For all but one of their 54 married years, the Grosskruegers have lived in the same house in Loganville, Wisconsin. In June 1998, the Grosskrueger's Buick was hit and Mr Grosskrueger suffered a heart attack. He was treated with the high blood pressure drug Hytrin, but his health began to suffer and in October he suffered a stroke. Today, both he and his wife are on medication, a financial commitment which absorbs $148 a month of his $1,261 income.
The Grosskruegger case is not unique. It is one of the many that have been highlighted by the increasingly politicised question of extending Medicare to cover the cost of prescriptions for the elderly in the US. Even as the presidential candidates argue over the details, people all over America are asking why? Why is it that drug prices there are the highest in the world? This question and the efforts of the politicians to address it are spreading fear throughout the pharmaceutical industry since it brings into question the very basis of the industry's existence: patents and price control.
"It is crucial to public health that affordable medicines are available," Roger L Williams, chief executive of the US company Pharmacopeia says. "In an era of soaring costs, and perhaps a prescription drug benefit for Medicare, you are going to have to have good generics or else your system will sink. Measures preventing this would be contrary to public health." Generic medicines it seems are increasingly becoming important economies for public health care systems world-wide, and are seen as essential to secure the protection of public health.
Al Gore agrees. He has specifically targeted the high prices charged by the large branded industries for condemnation during his presidential campaign. Publicly coming out against industry efforts to extend patents and delay generic competition, he has reinforced his commitment to tilting the balance towards the generic makers.
"The Senate should mandate the use of generic drugs for Medicare," says Cornel Spiegler, chief finance officer at Impax, but is sceptical that this will ever happen. "There will be a lot of opposition in Congress," he says, "since the ethical companies have more political clout than the generics and more money."
What price health?
Of the $149 billion sales of US products world-wide last year, two-thirds were absorbed by the US. There is no denying that the US is at the forefront of the pharmaceutical industry or that it is the most innovative market in the world.
"The industry has to fight the distorted contentions against it," says Jeff Trewhitt spokesman at The Pharmaceutical Research and Manufacturers Association in Washington DC (PhRMA). "There is the feeling here that we are subsidizing the world's R&D this year," and with $26.5 billion expected to be invested in R&D, this may not be far from the truth. Trewhitt puts this increase down to a combination of inflation, an increase in the number of drugs developed, and a huge rise in technology costs. Perhaps more importantly in light of the current political atmosphere, Trewhitt credits this rise to the continued lack of governmental control. If, for example the Canadian model of health care, where there are strict government price controls, were applied in the US, says Trewhitt, "it would be impossible to sustain this growth or innovation."
"America is the last free market," says Trewhitt in reference to there being only 10% to 12% of drugs in the US which are price controlled, leaving, as he says, "the market open to set its own price." Philip Thompson, a corporate spokesman for Glaxo is more cynical: "It's a question of what the markets are willing to pay." The situation in the US is unique as in most other countries there exists a government system for negotiating price and controlling costs. In Mexico, South Africa or most of Europe for example, if the price isn't right the implicit threat is that the government, which pays the bulk of individual health care costs and is keen to contain costs, will block or delay a drug's entry.
It is in response to the rising costs of health care in the major markets, and the increasing influence of regulatory measures introduced by governments and other payers of health care aimed at controlling these spiralling costs, that the use of generic medicines is increasing.
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As of now, one billion prescriptions are filled with generic products. Generic market share has grown from 18.5% in 1988 to 44% today and by 2003 it will be worth in excess of $18 billion. In the US, Trewhitt accredits this to the increased dominance of the managed health care groups which make up 60% of the health market share. According to analysts, this figure could soon rise to 90%. Most consumers see the increased influence of governments and health groups over prices, together with a growth in the cheaper generic version as welcome news. For Ben Hayes, director of public affairs at the Association of the British Pharmaceutical Industry, however this persistent interference in the drug market is having a negative impact on the market: "In the UK there is too much emphasis on cost," he says. In a survey the ABPI did last year, 60% of doctors asked said that, dependent on the restraints placed upon them, they did not prescribe the best medicine for their patients but the cheapest.
