In her testimony, Hamburg offered numbers to show the FDA’s record in reviewing applications for new drugs. In fiscal year 2011, FDA approved 35 new drugs, and almost 70% of these drugs were approved by FDA before any other regulatory agency, including the European Medicines Agency. Of 57 novel drugs approved by both FDA and the European Union between 2006 and 2010, 43, or 75%, were approved first in the United States. Preliminary data show that in 2011, over half of all new active drug substances were first launched in the US.

Although Hamburg offered these numbers to show the agency’s record in approving new drugs, they offer another important insight: namely, the US is an important source and market for drug innovation and pharmaceuticals. The US is the largest national market for pharmaceuticals, accounting for 36%, or $310.6 billion, of the $856 billion global pharmaceutical market in 2010, according to data from the IMS Institute for Healthcare Informatics. The top five EU markets (United Kingdom, France, Germany, Italy, and Spain) accounted for 17%, or $147.4 billion, in 2010. Emerging pharmaceutical markets, which include the BRIC countries (Brazil, Russia, India, and China) and 13 other emerging markets collectively accounted for $150.5 billion, or nearly 18%, of the global pharmaceutical market in 2010, according to IMS.

The data reveal the attractiveness of the US for launching new drugs and marketing existing drugs, but when it comes to manufacturing drug products or active ingredients, the US falls short. Approximately 40% of the drugs consumed in the US are manufactured outside the US, and up to 80% of the APIs in those drugs come from foreign sources, noted Hamburg in her testimony.

In her testimony, Hamburg outlined FDA’s efforts to deal with this increased globalization. In July 2011, FDA published a special report, “Pathway to Global Product Safety and Quality,”  a global strategy and action plan for the agency to more effectively oversee the safety of all products that reach US consumers. As detailed in the plan, over the next decade, FDA will focus on strengthened collaboration, improved information- sharing and gathering, data-driven risk analytics, and better allocation of resources through partnerships with counterpart regulatory agencies, other government entities, international organizations, and other key stakeholders, including industry.

Although these efforts by FDA are important and necessary from a public health and safety perspective, the underlying fundamentals engender a larger public policy question beyond the scope of FDA’s regulatory strategy. In a competitive global economy, what should the US be doing to encourage, cultivate, and retain domestic manufacturing of drug products and APIs? In this election year, debates over how to stimulate economic and employment growth are center stage, but what is noticeably absent is a focused plan to stimulate growth in the bio/pharmaceutical industry, a coveted source of high-technology, science-based innovation. That is one debate that is certainly worth having and one that hopefully will be had.

The President noted that the economy had been weakened in part by outsourcing, and he used the terms manufacture, manufacturing, and manufacturers no less than 18 times in his speech.

But just how will this alleged opportunity to “bring manufacturing back” affect the pharma industry? Outsourcing is a huge part of the industry.

The global contract manufacturing market for pharma has been estimated at around $40 billion. Contract manufacturing of bulk and dosage form drugs alone may reach $86 billion worldwide by 2016, according to MarketResearch. Emerging nations such as India and China are largely reaping the benefits of this spend.

PharmTech’s most recent annual outsourcing survey, done in conjunction with PharmSource, showed that bio/pharmaceutical companies who are actively outsourcing to these two nations rose to 32% between 2010 and 2011. Those percentages are expected to keep rising.

We want to hear your thoughts on this issue. Is it feasible and/or desirable for pharma manufacturers based in the US to bring manufacturing back? Why or why not?

Addendum: Several industry reps  have commented on this topic via Pharm Tech’s LinkedIn Group. Check it out at LinkedIn.com and search for the Pharm Tech group.

2012 will be a transition year for pharma, one of the most important in the industry’s history of product cycles that spin from plenty to penury. On the positive side, the fires of drug discovery are finally being stoked by a growing understanding of how genomics shape the biology of disease. This is leading to promising new treatments that target critical areas of unmet medical need while also increasing the efficacy of interventions geared to the individual patient. Evidence that these next-generation innovations can advance the science while improving outcomes will hopefully lead to ready acceptance in the market, despite the growing leverage of a much more skeptical and discerning customer base.

The challenge is that many new treatments may not complete the move from ‘bench to bedside’ in time to plug the yawning revenue gap from a second record year of patent expiries. This year’s drop off the patent cliff is the longest and steepest, with a $50 billion loss coming on top of the $30 billion ceded to generics in 2011. Most companies will struggle to play catchup, with margins under intense pressure due to the immediate fallout from genericization of the product base; in the U.S. alone, off-patent penetration has reached 80 percent of all scrip, and IMS forecasts this figure will rise to 86 percent by 2015.

