every chemical that is trickling in the ecosystem.
If we want to salvage the Patancheru eco-system, we should establish toxicity levels of associated chemicals and use them rather than the current chemical limits to control effluent. We have to recognize that every active pharmaceutical ingredient is toxic to varying degree and their toxicity kills the disease causing bacteria. The lessons learnt from Patancheru could be applied globally.
Why we have a problem?
High levels of chemicals entering the effluent treatment plant point to inefficient manufacturing technology and low yields of the manufacturing process. Questions should be asked that why we have a problem and if the yields could be improved to reduce the effluent load, why it has not been improved. There is a simple answer to these questions and it encompasses the following.
1. Since high profit margins are made with the existing processes, there is no incentive to improve them. If the companies can meet the local water, solid and air effluent standards, there is no need to worry about the eco-toxic or toxicity effect, as there are no standards.
2. The current process with their current low yield produces a chemical that meets a certain impurity profile that has been approved the drug regulatory agencies. If the yield is improved, the producer should be able to reduce the chemical discharge load. This improvement could change the impurity profile of the active ingredient. Under the current regulatory laws of various countries (9), the producer might have to re-qualify the higher drug produced by an improved process for its performance and efficacy. This is an expensive and long drawn process. In addition, processes might have to re-audited. No one wants to invest any money in this effort.
3. Since the current processes are not efficient, the product quality is controlled at every intermediate step and this is called quality by analysis. Reasons of low yield i.e. high amount of chemicals in the effluent are that the processes are not completely understood. Lack of complete process understanding and control can result is a product that is made on day 100 of one year and day 200 of the same year to be slightly different or might not meet specifications. If the product does not meet the defined specifications that have been filed and approved, the product could be reworked or disposed. These products and their intermediates are equally or more toxic and could leach out in the soil and water. Quality by analysis insures high quality and this is expensive. These costs can be contained or eliminated if we understand have repeatable processes.
Problems identified by Professor Larsson do exist in many areas of the world where active pharmaceutical ingredients are produced. However, they have not been studied. I am sure we will find similar problems.
Solution:
Only solution out of the dilemma in Hyderabad is to improve the process manufacturing technologies. This has to be done for the short and the long haul. If the manufacturing processes can be improved, depending on the total capacity of the quinolone plants in Patancheru area, significant quantities of ciprofloxacin instead of going to waste water and solid disposal can be recovered as a product. It will make a big impact on the local ecosystem. Ciprofloxacin is one of the many quinolones being produced in Hyderabad. The plants producing ciprofloxacin also produce other quinolones. In addition, we have to recognize that there are ancillary plants in the area that produce raw materials for these products. Their effluent is part of the wastewater and solid sludge system. There are many other actives produced in the area and their levels have not been tested.
Manufacturing technology improvement is the only solution to reduce chemicals in the eco-system. Drug regulatory agencies have lately suggested that manufacturing improvements should be done. Formulators and producers of actives pharmaceutical ingredients claim that there are hurdles of bureaucracy and insufficient ROI. I have difficulty believing that. Meeting chemical effluent standards at Patancheru would be the first step. Unless effluent toxicity standards are established, not much will change. Intervention is needed to rationalize toxicity and address the “Patancheru problem”. We have to maximize our effort to improve manufacturing technologies.
1. D.G. Joakim Larsson, Cecilia de Pedro, and Nicklas Paxeus, Effluent from drug manufactures contains extremely high levels of pharmaceuticals; Journal of Hazardous Materials, Volume 148, Issue 3, 30 September 2007, Pages 751-755
2. Margie Mason, Associated Press, Drug waste creates highest disaster zone in Andhra Times of India, January 27, 2009
3. Rajeev Deshpande, TNN, PMO orders testing of Patancheru water, Times of India, January 28, 2009
4. Manjula Kolanu, TNN, Officials sleep as pollution sinks Patancheru Greens To Step Up Anti-Pollution Drive, Times of India, January 29, 2009
5. Times of India, Independent lab to test Patancheru water, Jan 31, 2009
6. Times of India, Silent streams turn Patancheru's sorrow, January 31, 2009
7. Times of India, Drug traces in Patancheru wells, February 17, 2009
8. Girish Malhotra, Pharmaceuticals, Their Manufacturing Methods, Ecotoxicology, and Human Life Relationship, Pharmaceutical Processing, pg 18-22, November 2007
9. Link to global regulatory bodies
Monday, February 9, 2009
Why Have the Fine and Specialty Chemical Sectors Been Moving from the Developed Countries?
