MANUFACTURING IN THE PHARMACEUTICAL VALUE CHAIN

Prof. Charles L. Cooney Department of Chemical Engineering

Program on the Pharmaceutical Industry

Drug Development Lectures Nov 21, 2013

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THE STATE OF THE PHARMACEUTICAL INDUSTRY

Where is it going in 2014?

• Sales ~$1 trillion and growing at <4% • R & D ~ 15% of sales - an increasingly virtual

infrastructure • Marketing - pricing/advertising/e-commerce • Development - increasing expectations,

complexity in clinical trials, low productivity • Structure - consolidation, partnerships and

outsourcing

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CHARACTERISTICS OF PHARMACEUTICAL MARKETS

• Concentrated ~ 85% of market in 15 countries • Focused - 4 therapeutic areas dominate market

CV, GI, CNS, anti-infectives • Fragmented -

– Largest product (Lipitor) is ~ 5 % of market – Largest company (Pfizer) is ~$50 billion – Top 10 companies have one third of market

• Technically diverse - research strategy and production methods

There is a high cost of complexity

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Global Sales

• ~$900 billion and growing at <5% – US growth at 1-2% to ~$300 billion – Top 5 EU (France, Germany, Spain, Italy, UK)

3-4% to ~$200 billion – Japan 3-4% to ~$85 billion – Pharmamerging at 14-15% to >$100 billion

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TODAY HEALTH CARE COST PRICING PRESSURES

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We Have a Problem •  Pressure on Pricing

–  Increased use of generics –  Introduction of biosimilars –  Therapeutic substitution –  Demand for global access –  Political and social activism

•  Increased cost –  Increased regulation –  Smaller markets –  Market and supply chain complexity –  Security and integrity of supply chain

October 14, 2004 2004 Copyright Massachusetts Institute of Technology

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Institute of Technology Risk = Probability X Impact

Courtesy of US forest Service on Wikimedia Commons. Public domain.

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Typical P&L Generic Big Pharma* Manufacturers**

*Source: Annual reports of major 15 pharmaceutical companies

**Source: Teva’s 2004 annual report

•  COGS are a very significant portion of Generic’s P&L •  COGS for Big Pharma are significant in absolute dollar terms

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PHARMACEUTICAL INDUSTRY STRUCTURE

API Manufacture

Formulation & Finishing

Packaging

Value Chain Organization

API Manufacture

Formulation & Finishing Packaging

Generic Producer of API

Fully Integrated Producer of Drug Product

Generic Producer of Drug Product

SUPPLY CHAIN IN PHARMACEUTICAL MANUFACTURING

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SUPPLY CHAIN IN PHARMACEUTICAL MANUFACTURING

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SUPPLY CHAIN DYNAMICS

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Secondary Drug Distribution

Manufacturer

Major

Distributor

Uncontrolled Foreign Sources

Secondary Distributor

Retail

Retail

Retail

Retail

Secondary Distributor

In practice, we must embrace & manage risk

Courtesy of Felicity and Phillip on Wikimedia Commons. License CC BY.

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MIT OpenCourseWarehttp://ocw.mit.edu

15.136J / 7.547J / 10.547J / ESD.691J / HST.920J / BCMP 230 Principles and Practice of Drug DevelopmentFall 2013

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