Harbingers of Change

Jul 31, 2008

For now, the future seems to recede ever further in the media onslaught of the endless presidential campaign. But come November 5, when life as we once knew it resumes, the drug industry will have not only a new administration to do business with but a bunch of new opportunities/challenges to add to its to-do list. Some of them are familiar, such as the "how" and the "how much" of outsourcing, while other issues are still emerging or barely even noticeable. Each year, IMS Health, the healthcare information and consulting king, surveys the pharma landscape for developments likely to drive trends or have major future impact. Here are eight strong harbingers to watch—and watch out for—when planning for '09.

1. CHINA RIPPLE MAY BECOME A TSUNAMI

US OKs First Chinese NDA

For years, oceanographers have relied on the release and recovery of "drift bottles" to model ocean currents and surface drifting. Serendipity has, however, provided them with an additional measurement in the form of 29,000 plastic ducks created in China and lost in the Pacific Ocean 15 years ago. In July 2007, British newspapers warned that a flotilla of 10,000 of these lovable bath toys would begin washing up along Britain's shores. The ducks' remarkable odyssey could be followed by another Chinese product "invasion" that may not be as innocuous.

THE HARBINGER

In July, FDA approved the first Abbreviated New Drug Application (ANDA) for a product fully manufactured in China: nevirapine (known by the brand name Viramune, an HIV med made by Boehringer Ingelheim) from Zhejiang Huahai Pharmaceutical. Coincidentally, in July the US government set up the Interagency Working Group on Import Safety.

THE CHANGE

The importation of a finished pharmaceutical product is almost certainly the beginning of a sustained Chinese assault on the US and other strategic markets. Industry experts forecast that regulators will approve ANDAs for no fewer than 10 Chinese pharmaceutical companies, and the drugs have a good chance of passing FDA reviews. In order to ensure their success, the Chinese manufacturers are likely to undercut all others on price.

THE IMPLICATIONS

Chinese policy will drive generic prices down further—with far-reaching consequences for both R&D players and international generics. R&D is increasingly looking to emerging markets for top-line growth, while generics are seeking top-line growth and profit stabilization.

China's success would also accelerate the transition of the Indian multinational business model to embrace a balanced profile, including serving as third party preferred manufacturers for patent-protected brands, partnering with the global players in drug development, and expanding R&D. The Chinese makers of finished doses that will generate the most generics profits in the US will likely be those that integrate back into the supply chain via Active Pharmaceutical Ingredients (APIs). While Indian suppliers accept that large numbers of APIs will be supplied from China, they maintain that it is more efficient to convert APIs into finished products in India than in China.

How this unfolds may come down to reputation. India is developing an image of excellence in pharmaceutical provision. China has a long way to go to eliminate or minimize risk. The speed and the success they achieve will determine China's importance in the manufacture of pharmaceuticals.

2. OUTSOURCING: SAVE NOW, PAY LATER?

Top Pharmas Withdraw from Manufacturing in a Big Way

Imagine a world where a basic activity—sleeping—becomes outsourced. That's the premise of the short story "Tough Girls Don't Dream" by Jeanette Winterson. In this world, people are too busy to sleep, though dreaming is acknowledged as beneficial. Thus, civil servants are paid to sleep so that others can enjoy their dreams. There was a time when the thought of major pharmas outsourcing a sizeable portion of their manufacturing was nearly as improbable. But times change.