I am sure we all have been wondering about the shift. I have my own rationale, potential solution and would like to share. I believe there are opportunities to innovate and we can capitalize on them.
I speculate and believe the industry moved for combination of the following reasons.
1. Environmental laws
2. Health and Safety laws
3. Significantly lower labor costs in the third world countries.
4. We did not invest in the technologies to improve processes.
In early seventies, the developed countries were adopting new environmental protection laws. They seemed unrealistic and unachievable [this is based on my being at a state EPA] to some. Many complied. For some it was easier to shut down rather than invest in the complying technologies. In my view, improving process technologies was a missed innovation opportunity. The chemicals were needed and since there was a need, companies in China and India filled in the supply gap.
India and China also had advantage of Rupee/Yuan/Dollar parity. This made investments in their country cheaper.
Laxity of health and safety laws persists in the developing countries. The associated expenses are low compared to the developed countries. In my recent trips, I saw workers with open toe shoes, without safety glasses, wearing street cloths and eating meals on the operating floor. These might not be across the board but is there. Human life needs to be valued as an asset.
Environmental laws are comparatively lax also compared to the laws in the developed countries. Thus, the respective investment in pollution abatement is lower. I have seen multi-colored water bodies next to the plants. Abatement of eco-toxicity is not a high priority. In the developed countries endocrine disruptors have been found in the drinking waters. I am sure these and other chemicals exist in the water in the developing countries also and the scale is different.
Labor costs in China and India are magnitude levels lower than the costs in the developed countries e.g. a plant operator in India could be paid $200 per month (we have to recognize high Yuan/Rupee/Dollar parity) compared to $4000.00 per month or more in US.
Combination of the above factors has resulted in China, India and some of the East European countries making the fine and specialty chemicals to feed the insatiable need for these chemicals in the developed countries.
As the time has progressed, these suppliers found that their products were being used to produce the active pharmaceutical ingredients or other higher valued products i.e. moving up the supply chain. These companies also moved up the supply chain. These have resulted in additional plant closures in the developed countries.
With time the costs in the developing countries are going up as they incorporate better safety, health and environmental laws but are not to the levels in the developed countries. They still have price advantage and customers wiling to purchase their products.
Now we have a situation where many of the pharma APIs and other strategic drugs and products are coming from China and India. This is discomforting as expressed in a recent New Times article. Drug Making’s Move Abroad Stirs Concerns.
We have to recognize that the pharmaceutical and other companies are buying products (API, intermediates and fine specialty chemicals) from the companies in India and China who are alleged not to be playing by the rules companies in the developed countries have to live by. It is a demand and supply question and rules in every country are different.
Can this be reduced, prevented or stopped? Do we have a way out of this quandary? Yes we do, but it would require an effort. We have to have total involvement of the suppliers and buyers, which might not be easy. If such an attempt is made, I hope it would not turn out like “the Doha WTO negotiations” as many companies/countries have lot to loose and/or gain. I doubt if any trade organization can influence any country’s environmental, health, safety and pay scale policies. Those changes have to come from within. Maslow still rules.
SOCMA, CEFIC and other organizations could identify the highest imported chemicals, API or formulated products. Interested companies in the developed countries could develop technologies for these products that will offset the cost advantages of the imported products and convince the companies in the developed countries to buy their products. Every advantage perceived or otherwise from the developing countries will have to be offset by cost and quality through better technologies.
Partial protectionism under a “strategic defense initiative” could be a temporary alternate for certain chemicals or drugs. Such a program cannot be government subsidized. This could give interested companies a “time window” to develop better technologies. With many countries now part of WTO, such an initiative is not going to sit well with many countries, companies and organizations.
Competing technologies that will offset the costs due to local wages, environmental, health and safety rules and methods is the only answer. If this does not work safeguards leading to continuous supply of strategically vital products can be implemented but there are costs associated with that strategy. A win-win strategy needs to be developed.
I speculate and believe the industry moved for combination of the following reasons.
1. Environmental laws
2. Health and Safety laws
3. Significantly lower labor costs in the third world countries.
4. We did not invest in the technologies to improve processes.
In early seventies, the developed countries were adopting new environmental protection laws. They seemed unrealistic and unachievable [this is based on my being at a state EPA] to some. Many complied. For some it was easier to shut down rather than invest in the complying technologies. In my view, improving process technologies was a missed innovation opportunity. The chemicals were needed and since there was a need, companies in China and India filled in the supply gap.
India and China also had advantage of Rupee/Yuan/Dollar parity. This made investments in their country cheaper.