As a direct result of this, Hayes predicts a gradual decline in the investment in R&D in the UK. "The UK exports $5-6 billion worth of drugs a year," he says, but last year, this figure dropped. Hayes attributes the decline in R&D as a significant cause of this. "This a major worry for the industry," he says, and "if there is not a change in this attitude investors will take thier money to France, Germany, Switzerland and other brand friendly countries." In his view it is essential that politicians and doctors are educated on the importance not only of sustaining the industry but also of using branded drugs, which may be more costly, but are vastly superior to older or cheaper generic drugs
Trewhitt agrees with Hayes citing the 1994 Clinton Care issue, similar in its concerns as that surrounding the Medicare affair, as proof that a direct correlation between investment in R&D and price control exists. In that instance, the research-based industries saw a 6% drop in R&D investment from a steady 12%.
Parallel importing
As a sign of the growing impatience of the US public over what they see as fundamentally unfair price disparities, the House and Senate have approved a measure that will, if passed, permit the importation of cheaper drugs. The bill, passed by the Senate on July 19, has yet to be agreed upon, and many are confident the pharmaceutical lobbyists will kill it, but alarm bells are ringing. "Clearly this is a challenging time," says Alan Holmer, president of PhRMA.
The Parallel Amendment Bill agreed to by the Senate to allow the importation of cheaper drugs, is set to disrupt the free market. There is no disguising the risk this poses the industry, says Sidney Taurel, chief executive of Eli Lilly: "If we kill free markets around the world, we'll kill innovation."
Trewhitt believes the bill contravenes the 1988 Prescription Drug Marketing Act, passed to protect patients from adulterated and counterfeit drugs. "A survey by the World Health Organization states that 5% to 8% of medicine brought into US is counterfeit or substandard," says Trewhitt. "The Bill in the senate simply compounds this problem."
The generic threat
A WTO report published in March this year ruled that the interests of consumers in ensuring access to less costly generic drugs were legitimate while a patentee's interests in extending the patent monopoly was not one that was recognized in the TRIPs Agreement and could not be condoned as legitimate practice.
As if in response to this, in May this year a federal appeals court ruled that consumers who wanted speedy access to generic drugs have the right to sue the brand name manufacturer if it is alleged to be illegally thwarting the generic manufacturer's efforts to get a cheaper substitute.
In this case the brand name manufacturer was DuPont Pharmaceuticals, the drug Coumadin. Consumers alleged that DuPont had deliberately orchestrated a campaign to disparage generic substitutes by disseminating false and misleading information and by attempting to delay FDA approval of the generic version.
The financial stakes were high. Despite the patent on Coumadin expiring in 1962, with no generic drug to replace it, the drug dominated the market for 30 years, until the mid 1990s (when Barr Laboratories introduced a generic equivalent).
It is generally accepted that the duration of a patent has to be limited as monopolies are inherently economically inefficient since they reduce competition and raise prices. But it has become common practice for branded companies to implement a carefully thought-out strategy to counteract the effects of a patent expiring and the introduction of a generic rival.
Common strategies include:
(1) The development of line extensions which are not bioequivalent to the original product, and which the generic cannot follow the abridged procedure in relation to.
(2) The creation of new associations of molecules which give rise to an essentially different drug. The generic cannot therefore claim essential similarity in order to follow the abridged marketing authorization procedure.
(3) The launch of its own generic which enables the branded company to start marketing the product before the patent on the original patent expires.
(4) More recently branded companies have joined hands with their generic rivals to extend the life of their most valuable products. Bayer has aligned itself with Ranbaxy, (a leading Indian company) in the production of Ciprobay, whose patent life is ticking away. Ranbaxy, once a generic which circumvented patent rights is helping Bayer to defend its franchise by developing a new and patentable dosage of the drug.
