Pharmaceutical Industry

Case Study: Pharmaceutical Industry

Introduction 1
The pharmaceutical industry entails a team involved in the invention of a drug. The team consists of the drug producers, formulators, promoters and prescribers. (Swayne, Duncan, & Ginter, 2011) Since the foundation of the pharmaceutical industry in the 90’s with inventions of Insulin and Penicillin, the purpose of the pharmaceutical companies has been for production of Medicines and medical devices. (Ency) The purposes of their product are solely for diagnosis, treatment, and prevention of diseases in humans and animals.
In this case study, we will describe the pharmaceutical industry and its products, evaluate its market size, and name its major players. We will also talk about the research and development involve in the production of a drug, describe the approval process of a drug and a short summary of our evaluation of the industry. .
Medicines have been classified into three different 3 different groups, over the counter drugs, prescription drugs, and generics. Prescription and over the counter medications (OTC) are the most commonly abused substances after alcohol and marijuana in Americans 14 years and older. Although many think that OTC and prescription drugs are safer than illicit drugs, it is only true when there are taken in the prescribed amount and for the right illnesses. Among the commonly abused medications are many prescribed drugs which include Addictive, sedative and antidepressants, and stimulants. (National institute of Drug Abuse, 2013)
Since some medications have psychoactive and strong sedative complicated effects, The Food and Drug Administration and pharmaceutical companies are collaborating in deciding what medications should be more restricted and require the prescription of a specialist while others can be purchased from over the counter. In determining what medication can be purchased over the counter, the FDA created a list of 80 categories and over 800 ingredients that can be used as OTC treatments without the need for prescription. While medications that did not have these ingredients had to be regulated by the FDA. The FDA then evaluates the safety of the drug for the public before it becomes a prescription drug. Being in the medical field, the term generic is one that I hear very often. So what does it mean for a medication to become generic? When medications are first manufactured, they use the chemical name of the ingredients which they are made off and they are tagged with a patent that last for 20 years, for example Atorvastatin becoming the generic LIPITOR. During the patent period, no competitors are allowed and their prices are significantly higher than it would be as a generic. After the 20 years of being patent expires, the drug becomes generic and it changes its name to the company’s name, and its prices drop while competitors emerge. Take for example in 2002, patented brands averaged up to $75.82 and generic drugs averaged up to $27.16. (Swayne, Duncan, & Ginter, 2011)
Market Size and Major Players
The Pharmaceutical industry represents about $0.5 trillion globally the pharmaceutical company is worth over $300 billion a year and it’s expected to rise to $400 billion within 3 years. With more than 80 percent of the sales in 10 nations, 10 of the largest drug companies control over 1/3rd of the market. 85% of global pharmaceuticals are in North, South America, and Europe. Major countries involved include the U.S, Japan, Switzerland, Germany, Russia, China, South Korea, and Mexico. Six of these markets are based in the U.S and four in Europe. The United States remains the leading market with over 45% of world spending and 2.1% of its GDP. (WHO, 2013) The major players of the pharmaceutical companies today continue to be those that have been in existence since the 90’s. Pfizer has remained a top player for the past several years. Novartis jumped from the #2 to #3 position due to its Alcon revenues, while Meck jumped from #6 to #3. Below is a list of top pharmaceutical companies based on 2010 revenues in millions; 1. Pfizer $58 2. Novartis $44 3. Merck & co $39 4. Sanofi $37 5. GlaxoSmithKline $36 6. AstraZeneca $32 7. Johnson & Johnson $22 8. Eli Lilly & Co. $21 9. Abbott Laboratories $19 10. Bristol-Myers Squibb $19
(Gill, 2011)
Below is a list of the pharmaceutical companies in the USA, based on 2012 revenues in millions; 1. Pfizer $67 2. Johnson & Johnson $65 3. Merck & co $48 4. Abbott Laboratories $38 5. Eli Lilly & Co. $24 6. Bristol-Myers Squibb $21 7. Amgen $15 8. Gilead Sciences $8 9. Mylan $6 10. Allergan $5 (Fortune 500, 2012)
Globalization is certainly taking a toll in the pharmaceutical companies. Pharmaceutical companies are going global and swooping in to purchase drugs which have passed the early phase of testing in other countries. Take for example a partnership that occurred in the early months of May 2011 between Sanofi Co and Glenmark for the purchase of an anti-inflammatory drug for Crohn’s disease. The pharmaceutical company also paid Glenmark for the same drug to be marketed in other countries such as japan, mexico, china and Uruguay. This step towards globalization will help for better collaboration, sharing of information, better outcomes with research and development investments and in the future better drug pricing. (Sophia, 2011)
Furthermore, in a more recent article Merck & Co and Pfizer Inc. announced a worldwide collaboration for a development of an ertugliflozin for treatment for type II diabetes. Since they intend on sharing the revenues and costs, this will eventually reduce the amount needed per company on the drug, reduce the cost of marketing, and the worldwide distribution of the drug could help with a reduction in the cost of the drug as per pill. (Wireless news, 2013)
Research and Development
The role of Research and development is vital in a pharmaceutical company. It is important for the discovery of a new medication, more about diseases, cure, prevention and diagnosis. Without research and development for new drugs in a pharmaceutical company, they will eventually have no revenue. Over the past decades, the number of new drugs that have been approved each year has relatively remained stable of an average rate of 15-25. (Susan, 2012)
Most pharmaceutical companies have been known to spend one-third to one-fourth on marketing, which is about twice the amount spend on research and development. Pharmaceutical companies claim research and development is more vital than marketing, but since marketing brings in the finances multiple reviews have shown that more is certainly spent on marketing than on research and development. An independent analysis of these industries revealed that they spend only about 1.3% of its revenues on research and development (R&D), 4/5th of its research funds for vaccines and new drugs actually comes from public funds. (Susan, 2012) Although some government funds are also given, they are solely for research on diseases and their preventions. Unlike other product manufacturers, one out of every 10,000 discovered compounds actually becomes a drug approved for sale, so there is a huge chance of invested money loss. A lot of the money invested in a drug is in the early phases of the drug, and among the many drugs approved only 1 out of every 3 drugs generates enough revenue to cover the development cost. The average cost of developing a successful drug been estimated to be about $1.3 billion. (Susan, 2012)
Although research and development cost has risen about $34.2 billion between 1995 and 2010, revenues have risen even faster by $200.4 billion within the same period. As the cost of research and development remain expensive and stable, and pressures for profit rises, many of the major organizations turned to In-licensing. In-Licensing is a partnership that develops between companies. For example In-Licensing Company specializes in just R&D and they collaborate with larger pharmaceuticals which eventually markets the drug. (Swayne, Duncan, & Ginter, 2011)

