This Chapter starts with the introduction of pharmaceutical industry with its origin and phases of development. The industry got underway in earnest from the 1950s, due to the development of systematic scientific approaches, understanding of human biology and sophisticated manufacturing techniques. This chapter also emphasize on world pharmaceutical market and its revenue structure. The next section describe about world pharmaceutical production & sales, 90 percent of the world production located in a few high-income countries. In Figure 1.2, production values of the global pharmaceutical industry from 2006-2012 have been displayed. Figure 1.3, shows the share of global market based on sales. The projected growth of the world pharmaceutical market by region from 2009-2014 have been displayed in this chapter.
The next section of this chapter emphasize on research and development expenditure in pharmaceutical global market. The larger companies in the industry in general and multinational sector in particular are highly research and development intensive. The data on global trade in pharmaceutical industry have been discussed in this chapter.
ORIGIN AND PHASES
The first known drugstore was opened by Arabian pharmacists in Baghdad in 754, and many more soon began operating throughout the medieval and eventually medieval Europe. By the 19th century, many of the drugstores in Europe and North America had eventually developed into larger pharmaceutical companies. Most of today’s major pharmaceutical companies were founded in the late 19th and early 20th centuries. Key discoveries of the 1920s and 1930s, such as insulin and penicillin, became mass-manufactured and distributed. Switzerland, Germany and Italy had particularly strong industries, with the UK, US, Belgium and the Netherlands following suit.
Legislation was enacted to test and approve drugs and to require appropriate labeling. Prescription and non-prescription drugs became legally distinguished from one another as the pharmaceutical industry matured. The industry got underway in earnest from the 1950s, due to the development of systematic scientific approaches, understanding of human biology (including DNA) and sophisticated manufacturing techniques. Numerous new drugs were developed during the 1950s and mass-produced and marketed through the 1960s. These included the first oral contraceptive, “The Pill”, Cortisone, blood pressure drugs and other heart medications. MAO Inhibitors, chlorpromazine (Thorazine), Haldol (Haloperidol) and the tranquilizers ushered in the age of psychiatric medication. Valium (diazepam), discovered in 1960, was marketed from 1963 and rapidly became the most prescribed drug in history, prior to controversy over dependency and habituation. Attempts were made to increase regulation and to limit financial links between companies and prescribing physicians, including by the relatively new U.S. Food and Drug Administration (FDA). Such calls increased in the 1960s after the thalidomide tragedy came to light, in which the use of a new anti-emetic in pregnant women caused severe birth defects. In 1964, the World Medical Association issued its Declaration of Helsinki, which set standards for clinical research and demanded that subjects give their informed consent before enrolling in an experiment. Pharmaceutical companies became required to prove efficacy in clinical trials before marketing drugs. Cancer drugs were a feature of the 1970s. From 1978, India took over as the primary center of pharmaceutical production without patent protection.
As a result of introduction and success of penicillin in the early forties and the relative success of other innovative drugs, research and development (R;D) became a major thrust area of the pharmaceutical industry. The industry expanded rapidly in the sixties, benefiting from new discoveries. In the 1960s attempts were made by the U.S. Food and Drug Administration (FDA) to increase regulation of pharmaceutical industries and to limit financial links between companies and prescribing physicians. In 1964, after the thalidomide tragedy (in which the use of a new tranquilizer in pregnant women caused severe birth defects in the new born child), the World Medical Association set standards for clinical research. Pharmaceutical companies were required to prove efficacy and safety of the drug in clinical trials before marketing them. Tighter regulatory controls were introduced in the seventies. The new regulations revoked permanent patents and established fixed periods on patent protection for branded products. As a result industries flourished by producing generic products and they started earning huge profits, because generic manufacturers do not incur the cost of drug discovery.
WORLD PHARMACEUTICAL MARKET
The global pharmaceutical industry revenue is forecasted to reach an estimated $1,226.0 billion by 2018, with good growth over the next five years (2013-2018). The industry is expected to register growth led by aging population, changing lifestyles, hectic daily activities, unhealthy eating habits, increasing incidence of chronic diseases across the entire global population providing growth opportunities for the industry players. The market will increase at a compound annual growth rate (CAGR) of 3–6% during the next five years, slowing from the 6.2% annual growth rate that occurred during the past five years. Absolute global-spending growth is expected to be $210–240 billion between 2011 and 2015 compared with $251 billion between 2006 and 2010. Removing the effect of exchange-rate fluctuations, absolute global-spending growth will be $230–250 billion on a constant dollar basis compared with $228 billion in the previous five years. For purposes of this analysis, the pharmaceutical market includes all types of biopharmaceuticals, including biologics, over-the-counter drugs, and traditional medicines distributed and administered through regulated delivery systems, such as pharmacies, hospitals, clinics, physician offices, and mail order. Spending figures are reported at ex-manufacturer estimates that do not reflect off-invoice discounts and rebates.
