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 rationale for such an approach is clear. One needs to only look  down the rows of the more than 1800 exhibitors at CPhI to see the requisite  for contract-service providers and suppliers to achieve competitive advantage through product and service differentiation. For pharmaceutical companies, among the more than 25,000 attendees at CPhI, the decision of with whom to partner is crucial for successfully implementing their drug-development and manufacturing strategies.

The strategic partnership model was discussed at a conference session at CPhI. Moderated by Jim Miller, president of PharmSource Information Services and contributing editor to Pharmaceutical Technology, the panel featured presentations from Sanjit Singh Lamba, managing director of the  Knowledge Center for Eisai, Massimiliano Brescia, global pharmaceutical operations at Abbott, and  Philip Pratten, vice-president of business development, contract pharma services with Alkermes.  The panelists discussed the drivers behind the adoption of strategic partnerships and best practices in optimizing such relationships.

For pharmaceutical companies, they face ongoing pressure to reduce costs while maintaining quality and security of supply, are seeking to   reduce their supplier base to more efficiently manage their drug-development activities and manufacturing network on a global basis, and want to gain continuous improvement and innovation in technology, processes, and  project management. For contract service providers, such strategic partnerships are a way to meet the expanding and diverse needs of pharmaceutical customers  by building long-term and stable relationships. The panelists shared perspectives on performance metrics, communication approaches, and best practices in technology transfer in meeting the evolving needs of pharmaceutical companies.

So what is the take-away? Effective relationship builing, project-management competency, continuous-improvement strategies, and supplier innovation are evermore important elements of the toolboxes of contract-service providers.

Fortunately, there are many rules and watchdog organisation keeping a close eye on businesses to make sure everything is honest and above board. In the UK, bribery rules have recently been strengthened by the long-awaited (or long-dreaded depending on how you look at it) Bribery Act 2010. Although it’s UK legislation, it has a long reach. It will impact any corporate entity that conducts business in the UK and applies to business interactions both inside and outside the UK.

I’m based in the UK, and recently our human resources department had to roll out a risk assessment, policy and staff training session about the Act and what it means for us. I won’t bore you with the details but I can tell you that the paperwork is probably going to be a nightmare!

All UK companies will have to (if they haven’t already) look at the Act to see how it affects business. As a brief summary, the Act repeals the common law offences of bribery and various statutory offences, but also establishes four new offenses: bribing another person, being bribed, bribing a public official and, importantly for companies, failure of a commercial organisation to prevent bribery. The Act was strengthened following pressure from the international community, particularly the Organisation for Economic Co-operation and Development and the US government.

Pharma’s headaches

For pharma companies, the Act raises several concerns that will need to be examined closely. Apart from issues such as corporate hospitality, which many companies regardless of their industry will have to address, pharma must also deal with more complex situations, such as the emerging markets. Emerging markets are a hot topic in the industry, but some of these markets may have local customs or practices that involve conferring facilitation payments or other benefits. Indeed, a press statement from the Information Retention & eDiscovery Exchange explained that high-profile bribery cases will not be hard to find in sectors such as pharmaceuticals that frequently use intermediaries and dealings with state-owned enterprises abroad.

Outsourcing may also be a headache for pharma companies that must comply with the UK Act. Companies will need to put measures in place to prevent bribery and may be liable for any offences committed by an associated person. According to an article published by international law firm Taylor Wessing, the definition of an associated person is broad and could include staff from contract organisations. As such, sponsor pharma companies will need to ensure that appropriate provisions and training is in place.

The Act came into effect in July, but no doubt it will take time for companies to bring themselves up to speed with the Act and what it means. Companies had better move fast though, particularly as it has been reported that the UK’s Serious Fraud Office will be watching the pharma industry carefully.

Related articles for Friday reading

Delay to Bribery Act: Breathing Space for UK Pharma?

New Transparency in UK Pharma: A Bitter Pill to Swallow?

J&J Announces Settlement for Corrupt Practices

Merck Probed For Corrupt Foreign Practices

Corrupt practices cost healthcare $23 billion

Croatia, Pharma and Corruption

Pfizer Discloses Potentially Improper Payments

Many drugmakers have taken their investors’ advice to heart. One salient example is Pfizer, whose CEO Ian Read plans to slash R&D budgets by about 25% over the next two years. Chris Viehbacher, CEO of Sanofi, told Reuters that R&D cost cutting would increase throughout the industry this year and next. Companies are likely to focus their discovery efforts on the most lucrative areas in an attempt to get more bang for their R&D buck.