Laxity of health and safety laws persists in the developing countries. The associated expenses are low compared to the developed countries. In my recent trips, I saw workers with open toe shoes, without safety glasses, wearing street cloths and eating meals on the operating floor. These might not be across the board but is there. Human life needs to be valued as an asset.
Environmental laws are comparatively lax also compared to the laws in the developed countries. Thus, the respective investment in pollution abatement is lower. I have seen multi-colored water bodies next to the plants. Abatement of eco-toxicity is not a high priority. In the developed countries endocrine disruptors have been found in the drinking waters. I am sure these and other chemicals exist in the water in the developing countries also and the scale is different.
Labor costs in China and India are magnitude levels lower than the costs in the developed countries e.g. a plant operator in India could be paid $200 per month (we have to recognize high Yuan/Rupee/Dollar parity) compared to $4000.00 per month or more in US.
Combination of the above factors has resulted in China, India and some of the East European countries making the fine and specialty chemicals to feed the insatiable need for these chemicals in the developed countries.
As the time has progressed, these suppliers found that their products were being used to produce the active pharmaceutical ingredients or other higher valued products i.e. moving up the supply chain. These companies also moved up the supply chain. These have resulted in additional plant closures in the developed countries.
With time the costs in the developing countries are going up as they incorporate better safety, health and environmental laws but are not to the levels in the developed countries. They still have price advantage and customers wiling to purchase their products.
Now we have a situation where many of the pharma APIs and other strategic drugs and products are coming from China and India. This is discomforting as expressed in a recent New Times article. Drug Making’s Move Abroad Stirs Concerns.
We have to recognize that the pharmaceutical and other companies are buying products (API, intermediates and fine specialty chemicals) from the companies in India and China who are alleged not to be playing by the rules companies in the developed countries have to live by. It is a demand and supply question and rules in every country are different.
Can this be reduced, prevented or stopped? Do we have a way out of this quandary? Yes we do, but it would require an effort. We have to have total involvement of the suppliers and buyers, which might not be easy. If such an attempt is made, I hope it would not turn out like “the Doha WTO negotiations” as many companies/countries have lot to loose and/or gain. I doubt if any trade organization can influence any country’s environmental, health, safety and pay scale policies. Those changes have to come from within. Maslow still rules.
SOCMA, CEFIC and other organizations could identify the highest imported chemicals, API or formulated products. Interested companies in the developed countries could develop technologies for these products that will offset the cost advantages of the imported products and convince the companies in the developed countries to buy their products. Every advantage perceived or otherwise from the developing countries will have to be offset by cost and quality through better technologies.
Partial protectionism under a “strategic defense initiative” could be a temporary alternate for certain chemicals or drugs. Such a program cannot be government subsidized. This could give interested companies a “time window” to develop better technologies. With many countries now part of WTO, such an initiative is not going to sit well with many countries, companies and organizations.
Competing technologies that will offset the costs due to local wages, environmental, health and safety rules and methods is the only answer. If this does not work safeguards leading to continuous supply of strategically vital products can be implemented but there are costs associated with that strategy. A win-win strategy needs to be developed.
Wednesday, February 4, 2009
Commoditization of Drugs
Until 2006 low cost drugs could be purchased outside US only. Wal-Mart started to sell 30-day and 90-day supply at $4.00 and $10.00 respectively in 2006. Recently other pharma-sellers have joined to serve the growing market. These prices were unheard of before 2006. Even at these prices respective members of the supply chain (producers, formulators and HMO’s) are making “good” margins.
Commoditization had begun in 2006 and we did not realize it. With the current global economic downturn, an ever-increasing aging population and economic upswing of the under-developed countries demanding common ailment drugs, the commoditization pace has accelerated. As we go forward the number of the drugs in the 30 and 90-day pool will increase. With the larger customer base, the annual volume for many of the active pharmaceutical ingredients (API) will increase.
Fine and specialty chemical companies (e.g. BASF and Albemarle among others are producers of ibuprofen and naproxen (Non-steroidal anti-inflammatory drugs: NSAID)) and generic drug companies are producing common cure APIs (i.e. specialty fine chemicals that have disease curing value). Many generics formulate various dosages for sale. Most of the drugs US pharma-sellers are offering for sale are being produced and formulated outside US. Big pharmaceutical companies are not involved in these programs.