Meanwhile, the fiscal crisis in Europe has voided the entire concept of patenting as a reward for innovation in providing a temporary period of price exclusivity. Therapeutic reference pricing is clustering brands with the cheapest generics, and some countries in the region are now moving toward a straight bulk procurement model for drugs reimbursed through state-sponsored systems. Quality? Innovation? These are yesterday’s questions.

So what is the preferred Big Pharma strategy to manage through this year of transition? Pharm Exec highlights four strategic drivers that should compel the attention of our “C-suite” readers in 2012.

1) A reinvented business model won’t change what is fundamental: Higher pipeline productivity in the form of new patented products is still the best source of future profits.
This year will see new therapeutic breakthroughs that may revitalize the blockbuster, to include biologic drugs intended for targeted patient populations with few treatment alternatives. Many are novel not only for their indications and superior efficacy and safety profiles; they also mark an advance in the mode of delivery, replacing injectables with a once-a-day pill or acting in combination with other compounds to provide more precise dosing with fewer side effects.

Overall, the trend illustrates the impact of company efforts to integrate within their R&D organizations a more overt commercial benchmark in addition to science and regulatory indicators. If trial and regulatory milestones are an ingrained part of the development timeline, why not add criteria for achieving access or reimbursement as well? Few companies today are inclined to say no.

Growing optimism about a return to innovation doesn’t mean that the debate over the best blueprint  for R&D will be resolved—at least not in 2012. It takes on average a decade to commercialize a promising compound from proof of concept, so much of the current discussion around alternative approaches—from outsourcing key aspects of development to the “string of pearls” focus on science generated in-house—amounts to sheer background noise. Consultants can’t charge for this, and the evidence is purely anecdotal, but what does seem to matter is a long-term commitment to the science; retaining good people; acknowledging that internal competition can boost overall productivity and performance against agreed targets; a knack for finding and keeping a diverse circle of partners; and a healthy helping of luck. Analysts call it the “hybrid” model and companies will continue to tailor R&D strategies to fit their own circumstances.

2) 2012 will signal the industry is transitioning to an era of lowered expectations; pricing, reimbursement, value, and policy will combine in complex ways to drive down margins.
The bottom line is that it is becoming harder to make the contacts that drive sales with providers and the patient. Consolidation in the payer community gives them greater leverage in controlling the use of medicines, generic penetration limits the scope of argument about competitive differentiation, and increased government regulation has ended many of the promotions that helped build relationships with physicians. More therapeutic “crowding” in the specialty segment is another trend that will depress margins because payers now have a choice and can restrict access or demand rebates and discounts, as they have done with devastating effect in primary care.

Moreover, to cope with these developments, brand manufacturers are spending heavily on incentive programs like copay cards as well as patient support activities geared to raising adherence to therapy. Much of this activity is geared toward influencing the commercial business, and the added cost exposures will sharply depress margins there just as higher rebates mandated by health reform turn the public Medicaid and Medicare Part D programs into loss makers.

As a result, 2012 will see more effort to change the incentive package for sales reps, on the premise that “not all prescriptions are considered equal.” Pay incentives will motivate reps to win more non-controlled, third-tier reimbursed prescriptions rather than just focusing on the volume of scrip. This in turn will provide the rationale for more culling of the ranks—selective deployment of this human resource is key.

3) Advances in information technology will continue to shape the conversation with customers on access, value, and price.
That conversation is going to take place in public, as evidenced by the growth of cloud computing, which “hyper-democratizes” access to the vast resources of the Web—it’s the everyman’s Google. But Big Pharma is a business, with proprietary interests, so a key priority that will play out through 2012 is marking progress in defining basic standards on the application of IT. The goal is to ensure those business interests are protected while adding benefits through agreed channels for data sharing—the new Pistoia Alliance of companies engaged in precompetitive research is a good example—as well as improved IT management processes that raise efficiencies and lower costs.

Government regulators can help speed this trend—or delay it. The problem is that key agencies like the FDA are way behind industry in adapting to the IT revolution. Internal reforms are vital, because done right IT can help advance the portfolio through faster lead times and building that better case for competitive differentiation.