But, profitable or not, don’t patients need new and better drugs? Where will they come from? Drugmakers may well outsource innovation by partnering with entities such as universities and contract research organizations, Tim van Biesen, head of Bain and Company’s healthcare practice, told Reuters. They’d be following Hollywood’s strategy of sourcing “movies and scripts from all over the place,” he said. Shire already seems to have started along this path.

Big Pharma also might take advantage of its scientific expertise and marketing muscle by creating follow-on biologics. Cheaper versions of biopharmaceutical treatments for rheumatoid arthritis and cancer are in big demand, said David Snow, CEO of Medco Health Solutions, to Reuters. Making follow-on biologics could be a way for Big Pharma to boost sales. In addition, the discount for these medicines likely will be less than that for small-molecule drugs because they’re tougher to copy—and fewer competitors will manufacture them.

While these strategies might eventually improve Big Pharma’s bottom line, they also represent a shift away from the traditional model of what a drug company is. And even if it helps the drug industry, will the emerging model serve patients’ interests?

This week, Warwick Business School (UK) released a study (sponsored by Cognizant) looking at European C-suite attitudes to outsourcing. The study encompassed 250 CIOs and CFOs across Benelux, France, Germany, Switzerland, the Nordics and the UK.

The majority of respondents (70%) say they believe that innovation achieved through outsourcing contributes to their company’s financial performance, but only 35% admit to measuring the innovation that their outsourcing partner delivers.

Companies pay significant sums for the outsourcing services they receive and, more often than not, reduce their own in-house workforce as a result. It’s a little worrying then that the majority don’t actually bother to assess how much value or innovation they got in return!  Even more worrying is that this isn’t the first time this issue has been raised. An earlier study by the Warwick Business School and Cognizant in 2009 also revealed that only a minority of CIOs and CFOs have tried to calculate the financial impact that outsourcing has on their business.

The big question is why do so few companies try to measure this? It’s clear from the survey that there is a strong recognition that outsourcing can play a big part in innovation — which is something the pharma industry has been struggling with in recent years. More than 60% of survey respondents indicated that they are spending more on outsourcing partnerships than they were three years ago, and 67% of CIOs say that they seek help from an outsourcing provider to turn ideas into new and improved processes. Half of all CIOs also added that they’d be willing to pay more for an outsourced service that enables them to formalise, repeat and maintain innovation.

In a statement, Sanjiv Gossain, SV and Head of Cognizant’s UK and Ireland operations, explained: “Businesses are increasingly placing more high-value work in the hands of their partners, but by failing to measure the financial impact of the innovation delivered, it may be difficult to make the case for further investment—and further benefits to the business. There’s a fantastic opportunity to place even more reliance on these relationships, but it seems many businesses need help in measuring this impact and communicating it to stakeholders.”

I’m already in contact with some experts about this study to find out more about how companies can reap the benefits and measure the impact of outsourcing. Expect more on this in the next issue of Pharmaceutical Technology Europe, which will be available on www.pharmtech.com in May!

The competitive forces at play for contract API manufacturers are steep and come from many directions. Although many of the pharmaceutical majors have publicly articulated their interest in increasing their level of external manufacturing as part a strategy of manufacturing rationalization, reduction of fixed costs, and achieving greater flexibility in managing production economics and the supply chain, that does not spell good news for all suppliers. Many pharma companies are consolidatiing their vendor base and are working with fewer suppliers. Earning and keeping a place at the much coveted table of preferred suppliers to Big Pharma is increasingly competitive. Combine those dynamics with the decreased opportunities resulting from weaker pipelines, fewer approvals of new molecular entities, generic-drug incursion, and a still recovering emerging pharmaceutical sector, and fine-chemical suppliers and contract API manufacturers face a challenging environment.

There are other longer-term issues at play as well. Western contract API manufacturers and fine-chemical producers face an additional hurdle when competing with offshore suppliers in addition to the well-established cost pressures, namely the strategic interest of pharmaceutical companies to increase their presence  in emerging markets. Domestic contract manufacturers in India and China can provide something Western contract manufacturers cannot: access to local markets, something particularly true when a contract API manufacturer may be a unit of a domestic pharmaceutical company.

