DISRUPTING PHARMA—ONLY POLITICIANS CAN DO IT, HERE’S WHY AND HOW

DEFEAT CAPITALISM AND ITS DEADLY SPAWN, IMPERIALISM
ecological murder • endless wars • ingrained racism & social injustice • worker exploitation • incurable via reforms

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Part II

OUTSOURCING BEGINS IN EARNEST

The exact sequence of events isn’t easy to pin down, but the results were unmistakable—masses of workers were shown the door and thousands of facilities went up for sale.

Ousted senior execs looking for pastures new put the dumped assets to good use. They set up small companies (dubbed biotech at the time, we will call them SDDs, small drug developers) developing drugs to either sell to Big Pharma or try to get to market themselves.

The CEOs in SDDs were making a persuasive case to be the engine house of drug discovery, citing less bureaucracy and shorter chains of command. Investors liked the sound of it and started pumping money in.

Meanwhile, other exiting senior execs joined together and bought up the facilities, funded by a different cadre of investors. These companies provided SDDs with services in exchange for a fee, under contract. These became known as contract development and manufacturing organisations (CDMOs) and contract research organisations (CROs).

Many of the rest of the redundant staff became consultants. Not the McKinsey kind, more former employees selling their skills back into the industry under contracts of varying length. I became one of them.

Also on the agenda was the tricky business of supplying hospitals and pharmacies. Handling customer complaints and dealing with ever more frequent deliveries were not deemed core and Big Pharma handed over all of its warehousing and distribution assets to gratefully receiving wholesalers.

Similarly, specialist third party logistics providers (3PLs) grew their businesses helping with the burgeoning volumes of materials and products that needed to be stored, and transported around the globe.

The final arm of the strategy was out-throwing; the practice of dropping existing products once the patent expired, as they didn't meet the sumptuous ROI targets the branded versions had enjoyed.

Up sprung companies with more modest profit aspirations working to much tighter margins, copying the originals. This gave rise to the generics industry, where, at last, competition was going to save the day, or was it?

HOW DID THE DYNAMIC PAN OUT?

The number of SDDs began to accelerate as the potential rewards in doing a licensing deal with Big Pharma were immense. These new boys on the block were developing drugs themselves, hoping to eventually hand the baton on to Big Pharma.

There was similar growth in numbers for the CDMO/CROs, since business was brisk, as both the SDDs and Big Pharma increasingly needed their services.

The Drug Price Competition and Patent Term Restoration Act of 1984 (“the Hatch-Waxman Act”) gave a welcome boost to the use of generics and this, in turn, was more business for the CDMO/CRO’s.

With the growth of biologics, more companies entered the fray. Biosimilars, the generic equivalent in biologics, were attempting to capture innovator markets as patent expiry loomed. Biobetters were aiming to improve on what had gone before. Again, they needed the services of CDMO/CROs.

The ever increasing availability of services to cover almost every aspect of drug development encouraged universities to ‘spin out’ their research ideas into SDDs on the trail of Big Pharma attention and licensing deals. Government grants and funded bodies were set-up to support progress.

All this time, the contractors had began consolidating, egged on by private equity regarding service providers as high potential, less risky investments; and all was not rosy in the Big Pharma garden.

WHEN WAS THERE A WHIFF OF THINGS GOING AWRY?

The first piece of definitive evidence of problems emerged in 2006.

The United States Government Accountability Office (US GAO) issued a report, titled NEW DRUG DEVELOPMENT Science, Business, Regulatory, and Intellectual Property Issues Cited as Hampering Drug Development Efforts. Amongst other things, the report showed a chart of the failure rates in the life of a prescription drug.

Four out of every five drugs entering clinical trials failed.

To get to five candidates entering clinical trials, 250 had to go through extensive (and expensive) preclinical testing to find suitable candidates for the clinic. That makes 245 failed candidates, consuming a humongous amount of animals in the process. The one drug that made it to market consumed 10,000 screened molecules in its making.

In 2012, Joseph A. DiMasi, PhD, of Tuft’s University presented at a conference in London, Pharma Integrates 2012, which I attended. He confirmed the US GAO figures above, suggesting things had gotten worse since then.

So, the valley of death, as it became known, was swallowing up most of the molecules entering development. It was commonplace to read of drugs failing in phase III trials, where the hopes and dreams of patients were dashed. Hundreds of thousands of animals tortured and slaughtered, with no contribution to medical science.

Billions of dollars poured down the drain. The sickening cost of failure.

WHERE ARE WE TODAY?

Big Pharma is a dried up prune compared to the fulsome plum it used to be.

It has retrenched into opposite ends of the prescription drug lifecycle, leaving most of the work of testing, developing, making, storing, moving and distributing drugs to third parties.

On the other side of the fence, the fledgling service providers that were, flew the nest years ago and grew into fully formed adults, some soaring like eagles.

CROs have been and still are consolidating, becoming big, powerful providers of clinical and non-clinical services.

Massive consolidation has also taken place in the CDMO world, and media evidence suggests they are moving into additional areas of the value chain.

The specialist 3PLs have also been part of the consolidation, as the two main players have been acquired by giant corporations, one from inside Pharma and one from outside.

The finished product distributors of Pharma products are now mega corporations, on the back of, yes, you guessed it, consolidation.

Just three share up to 90% of the market on each side of the pond.

There has been forward integration (pharmacies) and reverse integration (logistics specialists) going on for some time and also moves into broader service offerings to the industry.

The generics industry has grown enormously on the back of payer demands for cheaper drugs. Up to 90% of drugs now sold in the US and UK are generic.

Ironically, in later times, the intense competition for out-of-patent drugs has subsided, which has led to spiraling rises in generic drug prices. This again has been attributed to M&A activity leading to far fewer, bigger players on the field being able to pick and choose what they supply; with the ever-present shortages adding to the hikes. This is a very different Big Pharma from the days of Tagamet and Zantac.

Part III will cover the painful analysis of how this all came to pass…

…you don’t want to miss it : O)