The motivation behind such strategies is, says Trewhitt, "a sound one," Certainly these potentially effective commercial measures to extend the marketability of a product are accepted practice within the pharmaceutical industry. But, as the stakes rise, companies are unwilling to rely solely on the effectiveness of these methods and are instead turning to more secretive and less legitimate means of protecting their patents. The case of Abbott Laboratories has done much to expose the lengths that branded companies are prepared to go to.
| The Future of Patents "Patents," according to Jeff Trewhitt, spokesman at PhRMA, "are the lifeblood of the industry." Maybe so, but they are no longer able to sustain or provide sufficient sustenance for the industry alone. Patents protect a product 20 years, but due to the nature of the pharmaceutical industry only 11.5 of these years at most are available for marketing and re-cooping costs as opposed to 18.5 years for other industries "who don't invest as much," says Trewhitt. In his mind this is a discrepancy that needs to be adjusted. The Partial Patent Term Restoration Act which was intended to fill the discrepancy in the US has, according to Trewhitt, consistently failed to hit the mark. "The full term of five years has never been awarded," he says and he is looking for change: "The question of extending a patent life is something PhRMA will consider for the future." He is not alone. The figure given for getting a product to market varies widely, but due to increasingly complex diseases, it takes on average more than 10 years. With a $500 million price tag for any drug on the market it is easy to understand the industry's frustration. Ben Hayes, director of public affairs at the Association for the British Pharmaceutical Industry, believes that the issue of patent duration is still not completely resolved. "The branded industries need to be compensated for their investment," he says and advocates a global patent such as that envisaged under the new Patent Law Treaty. But Jack Kay, president and chief executive at Canadian generic company Apotex argues that the balance must swing the other way. "The duration of a patent protecting a drug should be reduced," he says, "and the patent system divided between essential and non-essential product." Kay says that allowing shorter protection times will lead to more competition sooner. Brigid Quinn of the USPTO says the changes made at the end of 1999 to the US patent system, which among other things allow the USPTO to publish patent applications after 18 months, have negated the need for any re-opening of this issue for the time to come. Finding a balance between the short-term interests of maximizing access and the long-term interests of promoting creativity and innovation is not always easy. Nowhere do issues excite stronger feelings than in regard to pharmaceutical patents, where tension exists between the need to provide incentives for research and development into new drugs and the need to make existing drugs available as possible. This tension was highlighted in all its ugliness at the recent AIDS conference in Durban, South Africa. The conference raised many contentious issues not least that of compulsory licensing on drugs used to treat some of the world's most serious diseases. Canadian company Apotex said it would produce generic drugs for the treatment of AIDS at 60% less than the branded drugs if the Canadian government lifted the patents protecting the medicines. But Mirryena Deeb, chief executive of the Pharmaceutical Manufacturers' Association in South Africa, says Apotex has got it wrong: "Patent protection increases the availability of vitally needed drugs," she says. "Compulsory licensing has just not proved to be an effective tool in increasing access to medicine and health care in developing countries." Instead she blames such practices for exposing countries to substandard drugs and robbing them of economic investment: "Infringement of IP rights, as enshrined in the international trade agreements amounts to a disincentive for investment and development." "Political decision-makers recognize the direct links between IP rights, drug prices and access to drugs and institute negative policies such as compulsory licensing which destroys R&D," says Deeb. Trewhitt agrees: "The money gained from licensing a product is unlikely to be channelled back into research, leaving the disease to mutate and become resistant to the medicine." Drug pricing is one barrier he says, but it is not the only one or indeed the most pressing one. The answer lies in an increased pipeline, "not in generic drugs," says Deeb. The conference raised one very clear point in among all the legal wrangling. Patents may not have been superseded, but their benefits are waning and they are under threat from countries and companies no longer willing to accept without question the drugs and prices as set by branded companies. |
The Hytrin scenario
In March this year, The Federal Trade Commission accused Abbott Laboratories of violating antitrust laws. Two years earlier on March 31 1998, Abbott Laboratories had agreed to pay generic company Zenith up to a maximum of $42 million not to produce the generic version of Abbott's $500 million a year drug Hytrin. The next day it agreed to pay another rival, Geneva Pharma, more than $4.2 million a month for the same reason.
"The law has been turned on its head," says Representative Henry A Waxman, referring to his Hatch-Waxman Act 1984. "We were trying to encourage more generics, not prompt rivals to join hands in keeping drugs off the market."
Abbott received the first of its patents on terazosin, brand name Hytrin, on May 31 1977 but did not receive FDA approval for its use for high blood pressure treatment until 1987 and for the more commercial use of treating enlarged prostate until 1993. By 1995, when the key patent protecting the drug was due to expire, Hytrin was generating annual sales of more than $500 million.