Finally, fine-chemical suppliers also face a shifting drug-development paradigm. Although small-molecules still dominate the global pharmaceutical market, their strength is lessening as biopharmaceuticals gain market share. According to a recent Datamontior analysis, the value of the small-molecules market from the top 50 pharmaceutical companies was $411 billion in 2009, and the biologics market from these companies was only valued at $124 billion. By 2014, however, Datamonitor projects that the small-molecule market will contract by $17 billion as a direct result of the 2011 patent cliff and heavy erosion of branded-drug sales caused by generics. Monoclonal antibodies are expected to generate an additional $23 billion between 2009 and 2014, and 36 of the top 50 pharmaceutical companies (excluding generic-drug companies companies) will have a presence in biologics (monoclonal antibodies, therapeutic protein, or vaccines) sector by 2014.

In sum, none of these forces is new to contract API manufacturers and fine-chemical producers, but what will continue to evolve is how these suppliers will face these challenges and adopt their business models in terms of their geographic scope, technology offerings, and service differentiation.

To avoid liability, Hospira decided to stop manufacturing sodium thiopental, an anesthetic used to administer lethal injections. The company planned to manufacture the drug at its site in Italy until that country’s authorities chose to forbid its export, fearing that it would be used for capital punishment. Hospira was the lone US manufacturer of sodium thiopental.

“Hospira manufactures this product because it improves or saves lives, and the company markets it solely for use as indicated on the product labeling,” said company spokesperson Dan Rosenberg in September 2010, referring to sodium thiopental. “The drug is not indicated for capital punishment, and Hospira does not support its use in this procedure.”

Hospira’s decision worsens the shortage of the drug, and foreign supplies are dwindling. Countries such as Germany and the United Kingdom are refusing to export it to the US.

Oklahoma uses pentobarbital, another anesthetic, in place of sodium thiopental. The state administers the anesthetic as part of the traditional three-drug lethal injection procedure. But critics say that pentobarbital’s effectiveness in preventing pain is unproven.

Ohio plans to administer pentobarbital alone to execute inmates, and defense attorney David Stebbins is concerned about this plan. “We just don’t have any information on that, and I’m not sure anybody does since it’s never been used that way,” he told the Associated Press.

So here we have a state administering a substitute drug in a use for which it is not indicated, seemingly without FDA oversight. If the agency’s mandate is to ensure the safety, efficacy, and security of human drugs, should it be regulating the drugs used for lethal injections? On the other hand, why should we be concerned with the health, safety, or comfort of someone whom we have deemed unworthy of life?

The search for new suppliers of, and alternatives to, sodium thiopental emphasizes the inherent contradictions of capital punishment. The events also reveal an oddity in the way that we regulate drugs.

According to preliminary figures, the US Food and Drug Administration approved 21 new drugs in 2010. This number is not much better than the industry’s recent low of 18 new drugs in 2007. Several high-profile drugs failed to get approval during 2010, causing embarrassment for Big Pharma. FDA asked AstraZeneca for more information about its blood thinner Brilinta, and the delay in approval hurt the company’s share price. FDA also rejected a long-acting version of Byetta, a diabetes drug manufactured by Eli Lilly and Amylin Pharmaceuticals, saying that more clinical data were necessary.

Competition from generic drugs will only heighten the importance of successful R&D efforts for innovators, and we can be sure that companies will try various strategies to boost the return on their research investments. We could see a continued increase in outsourcing in 2011, which would help drugmakers share the risk of developing new drugs with service providers. Outsourcing also might help companies lower the costs of drug development and improve the management of their resources, which now seem more precious to many companies. It’s also possible that manufacturers will dedicate more effort to developing monoclonal antibodies, which are potentially quite profitable and increasingly in demand.

Changes are already underway at Merck & Co. New CEO Kenneth Frazier told investors that the company would make “tough” R&D spending decisions and stop the development of less-promising drugs more quickly. To prevent drugs with weak commercial prospects from entering expensive late- stage development, the company has tied researchers’ compensation to the three-year return on invested capital. Time will tell whether this market-based approach will improve the notoriously idiosyncratic R&D process.