As more brand name drugs become generic and the volume of generics increases, entrepreneurs, existing and new, would want to take advantage of the business opportunity. Market economics and desire for profits will result in the development of better processes and movement from batch processes to continuous processes. Better process technologies will reduce the costs of active pharmaceutical ingredient (API) resulting in higher profits for the members of the supply chain. All this will be result in higher profits and increased commoditization of the “off-patent” drugs.
It is expected that successes of better process technologies for the generic APIs might result in better manufacturing technologies for the ethical/brand drugs also thereby increasing their respective profits. It is possible that the lower costs from better processes for generics and ethical drugs might not be necessarily passed on to the consumers.
Commoditization had begun in 2006 and we did not realize it. With the current global economic downturn, an ever-increasing aging population and economic upswing of the under-developed countries demanding common ailment drugs, the commoditization pace has accelerated. As we go forward the number of the drugs in the 30 and 90-day pool will increase. With the larger customer base, the annual volume for many of the active pharmaceutical ingredients (API) will increase.
Fine and specialty chemical companies (e.g. BASF and Albemarle among others are producers of ibuprofen and naproxen (Non-steroidal anti-inflammatory drugs: NSAID)) and generic drug companies are producing common cure APIs (i.e. specialty fine chemicals that have disease curing value). Many generics formulate various dosages for sale. Most of the drugs US pharma-sellers are offering for sale are being produced and formulated outside US. Big pharmaceutical companies are not involved in these programs.
As more brand name drugs become generic and the volume of generics increases, entrepreneurs, existing and new, would want to take advantage of the business opportunity. Market economics and desire for profits will result in the development of better processes and movement from batch processes to continuous processes. Better process technologies will reduce the costs of active pharmaceutical ingredient (API) resulting in higher profits for the members of the supply chain. All this will be result in higher profits and increased commoditization of the “off-patent” drugs.
It is expected that successes of better process technologies for the generic APIs might result in better manufacturing technologies for the ethical/brand drugs also thereby increasing their respective profits. It is possible that the lower costs from better processes for generics and ethical drugs might not be necessarily passed on to the consumers.
Tuesday, January 13, 2009
A hidden “diamond in the rough”
There are companies in the specialty chemical world that have good technologies and product applications. Their unique niche and technologies enhance the performance of their customer’s products. I call them the “real specialty chemical” company. Such uniqueness should have value. However, the “Wall Street mind-readers or investing aficionados” have not had much penchant for them. One can only conclude such an oversight is due to lack of the investors understanding of the technologies of such companies. One such company is International Specialty Products, Inc.
In 2002 ISP went back to being a publicly held company to being a privately held company. Their sales from 1999 to 2001 were around $787 million for each year with profits going through its cycles. In 2007 ISP revenue was about $1.6 billion about 10% revenue growth per year. Samuel Heyman being an astute investor has had margins to his liking in the last nine years with his management. If the margins were not there, he would have unloaded the business.
Since ISP is privately held company and away from the daily Wall Street scrutiny, they have also managed to stay under the acquisition radar. I believe that 2009 or 2010 may be the year when someone will realize their full potential and buy them out. It would have to be a company, which values technologies and would want to cross-fertilize ISP technologies to other applications and realize their full potential.
In 2002 ISP went back to being a publicly held company to being a privately held company. Their sales from 1999 to 2001 were around $787 million for each year with profits going through its cycles. In 2007 ISP revenue was about $1.6 billion about 10% revenue growth per year. Samuel Heyman being an astute investor has had margins to his liking in the last nine years with his management. If the margins were not there, he would have unloaded the business.
Since ISP is privately held company and away from the daily Wall Street scrutiny, they have also managed to stay under the acquisition radar. I believe that 2009 or 2010 may be the year when someone will realize their full potential and buy them out. It would have to be a company, which values technologies and would want to cross-fertilize ISP technologies to other applications and realize their full potential.
Thursday, January 1, 2009
“Bail out or Hand out” is not the answer but Innovation and Conservation is.
Recent turmoil in the financial markets is taking its global toll. However, this event, once in lifetime event, is also giving us a message and presenting us with an opportunity. The message is “It is time to have innovative technologies that also conserve our resources”.
US Automobile industry lost its focus when it quit innovation in sixties and were not farsighted to raise the fuel efficiency. They fought tooth and nail against raising gas mileage standards. Japanese came with better quality, pizzazz and hybrids. But Detroit thought it was not a good idea to have a “better idea”.
Lately we have read about plants of many chemical companies being shuttered for lack of demand. We will probably hear more such closures before things come back. Bankruptcies would be there also.