The Hytrin deal with Zenith and Geneva, which spawned 13 private antitrust cases against Abbott, was only one of many attempts by Abbott to beat off generic competition. The company filed numerous additional patents on the drug's key ingredients terazosin; it improperly listed a Hytrin patent in the FDA registry which would have extended Hytrin's patent life had it not been struck from the registry and it filed against five other generic drug manufacturers and countersued a sixth.
No judge ever ruled in Abbott's favour but the company's action kept its monopoly alive for four years after a patent on one of the key ingredients ran out, during which time revenues from Hytrin were $2 billion. Indeed so successful was Abbott that it wasn't until August 1999, when Geneva and Abbott were facing an antitrust investigation that Hytrin's generic equivalent terazosin made its market debut.
Abbott and Geneva have signed settlements with the FTC not to make any similar deals, and the FTC has strongly warned that it will not view similar cases as lightly in the future. According to Alex Zisson, an analyst for Chase H&Q: "Most drug makers would react the same way." Indeed since the Abbott case similar agreements have come to light involving tamoxifen and Cardizem CD. In the case of Cardizem, Hoechst Marion Roussel paid a generic company, Andrx Pharma, $90 million not to market the generic alternative. Both companies have denied any wrong doing, but such activity has incurred the wrath of regulators and judges alike. "These agreements perpetrate a fraud on the American people," says Al Gore, "by denying them the benefit of competition." Certainly the agency is sufficiently concerned that such deals are costing the public millions of dollars to be pressing for new rules to discourage them. These new rules are as yet unknown but are opposed by both brand and generic drug makers. What is needed, says Spiegler, is a more generic-friendly FDA, not a less one, with more reviewers to speed up approval of generic drugs.
Prozac
In the light of such underhand activity by branded companies, generic companies have become much more aggressive in chasing and questioning the validity of patents. The case of Barr Laboratories and Eli Lilly is a striking example of how the risks a company will take to extend a patent and a marketing monopoly can become unstuck.
Prozac, which has global sales of $2.2 billion, makes up 26% of Lilly's revenue. In April 1996, Barr launched a suit challenging the patent protecting the capsule version of Prozac. Barr charged that two patents protecting Prozac from competition were invalid. The first of these patents expires in February 2001 and the second expires in December 2003.
The US Court of Appeals ruled against Lilly with regards to the question of "double patenting" striking down the patent that would have expired in 2003. This decision allows for generic competition on Prozac as early as February 2001 amounting to what analysts estimate is a loss of $5 billion in sales for Lilly. Barr Laboratories is already profiting from this decision: its stock rose 66% following the decision.
To Bruce L Downey, Barr's chairman, Barr's aggressive pursuit of Lilly, shows "the importance of restricting add-on patents solely designed to extend the patent life of blockbuster drugs at the expense of the consumer." The ruling is likely to convince more generics to bring court challenges to the numerous patents that brand names file to keep the less expensive generic versions of the drugs off the market. If financial predictions that more than $41 billion in annual sales will lose patent protection and be available for generic competition within the next 10 years are to be believed, this ruling could have a significant financial effect on the future of the pharmaceutical industry.
You cannot resist change
Increasingly deprived of ways to extend the patent life on their medicines, and with politicians, consumers, and generic companies all baying at the branded company's door, the most pressing question for the pharmaceutical companies is: how will they financially secure their future?
One of the most important areas of development for the future is direct-to-consumer advertising which Jeff Trewhitt says over half of PhRMA members already do as a strategy in market defence. For brand name companies direct-to-consumer advertising has been very successful in the US. It reinforces in the minds of the public that a drug off-patent or coming off-patent is still more effective than its generic equivalent.