“The future level of spending on medicines has striking implications for healthcare systems and policy makers across the developed and emerging economies,” said Murrary Aitken, executive director of the IMS Institute for Healthcare Informatics, in a May 18, 2011, IMS press release. “Past patterns of spending offer few clues about the level of expected growth through 2015. There are unprecedented dynamics at play, which are driving rapid shifts in the mix of spending by patients and payers and between branded products and generics and across both developed and pharmerging markets.”
Figure 1.1 Revenue of the worldwide pharmaceutical market from 2001 to 2015 (in billion U.S. dollars)
Source: https://www.statista.com/statistics/263102/pharmaceutical-market-worldwide-revenue-since-2001/The US share of global pharmaceutical spending will decline from 41% in 2005 to 31% in 2015 while the share of spending from the top five European national markets (i.e., Germany, France, Italy, Spain, and the United Kingdom) will decline from 20% to 13% during the same period. Meanwhile, 17 high-growth emerging markets, led by China, will contribute 28% of total spending by 2015, up from only 12% in 2005, according to IMS. The next five years also will see an accelerating shift in spending toward generic drugs, whose share of of pharmaceutical spending will rise to 39% in 2015, up from 20% in 2005.
On a geographic basis, the pharmaceutical market for developed nations was valued at $587.1 billion in 2010. The US was the single largest national market at $310.6 billion. The pharmaceutical market in the top five European countries (i.e., Germany, France, Italy, Spain, and the United Kingdom) was $147.4 billion in 2010 and $96.5 billion in Japan in 2010, according to IMS. Slowing pharmaceutical market growth is forecasted for the US, Europe, and Japan. In the US pharmaceutical market, CAGR (in $US at constant exchange rates) was 4.5% between 2006 –2010, and growth is projected to slow to a CAGR of only 0–3% between 2011 and 2015, according to IMS. In the top five European countries (i.e., Germany, France, Italy, Spain, and the United Kingdom), CAGR (in $US at constant exchange rates) was 4.1% between 2006 –2010, and growth is expected to slow to a CAGR of 1–4% between 2011 and 2015. In Japan, CAGR (in $US at constant exchange rates) was 2.6% between 2006 –2010, and CAGR of 2–5% is projected between 2011 and 2015, according to IMS.
During the next five years, growth in emerging markets, defined by IMS as the “pharmerging markets” are expected to nearly double their spending on medicines between $285 billion to $315 billion, compared with spending of $151 billion in 2010, according to IMS. Pharmerging countries are defined as those countries with absolute pharmaceutical pending growth of greater than $1 billion during 2011–2015 and that have gross domestic product per capita of less than $25,000 on a purchase-price parity basis. Using that criteria, these countries include: China (classified as Tier 1); Brazil, Russia, and India (classified as Tier II); and Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan, and Vietnam (classified as Tier III).
Gains in pharmaceutical spending in the pharmerging markets will be driven by overall strong economic growth and governments’ commitment to expand healthcare access. IMS projects that by 2015, the pharmerging countries will become the second largest geographic segment globally in spending on medicines, surpassing Germany, France, Italy, Spain, and the United Kingdom combined and approaching US levels. Pharmerging countries are expected to nearly double their pharmaceutical spending by $150 billion by 2015. Of the total increase in spending, approximately 20% will come from branded products.
Breaking down growth in emerging markets, China’s pharmaceutical market was valued at $41.1 billion in 2010. The pharmaceutical market in Tier-II emerging markets (Russia, India, and Brazil) was $48.4 billion (i.e., Brazil at $22.9 billion, India at $12.3 billion, and Russia at $13.6 billion), and the pharmaceutical market in Tier-III emerging markets (Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan, and Vietnam) was $60.6 billion in 2010, according to IMS. In China’s pharmaceutical market, CAGR (in $US at constant exchange rates) was 23.9% between 2006–2010, and a CAGR of 19–22% is projected between 2011 and 2015, according to IMS. In the Tier-II emerging markets, CAGR (in $US at constant exchange rates) was 15.9% between 2006–201 (Brazil at 14.1%, India at 15.7%, and Russia at 20.0%). Growth is expected to continue to be roubust with a collective CAGR for Tier-II countries of 11–14% between 2011 and 2015. In Tier-III emerging markets, CAGR (in $US at constant exchange rates) was 11.8% between 2006 to 2010, and growth is expected to increase at a CAGR of 10–13% between 2011 and 2015, according to IMS.