4) Preserve those reputational assets. 
Maintaining a “license to operate” is becoming more important as the reach of governments extend from regulatory oversight to direct involvement in the business—as a payer and customer. The gap between strict legal prohibition and the more murky terrain of ethical lapses is narrowing; overall, the “zone of vulnerability” is expanding and is now global in scope. 2012 will see major new efforts by U.S. and European regulators to apply anti-bribery statutes to companies’ overseas promotional activity, including inducements by CROs and other third parties to influence the conduct of foreign clinical trials. Active management of the drug shortage problem is another imperative; it is not enough to blame the problem on FDA or on quality issues linked to generics.

Beginning this month, we are featuring monthly reader polls to gain your feedback on key advances in the pharmaceutical sciences and manufacturing. As the scientists and technical experts on the front lines, your input is a crucial component in understanding what the industry has achieved and where it will go in the future. We encourage you to provide your feedback in our first poll, which is examining advances in oral drug delivery and oral product forms. We will share the results with you at PharmTech.com, and along with further analysis, our July issue will take a retrospective and prospective look at drug substance and finished drug-product manufacturing, formulation development and drug delivery, outsourcing, and analytical testing.

We are interested in your feedback as well. In addition to our reader polls, we invite you to provide your input on what you think have been major achievements in drug substance and finished drug-product manufacturing, formulation development and drug delivery, outsourcing, and analytical testing. Lend your expertise and offer your input in the comment section to this blog or email your input to Patricia Van Arnum, executive editor, pvanarnum@advanstar.com. We look forward to hearing from you.

After reviewing its documentation, the company concluded that routine preventive maintenance and requalification of manufacturing equipment at the site was overdue. Ben Venue suspended manufacturing so that it could assess the entire site and take appropriate corrective actions to ensure the safety of its products. The suspension will affect Johnson & Johnson, which markets Doxil, as well as Pfizer, Hospira, and Teva.

Last month, President Obama ordered FDA to take various steps intended to prevent and reduce drug shortages. The agency will require advance notice from manufacturers likely to face manufacturing disruptions, and it will expedite reviews of new drug suppliers, production sites, and manufacturing changes.

These steps, while helpful, do not address an important factor that contributes to drug shortages: manufacturing deficiencies. Even before Ben Venue conducted its own review, FDA found 48 quality concerns during an inspection of the Bedford site in May 2011. FDA likely needs a larger pool of inspectors to oversee drug manufacturing sites more thoroughly. But the government’s current desire for austerity will probably preclude the budget increase that would make hiring possible.

Maybe FDA should prioritize manufacturing sites for inspection if they are among a few that produce a medically necessary drug such as Doxil. Greater attention to crucial sites could identify problems earlier and, ideally, resolve them without disrupting drug supply.

The Senate’s Foreign Earnings Reinvestment Act, like a related bill in the House of Representatives, would reduce tax rates for CROs and biopharmaceutical firms that repatriated money earned overseas. With the money they saved, companies could hire staff and invest in research, ACRO argues.

WinAmerica, an interest group supported by various firms, says that the bill would repeat the success of a 2004 repatriation tax break. Citing information from the Bureau of Labor Statistics, the group observes that average annual private-sector employment increased by 4,385,000 jobs from 2000 through 2007, and that 98% of the increase occurred during the years when the tax break was in effect (2004 through 2006).

The tax break did not benefit the entire private sector, however. It primarily helped pharmaceutical and technology companies, according to a report by Senator Carl Levin (D-MI). Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, and Pfizer were among the top 15 repatriators that time around. After bringing $155 billion in overseas earnings back into the country, these 15 firms reduced their overall US workforce by about 21,000 jobs and spent slightly less on R&D. Instead of creating jobs, the companies used the extra money to repurchase stock and raise their top executives’ pay by about 28%—despite express prohibitions against using the money for these purposes.

The increase in employment that WinAmerica cites seems to have occurred in industries other than those that benefited from the tax break—and for other reasons. The law that granted the previous tax break did not include a means of monitoring compliance. Unless the Foreign Earnings Reinvestment Act can do this, and can impose penalties for noncompliance, it will not create jobs for those who need them. I hope Congress takes heed of Senator Levin’s report as it considers the new bills.

The answer to that question as it was discussed reflected many of the larger and well-chronicled trends affecting the pharmaceutical industry, such as generic-drug incursion, declining R&D productivity, and the ongoing need for cost reduction in development and manufacturing. At one level, these pressures make outsourcing an attractive alternative to internal development and manufacturing as a means to reduce fixed cost structures and achieve greater flexibility, which is a plus for CROs and CMOs. On the downside, however, CROs and CMOs face greater competition as pharmaceutical companies, particularly large pharmaceutical companies, seek to reduce their supplier base and partner with strategic, if not preferred, providers as the choices for these potential CROs and CMOs broaden globally.