| Exceptions to the patent rule On October 7, Canada's drug patent law will change to obey a World Trade Organization ruling that Canada has broken intellectual property accords. The ruling was the result of a complaint from the European Union. The EU regarded a provision in Canadian law (which allowed generic companies planning to sell a pharmaceutical product to start manufacturing and stockpiling products six months before patents expired on brand name drugs) as unfair. The EU claimed it gave generics an unfair head start as their products would be able to hit the shelves as soon as the patent expired. In its defence, Canada argued that without stockpiling companies would need at least two years after the patent ran out to get supplies on to the market which would they said extend the life of a patent for the same period. The Canadian government is not unique in providing exceptions in its patent laws for generic manufacturers. The pharmaceutical industry is by its very nature extraordinarily competitive and the first six months after a patent has expired are seen as critical in establishing a market monopoly. With branded companies making every effort to block the generics hitting the market, many companies see the exceptions within the law as the only way to maintain competition and avoid the branded companies monopolising the market. Europe is no different. The European Commission strongly believes that any legislation concerning the licensing process for generic products should operate as speedily as possible, to ensure that consumers have access to lower-priced generics as soon as possible after patent protection on the original product expires. The European generic industry in particular is keen for the Commission to pass regulations controlling the practice whereby branded companies withdraw their original versions of a product from the market not for public health reasons and replace it with slightly varied versions thereby preventing the authorization of generic medicines. Under EU law, generic medicines have to be cross-referenced with the originator product to obtain market authorization. If an originator withdraws its product, generic competitors who would have spent years preparing for the market on the basis of the original formulation would be cut out of the market overnight. "This is an extremely anti-competitive action by certain pharmaceutical companies who are abusing both regulatory and patent laws," says Greg Perry, director general of the European Generics Association. Generic manufacturers have estimated that in the case of AstraZeneca's ulcer treatment drug Losec, the world's biggest selling drug, the cost to healthcare budgets in one year from any anti-competitive strategy would be ? 273 million in the UK and ? 161 in Germany. This would add billions of euros to healthcare budgets throughout the EU. AstraZeneca are at present the target of a European Commission investigation into possible violations of EU competition law. The UK/Swedish company has been accused of breaking antitrust rules in defending patents protecting Losec, in particular secondary patents, which could run until 2014 if not successfully challenged by the generics. Cornel Spiegler, chief finance officer at Impax, one of the many companies AstraZeneca has filed a patent infringement suit against with regards to Losec, sees any effort by a branded company to extend its patent through secondary patents as a time wasting exercise only. "Before we start the selection of a drug whose patent expires in say three to five years," he says, "we have our patent attorneys check any patent issues and we obtain a written patent opinion." According to Spiegler, most of the generic companies are not challenging the formulation patent of a particular drug. For example, Impax is not challenging the formulation patent of Prilosec. When a generic company files an Abbreviated New Drug Application (ANDA) for a drug with multiple secondary patents, it is required to provide the FDA with certification declaring that it does not challenge these secondary patents. Typically, says Spiegler, branded companies sue the generic companies for infringement on these secondary patent but due to regulatory procedures in most litigated cases, generic companies are able to prove that it is not the case. So greatly does AstraZeneca fear competition from the generics, that when it launches its new treatment Nexium in Sweden next month, it will be sold at a discount to other drugs. The company hopes to fend off the generics before it loses the patents on Losec, to ensure that its market share doesn't drop. Fortunately for the generic industry, regulatory changes may be about to work in their favour. Commissioner Liikanen, on being asked about the issue of product withdrawal, replied: "It seems that even when a holder of a marketing authorization for an originator product asks for withdrawal of their authorization in favour of an authorization for a medicinal product with the same active substance .... generic medicines can obtain market authorization by referring to one or the other formulation." Exceptions to obtain marketing authorization for competitive versions of a patented product exist in other countries as follows: Germany: The Federal Court of Justice confirmed that tests to establish the efficacy and human tolerance of a drug containing a patent-protected chemical ingredient would not infringe the patent, regardless of the commercial nature of the tests. Italy: The Court of Milan held that a patent holder could not prevent a generic manufacturer from experimental activity in connection with an application for regulatory review during the term of the patent. Japan: The Japanese Supreme Court affirmed that the use of a patented invention for the purposes of obtaining a licence to market a generic version of a patented medicine was not patent infringement. Similar cases can be found in Portugal, Argentina, Australia and Israel. |
Thompson, spokesman for Glaxo, sees a strong correlation between direct-to-consumer marketing and strong sales in medicines. "It has been a strategy at Glaxo for the almost a decade, and continues to be a key area of investment," he says. At Merck an aggressive marketing campaign has helped fuel strong growth and done much to dispel fears about looming patent expiry for some of its products which start next month.