I wonder if the closures are a reflection of not having the best technologies to manufacture the products. Had the technologies been such that the feed rates could be lowered or increased to meet the prevailing demand, plant shutdowns could have been avoided. Lack of the best methods suggest that there is an opportunity to have better manufacturing technologies. Better equals high conservation i.e. produce more from less.
Pharmaceuticals, which are disease-curing chemicals, cannot think conservation when they are able to make their profit margins on “human desire” to extend their life. Poor yields, high in-process inventory and producing quality only by checking every milligram are acceptable suggest significant opportunities. Consumer pays for every in-efficiency e.g. inventories, poor quality and costs related with inefficient use of their raw materials. In 2007-2008 we saw loss of employment and knowledge base accelerate. When a pharmaceutical company can close more than 50 plants, it suggests that companies have technologies that need total overhaul. They need to develop and implement technologies for their survival.
Their blockbuster model is dying on the vine and their new product pipeline is heading from gusher to a trickle in the next few years. Pharma needs to create a new business model. Due to toxicity of their chemicals Pharma needs to improve their manufacturing technologies to levels better than “non-disease-curing” chemicals. Higher yields mean higher profitability and less effluent or/and emissions in our eco system.
In my recent trip to China, I saw electrically charged bikes to move around town. Similarly in Europe and China they have low cost and simple solar water heaters on their rooftops to provide them with the hot water for their daily use. Roof top heaters do not look esthetically bad but tell us the inherent character of inhabitant’s and their nature to conserve and use nature’s gift of sun’s heat. A missing rooftop heater suggests a “missing link”. Communities in US have prevented such installations with the thinking that they look ugly and will lower real estate value. Esthetics is more important than conservation.
Chinese company BYD is introducing an electrical car and an Indian company TATA is introducing about $2500.00 car. This suggests innovation is possible if we step up to the challenge.
We need to move from a “consumption zealots” to “conservation zealots”. Conservation and preservation will not result in any hardship but will lead to innovation that will improve profitability. Present slow down is the best time to innovate and we need to spend effort so that we can reap benefits in future.
US Automobile industry lost its focus when it quit innovation in sixties and were not farsighted to raise the fuel efficiency. They fought tooth and nail against raising gas mileage standards. Japanese came with better quality, pizzazz and hybrids. But Detroit thought it was not a good idea to have a “better idea”.
Lately we have read about plants of many chemical companies being shuttered for lack of demand. We will probably hear more such closures before things come back. Bankruptcies would be there also.
I wonder if the closures are a reflection of not having the best technologies to manufacture the products. Had the technologies been such that the feed rates could be lowered or increased to meet the prevailing demand, plant shutdowns could have been avoided. Lack of the best methods suggest that there is an opportunity to have better manufacturing technologies. Better equals high conservation i.e. produce more from less.
Pharmaceuticals, which are disease-curing chemicals, cannot think conservation when they are able to make their profit margins on “human desire” to extend their life. Poor yields, high in-process inventory and producing quality only by checking every milligram are acceptable suggest significant opportunities. Consumer pays for every in-efficiency e.g. inventories, poor quality and costs related with inefficient use of their raw materials. In 2007-2008 we saw loss of employment and knowledge base accelerate. When a pharmaceutical company can close more than 50 plants, it suggests that companies have technologies that need total overhaul. They need to develop and implement technologies for their survival.
Their blockbuster model is dying on the vine and their new product pipeline is heading from gusher to a trickle in the next few years. Pharma needs to create a new business model. Due to toxicity of their chemicals Pharma needs to improve their manufacturing technologies to levels better than “non-disease-curing” chemicals. Higher yields mean higher profitability and less effluent or/and emissions in our eco system.
In my recent trip to China, I saw electrically charged bikes to move around town. Similarly in Europe and China they have low cost and simple solar water heaters on their rooftops to provide them with the hot water for their daily use. Roof top heaters do not look esthetically bad but tell us the inherent character of inhabitant’s and their nature to conserve and use nature’s gift of sun’s heat. A missing rooftop heater suggests a “missing link”. Communities in US have prevented such installations with the thinking that they look ugly and will lower real estate value. Esthetics is more important than conservation.
Chinese company BYD is introducing an electrical car and an Indian company TATA is introducing about $2500.00 car. This suggests innovation is possible if we step up to the challenge.
We need to move from a “consumption zealots” to “conservation zealots”. Conservation and preservation will not result in any hardship but will lead to innovation that will improve profitability. Present slow down is the best time to innovate and we need to spend effort so that we can reap benefits in future.
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.
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.
"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."
"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
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
With
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
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.- 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.
- 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.
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
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.”
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.
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