FDA Approval Process
The approval process of a drug is a long, expensive, complicated and time consuming process. Most drugs take about 8-10 years for their approval. Drugs go through certain stages of evaluation. Two stages include;
Investigational New Drug (IND); they review the process to determine whether the product was suitable for use in clinical trials.
New New Drug Application (ND): they review the process to determining the benefit or risk profile of a drug prior to its approval for marketing.
The complete process includes pre-clinical research, clinical studies and the NDA reviews. The pre-clinical research consists of synthesis, purification of the drug, and short or long term animal testing. Clinical studies consist of 3 pre-approval stages and one in the post marketing stages. Phase 1 which is the first trial for testing in rural healthy volunteers, this plays a role in testing safety, tolerance and pharmacokinetics.
Phase 2 is the first trial on individuals with the disease to be treated, diagnosed or prevented. It is used to determine the efficacy, safety, and dosage regimens.
Phase 3 is an expanded clinical trial which gets additional evidence for determining the evidence and specific indications as well as adverse effects.
Phase 4 is post marketing studies, it determines the incidence of adverse reactions and serious effects that were not identified in prior phases. After a drug passes all of these stages, it is patented for 20 years from the date of its application. During this period of the drug’s patent and a period of being exclusive, no competitors are allowed to offer their products. When the product becomes generic, competitors goes through the FDA approval process, and are approved only if they are as efficacious as the generic brand. The competitor brand drug goes through all of the process of evaluation, but the generic drug goes through a similar process except instead of animal studies, clinical studies and bioavailability, it only undergoes bio-equivalence and instead of going through NDA requirements it goes through an ANDA requirement. (Swayne, Duncan, & Ginter, 2011)