Critics of direct-to-consumer advertising say that by influencing doctors to switch prescription drugs, demand for expensive drugs may increase. There is also a danger of alienating doctors who believe this advertising is infringing their doctor-patient relationships since they may not be able to provide the drug a patient wants and the managed-care company may refuse to pay for it.
DTC is prohibited in Europe, but Marija Danilunas, head of IP at Hammond Suddards Edge in London, believes it may be common as early as 2003: "It is an inevitable development in Europe once the regulatory minefield with regards to advertising has been cleared." At the moment any advertising by pharmaceutical companies has to overcome the pharmaceutical regulatory structure as well as comply with national and international laws. "This is almost impossible," says Danilunus.
Direct-to-consumer advertising may be beyond Europe's reach at the moment, but Tom Blackett, deputy chairman of Interbrand, says he has already seen a shift away from the traditional doctor "pull" of advertising, towards a "consumer push". He attributes this to the increasing access consumers have to pharmaceutical literature. "Knowledge is power and the consumers have it," he says.
Unlike the pharmaceutical companies, requests for purely functional brands in the past says Blackett, there has been a significant rise in the use of proper branding programmes. Pharmaceutical companies no longer demand functional branding, they want a name that contains the essence of the brand and its emotive benefits. "They have to be attractive to the consumers," he says.
The US model is one that Europe will follow says Horst Kramer, spokesman for Roche, but even in the US, where DTC is well established, this minefield is far from clear. Only this month, Novartis was ordered by the FTC to run $8 million worth of advertising to compensate for newspaper and television ads implying their backache medicine Doan was more effective than other over-the-counter pain relievers. Novartis are also obliged to carry the disclaimer, "Although Doan's is an effective pain reliever, there is no evidence that Doan's is more effective than other pain relievers for back ache" for one year. Malesia Dunn, a spokesman for Novartis, believes this is an extreme remedy: "The penalty of including a corrective statement on packaging is unprecedented and infringes on a manufacturer's First Amendment rights." No doubt any legal precedent set in America will be closely followed by both IP lawyers and pharmaceutical companies, although Danilunus believes that any of the legal issues with regards to DTC will have to be dealt with on an individual basis and that all legal precedents will have to be sorted out as they crop up.
Blackett sees the legal difficulties increasing with demand as it is impossible to have global or even European trade marks; a situation that has become exacerbated by a demand for a brand name to be used as a domain name. To solve these problems, Blackett believes there have to be changes made to the classification system. At the moment it is "massively pedantic" he says, "it needs to be more pragmatic." If it isn't changed, he says, it will become more and more difficult to find a name that doesn't already exist.
| The view from the branded industry Horst Kramer, spokesman for Roche, tackles some of the issues affecting the pharmaceutical industry as it heads into the new millennium and gives an insight into how one of the world's largest companies is tackling them. What challenges face the pharmaceutical industry today ? The real challenge to pharmaceuticals is that new medications are being less enthusiastically received. This is essentially due to the constant cuts in health care budgets. Governments and health care systems are simply less inclined to reimburse drug companies. Is this simply a cost issue? Among other things, new drugs can cut down on hospitalisation instances by 56-70% which obviously saves money, but this is often overlooked by the person holding the purse strings. They can only see new drugs as having a negative effect on the budget. As a consequence, governments use less expensive generic or illegal drugs in an attempt to cut costs, but this rarely benefits the patient. What experience has Roche had with illegal generics and counterfeit products? Generic drugs that are easily synthesised can be produced quite literally in the back yard, and in areas where there is little respect for IP this can be done on a large scale. Roche regularly check drugs that are produced in their name as their brand will be affected if a brand is found to be a fake and has had damaging effects. How does Roche combat the threat of the legal generic companies? The use of branded or generic drugs depends on the area. Branded companies have expertise, experience, and constant redevelopment and investment into drugs which the generic companies do not have. I have seen doctors prescribe the more expensive drug over cheaper options because of this. The devil is in the detail. It is impossible to prevent competition over patents. The aim is to be as innovative as possible and stay one or two steps ahead. For example, within 12 months of Roche releasing an HIV inhibitor there were four other products on the market. They all differ slightly as to application and side effects and this is