Several policy moves will affect healthcare spending during the next five years. In the US, healthcare reform as made through the passage of the Affordable Care Act is expected to expand health insurance coverage to 25–30 million people in America. Price controls in China are designed to achieve universal health coverage. Japan will implement its first price cut under its new protected innovative products policy. In Europe, price reductions for generic drugs are expected in Spain and Italy, and mandatory cost-benefit evaluations for new products are slated for Germany. Additionally, rebates and discounts, which are not reflected in IMS’s market data, are being applied more extensively by both public and private payers, particularly in the US, France, and Germany. IMS estimates the amount of these off-invoice discounts in 2010 at between $60 billion and $65 billion and expects the value of these discounts to increase to between $65 billion and $75 billion by 2015.
Biosimilars are a small, but growing, part of the pharmaceutical market. By 2015, IMS expects spending on biosimilars to reach $2 billion annually, or approximately 1% of total global spending on biologics. New biosimilars are expected to enter the US and European markets by 2014, according to IMS, which will increase spending on biosimilars by $311 million compared with 2010 levels.
global pharmaceutical sales BY THERAPEUTIC SEGMENT
Oncologics, pain therapy, and anti-diabetics are among the top global pharmaceuticals based on revenues, generating 75 billion U.S. dollars, 68 billion U.S. dollars, and 66 billion U.S. dollars, respectively, in 2016. In oncologic developments, drugs for non-small cell lung cancer and breast cancer were among the leading diseases in therapeutic drug development. On the other hand, Cymbalta was one of the top serotonin-norepinephrine reuptake inhibitors (SNRIs) in the United States, accounting over 40 percent of the market share. Cymbalta is manufactured by Eli Lilly and used to treat major depressive disorder and generalized anxiety disorder.
Figure 1.2: Top 10 Therapeutic Pharmaceutical Sales
Source: https://www.statista.com/statistics/279916/top-10-therapeutic-classes-by-global-pharmaceutical-sales/One of Bristol-Myers Squibb’s most profitable medications is Abilify, a neurology product that generated revenue of 5.8 billion U.S. dollars in the United States in 2015. Aripiprazole, marketed as Abilify, is used for the treatment of schizophrenia, bipolar disorder, and major depressive disorder, among other disorders. Bristol-Myers Squibb’s neuroscience program focuses on the development of therapeutic regimens for disorders that impact the brain and nervous systems. Some of the company’s other therapeutic areas of focus include cardiovascular, immunoscience, and virology.
WORLD PHARMACEUTICAL PRODUCTION
Pharmaceutical production means whether it is the manufacturing of active ingredients in bulk form, basic chemicals, the preparation of finished new medical entities, or the repacking of imported generic ingredients to make finished branded or unbranded generic products. Global production is geographically a highly concentrated activity with over 90 percent of world production located in a few high-income countries.
Two third of the value of medicines produced globally is accounted for by firm with headquarters in just five countries the USA, Japan, Germany, France and UK. Production is also concentrated in a few key products and in a relatively small number of companies, which often have factories and offices in many countries.
Figure 1.3: Production Value of the Global Pharmaceutical Industry From 2006 to 2012 (in billion U.S. dollars)
New medicines with patent protection, which may have resulted from costly research and development processes and where large markets are anticipated, tend to be particularly expensive. Yet price and therapeutic gain are not necessarily related. Large quantities of traditional and generic medicines are manufactured and consumed, particularly in low income countries and the therapeutic value of these is not reflected in available monetary measures. For India and China in particular, the dollar value of medicine transactions bears little relation to the health value of these products. Where available, volume measures such as weight or the number of prescriptions can change the global perspective on production and consumption dramatically. However, they still cannot measure the health value of medicines. India, for example, accounts for about 1 percent of the world’s production by value, but 8 percent by volume (weight). The country ranks thirteenth in world production by value but ranks fourth in the volume of pharmaceuticals produced. However, these measures are still no closer to an index of therapeutic value, and the available data are too limited to allow international comparison or analysis of trends. Severity and prevalence of disease is more rampant in poor developing nations where the marginalized and Poor’s access to medicine is low. Herein provision of life saving drugs through not much in value terms has more health volume.
GLOBAL PHARMACEUTICAL SALES
In 2011, global spending on prescription drugs topped $954 billion, even as growth slowed somewhat in Europe and North America. The United States accounts for more than a third of the global pharmaceutical market, with $340 billion in annual sales followed by the EU and Japan, Emerging markets such as China, Russia, South Korea and Mexico outpaced that market, growing a huge 81 percent.
Figure 1.4: Share of Global Market (Sales)
Global Pharmaceutical Sales by Region
The majority of global pharmaceutical sales originate in the triad (three) means US, EU and Japan with ten key countries accounting for over 80 percentage of global market. North America has been by far the largest pharmaceutical market by volume and value means US$ 406.7 billion in 2014 half of global sales, with the strongest growth among key markets, contributing 51 percentage global market growths in 2002, the US accounted for a 45.9 percentage of blockbuster sales compared with only 88 billion US dollars from Japan and 243 billion US dollars from Europe.