I give Frazier credit for recognizing the importance of innovation to Merck’s prospects. Other companies are already coming up with their own approaches to discovering more approvable drugs. For the health of the industry, and of patients worldwide, let’s wish them luck.

Not everyone thinks so. Margaret Hamburg, commissioner of the US Food and Drug Administration, told the Reuters Health Summit last week that lawmakers should think carefully before cutting taxpayer funding for her agency. “It should be recognized if we can’t do our job and do it well there isn’t any other entity that will backstop behind us,” said Hamburg.

Indeed, the agency’s “responsibilities outstrip our resources,” according to the commissioner. Despite budget increases, FDA struggles to perform its growing list of duties, which now includes regulating tobacco.

Hamburg is not alone in her assessment. Budgetary constraints have led FDA to use a risk methodology to target pharmaceutical manufacturing sites for inspection, but this approach is less than rigorous, according to a paper by Warren Adis, associate professor of information sciences at Iona College in New Rochelle, New York. “By failing to specify quality-assurance violations, the FDA is not providing the necessary oversight and guidance to the pharmaceutical manufacturing industry,” said Adis.

And FDA’s response to the increase in internationally outsourced drug manufacturing has not been strong enough, Hamburg acknowledged at the summit. She may have been thinking of the US Government Accountability Office’s recent report, which urged the agency to inspect more foreign manufacturing sites. In fiscal year 2009, FDA inspected only 11% of sites on its list of foreign establishments, according to the report. One of the report’s disturbing findings is that the agency may never have inspected about 64% of the foreign establishments in its inventory for 2009.

If we accept the premises that reducing the deficit should be an urgent priority and that we must cut spending do it, I don’t think that FDA’s funding should feel Congress’s budgetary blade. The public record contains ample evidence that the agency, which is struggling valiantly, is falling short of fulfilling its goals. Hamburg is right—no person or group stands ready to fill FDA’s shoes should the agency falter. Reducing taxpayer funding for the agency would raise citizens’ risk of exposure to tainted, subpotent, or superpotent drugs.

Public health seems to demand more money for the agency, not less. If it wants to reduce the deficit, Congress should find and eliminate waste from the budget. If boosting FDA’s funding is not politically feasible, Congress should at least leave it intact.

The job cuts are part of AstraZeneca’s restructuring program, the goals of which are to cut costs and achieve an “effective and flexible R&D operating model.” In a report of the company’s 2009 annual results, Anders Ekblom, executive vice-president of development, said AstraZeneca would focus investment on “prioritized disease areas.” This might be the strategy for achieving “effectiveness.”

After the in-house R&D employees are let go, AstraZeneca will hire contractors to discover and develop drugs, presumably to attain the desired “flexibility.” Observers say that firms in China, Europe, and the United States likely will be beneficiaries of this strategy, according to in-Pharma Technologist. This could be an opportunity for scientists unfortunate enough to be dismissed from Wyeth (Madison, NJ) and Schering-Plough (Kenilworth, NJ) during the consolidations that have followed the acquisitions of these companies. AstraZeneca’s plan might provide a glimmer of hope for scientists in my home state.

But why are R&D workers being shown so little love? One theory is that AstraZeneca’s plan is partly intended to reduce the effect of generic competition. Money budgeted for in-house R&D could be used to realize AstraZeneca’s stated intention to add more branded generics to its portfolio. That’s plausible. Asthma drug Pulmicort and breast-cancer treatment Arimidex will both lose patent protection in 2010, which will be two blows to the company’s bottom line.

Still, I can’t help but be skeptical about the wisdom of the company’s plan. Cutting R&D jobs to invest in branded generics might boost AstraZeneca’s revenue stream in the short run. But the company will still need to discover and develop innovative products to remain competitive. As I recently wrote, outsourcing R&D might not be the best way to discover new products. In this competitive economy, sponsors might choose to work only with discovery teams that can prove that their drugs will be successful. Likewise, contract researchers are less likely to spend money on potentially groundbreaking research if the risk of failure is high.

Tight funding will favor conservatism in R&D, which is not likely to yield promising or exciting discoveries. Unless the economy improves, or AstraZeneca’s outsourcing plans prove disastrous, it may be a while before R&D scientists get their props.