what the pharmaceutical company has to highlight. Generics often criticise the branded industries for unfair practice. Is this fair? Roche is continually investing in the R&D of drugs already under patent, so for example if we develop a more effective and efficient form of a drug already under patent then of course we will withdraw the original product from the market. It is the nature of the industry, and you have to be better and more innovative than the rest. There have been calls for compulsory licensing of drugs used to treat AIDS and other such serious diseases. Do you agree that generic drugs are the only answer to this problem? Generics fix the principal problem of the initial ailment, but this is a mis-representation of the case. There are more issues than simply treating the disease at stake such as infrastructure, logistics and health care management. Generics do not solve all these issues. A good example is TB in India. There are over 26,000 generic companies in India, most of them capable of manufacturing generics to treat this but the disease has not been contained and different, stronger strains have been developed instead. Al Gore has criticised the branded industries for spending more on marketing/advertising their products than on innovation. How much truth is there in this? At Roche the term marketing covers a broad area including the post approval clinical studies ie phase 3 & 4, which are very expensive. This therefore boosts the size of the marketing bill significantly. How do you see the future of the pharmaceutical industry? As the market becomes more competitive and the costs of R&D increase, companies will head more towards mergers. Indeed if companies want 5-6% of the market, you will end up with 15-30 big firms dominating the market. |
"DTC advertising will revolutionise the pharmaceutical industry," says Danilunus, "it will affect and have an impact on everything." Trade marks will become more valuable to a company in maintaining sales of a drug after its patent expires, and as a result, says Danilunus, there will be increased trade mark registrations for a product's colour, shape and packaging. This will itself give rise to a multitude of problems including a significant increase in the incidences of passing off. Her biggest fear is counterfeit drugs, especially if, as Kramer believes, newspapers and television are replaced by the internet. This development, she says, "will replace any issues the pharmaceutical industries have with legitimate parallel importing." To counteract this, the industry will have to use more sophisticated packaging.
If you are not in you are out
The opportunities provided by the internet and the increased access to medical information mean that the industry is playing to a different audience. Commercialization and mass appeal is the watchword for the future. It is no longer sufficient for a product to appeal to a GP or physician. R&D is only half the battle it seems, for every drug produced in the future will have to have a huge media machine behind it in order for it to prove successful.
For Thompson, the future of the pharmaceutical industry lies in mergers and acquisitions. For example, Glaxo controls 4% share of the overall pharma market. With the completion of their merger with SmithKline this month, this will increase to 7%. Larger companies control larger sections of the market, invest more in R&D, develop more drugs and ultimately make greater profits. This is the only protection against the biggest threat to branded industries, the inability to sustain and develop new drugs. Hayes agrees: "It is in the hands of the branded companies to produce better drugs," he says, but he stresses, "they will not be able to do this without sufficient investment and security of patent protection." The investment and security which only the largest of companies will be able to afford.
Over the next three to four years, Thompson envisages four more of the larger companies merging in order to increase competition. Trewhitt agrees: "As the market becomes more competitive and the cost of R&D increases, then of course companies will head towards a merger." According to his figures, if each company is looking for a market share of 5% to 6%, then there will be room for no more than 15 to 20 companies in the future.
Thompson recognises that for companies such as Glaxo, who are at the forefront of the industry, there is a strong need to capitalise on all the opportunities that are presented to them. "Industries will have to be sharper and more sophisticated," he says, "and there needs to be greater degrees of specialization and consolidation." Cornel Spiegler, chief finance officer at Impax goes further. In order to "recalibrate" itself, he says, the pharmaceutical industry will need also to sell-off low margin product lines and outsource development and manufacturing.
Patents will remain the pharmaceutical industry's most valuable asset but going into the new millennium pharmaceutical companies have begun to recognize that to survive they will have to adapt. DTC, OTC, mergers, and genomics will all bring significant changes to the regulatory systems controlling their marketplace and to the intellectual property they control. "There is an increased need to be a sophisticated market player," says Trewhitt, "in order to compete in the pharmaceutical arena."