Conclusion
Pfizer one of the top pharmaceutical industries is ranked among the top 50 fortune companies in fortune magazine, without a doubt pharmaceutical companies are among the the top business moguls in the world today. With stabilization in the amount of drugs released yearly and the amount of increase in revenues per drug, and per pharmaceutical companies, critics question the increase in prescription pills. Between 2002 and 2003, the average cost of brand name drugs protected under the patent rose from $75.82 to $84.21, while the generic only rose from $27.16 to $30.56. (Swayne, Duncan, & Ginter, 2011) The pharmaceutical industry in their defense complains that the research and development cost have risen significantly and they also complains that the cost of development have increased which is also true. Between 1995 and 2010, they have been a rise in $34.2 billion dollars which pharmaceutical companies complain about, in 1997 the cost of one single drug was $802 million and in 2005 it had increased to $1.3 billion. Pharmaceutical companies claim the increase in cost is due to the gamble of making a new drug, time in R&D and in the FDA approval’s process. (Johar, 2012) These companies fail to mention that within the same period they have been an even faster rise in revenues by $200.4 billion. (Susan, 2012) In actual fact, the net profit made by pharmaceutical company is higher than profits for all of the fortune 500 companies, it was ranked first for return in revenues in 2005 (Johar, 2012). In other reviews, 9 out of 10 newly approved medications offer only minor variations from older drugs and these drugs have been shown to be very profitable to these industries. With the rising cost of healthcare, increasing premium insurances and increasing co-pay, certainly changes needs to occur in the pharmaceutical industry.

Reference
Fortune 500 (2013) Top Pharmaceutical Industries. Retrieved from http://money.cnn.com/magazines/fortune/fortune500/2012/industries/21/
Gil y. Roth (2011) The Top 20 pharmaceutical companies. Contract Pharma. Rretrieved from http://www.contractpharma.com/issues/2011-07/view_features/the-top-20-pharmaceutical-companies/
Johar Kanika (2012) An insider’s perspective: defense of the pharmaceutical industry’s maketing practices. Albany Law Review. Retrieved from http://go.galegroup.com.proxy.davenport.edu/ps/i.do?action=interpret&id=GALE%7CA326658408&v=2.1&u=lom_davenportc&it=r&p=EAIM&sw=w&authCount=1
Sophia Walker (2011) Globalization’s Impact on the pharmaceutical industry. Emerging markets. Retrieved from http://healthcare.blogs.ihs.com/2011/10/05/globalization-impact-on-the-pharmaceutical-industry/
Susan Perry (2012) Big Pharma’s claim of an innovation crisis is a myth BMJ authors say. Minipost.com. Retrieved from http://www.pnhp.org/news/2012/august/big-pharmas-claim-of-an-innovation-crisis-is-a-myth-bmj-authors-say
Swayne, L. E., Duncan, W.J., & Ginter, P.M. (2011). Strategic management of health care organizations (6th ed.) San Francisco, Calif.: Jossey-Bass.
Wireless News (2013) Merck & Co. and Pfizer Sign Collaboration Pact to Develop Comercialize Ertugliflozin. General Reference Center GOL. Retrieved from http://go.galegroup.com.proxy.davenport.edu/ps/i.do?id=GALE%7CA328670516&v=2.1&u=lom_davenportc&it=r&p=GRGM&sw=w

World Health Organization (WHO) (2012) Pharmaceutical Industry. Retrieved from http://www.who.int/trade/glossary/story073/en/