So how do CROs and CMOs make the cut or stay in the game and achieve a competitive advantage? Some suggestions offered by pharmaceutical companies were integrated service offerings, higher levels of project management, specialized technical offerings, and other approaches that meet the evolving needs of pharmaceutical companies in realizing their goals for greater flexibility while maintaining reliability and quality of supply. The choices for CROs and CMOs relate to how to adapt their business models either through increased service offerings, partnering with other contract service organizations to achieve a fuller slate of capabilities, and finding opportunity in the globalization of the pharmaceutical contract service industry. Not an easy task, but one in which has become a basic requirement for participation in the market for pharmaceutical chemical outsourcing.

SENATOR MIKULSKI: At this hearing, I have several hats. One of which is as the Senator from Maryland – where FDA is headquartered. We’re so proud of the work you do under difficult circumstances: the limited funding and contradictory requirements that you’re given.

I’m also here as a member of the Intelligence Committee; and as Chairwoman of the Commerce Science Justice Appropriations subcommittee.

I believe that adulterated drugs coming into this country is criminal, it is a form of murder. People can no longer rely on prescription drugs and have any level of certainty that what they are ingesting can be the very thing that saves them from a stroke, a heart attack, or a diabetic coma. Instead, what they’re ingesting could be the very thing that kills them.

We’ve got to get real, we’ve got to get serious and we have to have a sense of urgency. That’s not laying it on the FDA, that’s laying it on us. We throw zillions at the Defense Department to protect the homeland and fight them over there so they don’t kill us here. We’ve got to have that same attitude toward those who are adulterating over there, quite frankly, so that they don’t kill us here.

Now, your [Dr. Deborah Autor, Deputy Commissioner for Global Regulatory Operations & Policy at FDA] background is terrific. You’re a trial lawyer, you worked at the Justice Department and you have an incredible background in working with federal law enforcement.

Here is my question to you. What are we going to do in order to create this sense of alarm – red alert, holding onto the edge of our chair, DEFCON 3 – because this is a growing problem?

This is not exaggerated hyperbole for CNN. This is a compelling need when we take into account the number of people who take prescription drugs, in which we are now so vulnerable and which are usual and customary drugs. Particularly the issue of blood thinners.

So my question to you is are we moving with that sense of urgency? Has this been escalated to a homeland security issue? Is this the top of anyone’s agenda?

This is about protecting our borders, as we do from anything else illegal or threatening coming into our country.

DR. AUTOR: Thank you for that question. I really appreciate, and I really do share your sense of urgency.

I worry about products like this, which frankly, cross our border every day. This is counterfeit Tami flu and counterfeit Lipitor, and you’re welcome to look at it if you like. They look very, very similar and they come into this country.

One important thing that your question gets to, Senator Mikulski, is the fact that the risk to the pharmaceutical supply chain is not simply from people who are out to make a buck.  There is a risk from people who have much more malevolent motivations, and I think we need to be made aware of that.

And so I do everything that I can to reach global facilities to change what we’re doing at the agency, to be more proactive, to be more creative, to collaborate. But there are things which are not in the law such as clearly requiring manufacturers to update their test standards to look for vulnerability.

SENATOR MIKULSKI: Especially making them criminal charges. I mean really we have to do some out of the box thinking here. It’s not are you for regulations or against regulations. We’re for smart regulation.

DR. AUTOR: I completely agree and with respect to another crisis like Herapin or something like it — it’s not a matter of if, it’s a matter of when.

SENATOR MIKULSKI: Let’s talk about FDA, Justice and the Department of Homeland Security. Do they feel that this has a sense of heightened urgency? Has this moved up the chain that is looking at the supply chain of counterfeit drugs?

DR. AUTOR: I can’t speak for them. I’m not really sure I could answer that question. Sitting here today, I’d be happy to answer that for you.

SENATOR MIKULSKI: I just want our committee to know this. Senator Whitehouse was on the Intelligence Committee along with Senator Roberts. We see the growing nexus between international organized crime and the corruption of public officials overlooking any other kinds of collaborative enforcement. I don’t want to do complicated foreign policy here but I think we need to look at it.

I had a chance to talk with INTERPOL this summer and have extensive conversations about their digital databases and what they see as a growing problem.

This is an international problem. For any of us, who value safety and efficacy, this has to be elevated to a national security, homeland security and criminal level. I look forward to talking to my colleagues so that we approach it that way so that the American people can know that if they take a prescription drug, they’ll be ok.

…

The hearing can be watched online. http://mikulski.senate.gov/media/video/9-14-2011-v1.cfm

The full hearing included two panels. The first panel consisted of Dr. Deborah Autor, Deputy Commissioner for Global Regulatory Operations & Policy at FDA. The second panel included Dr. Marcia Cross, Director of Health Care at the US Government Accountability Office (GAO); Dr. Kendra Martello, Assistant General Counsel at PhRMA; Gordon Johnston, Senior Advisor for Regulatory Sciences at Generic Pharmaceutical Association (GpHA); Allan Coukell, BScPharm, Director of Medical Programs at Pew Health Group; and Dr. Martin VanTrieste, Past Chair at Rx-360, the international pharmaceutical supply chain consortium. Various US Senators on the HELP committee participated in the Q&A portion of the hearing.

In an article published in the Journal of Operations Management, researchers compared 30 pairs of regulated drug plants on the mainland and Puerto Rico and analyzed inspection data that FDA compiled on those plants. They found that, on average, Puerto Rican plants operated with a significantly higher quality risk than matching plants operated by the same firm located in the mainland US. They found the risk to be unrelated to the distance between the plant and the company headquarters, the education of the local population near the plant, or the number of similar drug manufacturing plants in the area. In an accompanying press release (http://researchnews.osu.edu/archive/offshoreplants.htm), the authors ascribe the quality gap to difficulties in working across cultures. “We believe the quality differences we found in Puerto Rican plants were driven by challenges in transferring knowledge from headquarters to the plant, due to cultural differences, primarily differences in language and values.”

To be clear, the press release stresses that the overall quality risks from Puerto Rican facilities are small. However, they say, for a US manufacturer, any increase in risk is a cause for concern.

John Gray, lead author of the study and assistant professor of operations at Ohio State University’s Fisher College of Business also stresses the importance of experience in ensuring a well-run facility. “One of the managers I spoke to currently in a Puerto Rican plant said it best: No one here knows what it looks like to run a world-class operation in terms of quality control,” Gray said. This kind of knowledge can’t just come from books and manuals, he said, especially when you’re dealing with workers who speak another language and come from another culture.”

The authors indicate that they will be following up with studies on plants based in other locations. Puerto Rico is a region without a large domestic drug manufacturing industry. It will be interesting to see how pair-matched facilities in China, for instance, fare with regards to quality risks. There, cultural barriers may be higher than in Puerto Rico, but local managers may bring their own experience in domestic production to the floor. I look forward to seeing the results.

For related articles see:

FDA Files Consent Decree Against Johnson & Johnson

PhRMA Raises Concern about Tax on Offshore Manufacturers in Puerto Rico – Pharmaceutical Technology

Offshoring Biomanufacturing

Some drugmakers have blamed what they see as a slow and overly cautious FDA for the industry’s weak pipelines. Last week, I cited drug-approval figures to show that the agency was not standing in the way of innovation. A closer look at the figures contradicts another part of the critics’ argument—the industry’s pipelines may not be so weak after all.

So far this year, FDA has approved 20 new molecular entities (NMEs), according to The Wall Street Journal. That’s nearly the same number of NMEs that the agency approved throughout all of 2010. “We’re seeing a lot of innovation, much more than in recent memory,” Janet Woodcock, director of FDA’s Center for Drug Evaluation and Research, told The Wall Street Journal. She went as far as to say that the industry had reached a “turning point” in drug development.

The change in the industry’s approach to research seems to be helping to enhance its development productivity. Many companies have shifted from an expensive, and potentially wasteful, “mass production” approach to one that relies on collaboration. Bristol-Myers Squibb’s (BMS) recently approved melanoma drug was originally discovered by a scientist at the University of California, Berkeley. The scientist worked with small biotech company Medarex to develop the drug, which eventually appeared on BMS’s radar. After BMS and Medarex formed a partnership, the rest was history. Shire also has used this collaborative strategy successfully.

Woodcock’s comments reaffirm my belief in the industry’s ability to market innovative drugs that improve patients’ lives. If the pace of NME approvals continues at its current level, it will soften the blow of the patent cliff for many companies. Maybe reports of Big Pharma’s impending death are greatly exaggerated.