Europe has traditionally been the second largest market for pharmaceutical, with sales of US$ 243 billion in 2014. Japan made up the fourth part of the triad with top five markets (Germany, France, Italy, UK and Spain) to continue contributing sales of EU. European markets each had their own unique operating environments. The pharmaceutical market in Latin America had proved highly volatile, reflecting underlying economic trends.
Table No. 1.4 indicate that global pharmaceutical sales by region means sales of North America, Europe, Japan, Latin America and Asia, Australia and Africa these countries sales from US$. 317.2 billion In 2000, which raised to US$.1014.7 billion in 2014. Sale of North America in 2000 was US$ 152.8 billion, which increased to US$ 406.7 billion in 2014 and percentage of sales in total sale from 48.2 percent in 2000, which decreased to 45.9 percent in 2014.The sale of North America shows decreasing trends during the period under the study. The sale of North America has increased 1.99 fold in 2014 over 2000. The compound growth rate was 10.03 percent during the period under study.
Sale of European Countries in 2000 was US$ 75.3 billion, which increased to US$ 243 billion in 2014. Percentage of sales of European countries was 23.7 percent in 2000, which increased to 30.98 percent in 2007. It means percentage of sales of European Countries shows increasing trend during the period 2000 to 2007.The sale of European Countries has increased 2.73 fold in 2007 over 2000. Its compound growth rates was16.43 percent during the period under study. In 2000, the Japan sale in world market was US$ 51.5 billion and further rose to US$ 58.5 billion in 2007, came down to US$ 47.6 billion, US$ 46.9 billion and US$ 56.7 billion in 2001, 2002 and 2006. However, in the next year 2007 went up to US$ 58.5 billion. The sale of Japan has increased 1.13 fold in 2007 over 2000. Its compound growth rates being 3.17 percent during the period under study.
Figure 1.5: Global pharmaceutical sales from 2013 to 2015, by region (in billion U.S. dollars
Source: https://www.statista.com/statistics/272181/world-pharmaceutical-sales-by-region/Sales of Latin America also indicate the ups and downs in growth trends during 2000 to 2007. In 2000 sales in world, market was US$18.9 billion and they rose to US$ 32 billon in 2007 and decreased to US$ 16.5 billion in 2002. Further increased to US$ 17.4 billion in 2003. In 2000 and 2001 sale of Latin America was same to US$ 18.9 billion. The sale of Latin America has increased 1.69 fold in 2007 over 2000. Its compound growth rates were 8.39 percent.
The Figure 1.6 shows the projected growth rates in the world pharmaceutical market, sorted by regions. It is expected that the North American pharmaceutical market in the period from 2009 to 2014 will grow some 4.4 percent.
Figure 1.6: Projected growth of the world pharmaceutical market by region from 2009 to 2014
Source: https://www.statista.com/statistics/272183/projected-growth-of-the-world-pharmaceutical-market-by-region/Sales by Geographical Areas:
The global pharmaceutical industry is a multinational industry that is highly regulated, capital intensive, and which is driven by large research and development expenditures. The industry is primarily privately owned and is technologically sophisticated. The strong growth in the five European markets that joined the European Union. Emerging markets such as China, South Korea, Brazil, Russia and Turkey experienced double digit growth signaling an important shift occurring in the pharmaceutical industry. As growth in the mature markets flatten, industry attention is shifting to smaller, developing markets that are doing exceptionally well. Many of these developing nations are experiencing significant gross domestic product growth, which helps finance the healthcare systems, increase patient access and fuels the Double digit growth. Pharmaceutical measures are gearing up to the challenges of meeting the unmet needs of these markets.
Figure 1.7: Global pharmaceutical sales from 2013 to 2015, by region (in billion U.S. dollars)
According to IMS Health as stated in the 2016 Annual Report, the United States, the European Union and Japan comprise the three major pharmaceutical markets which together represent 91.5 percent of world sales; and the U.S. market alone accounts for about 70.4 percent of world sales. Not surprisingly, all big Pharmaceutical companies to a significant extent concentrate their resources on these markets, especially on the U.S. market.
At the same time, although the share of world pharmaceutical sales in developing countries at this point of time is much lower, India’s and Pakistan sales is very low it is to US$ 26.1 billion. Share of world pharmaceutical sales only 0.3 percent. They show much faster growth rate than developed countries do. For example, the China, 9th largest world market, showed a 46 percent sales increase in 2014, followed by Thailand (16% growth) and Egypt (15% growth). Some Latin American countries, such as Mexico, Brazil, Argentina and Venezuela also show much faster sales growth rate than average worldwide. Therefore, developing countries contain a significant potential for further expansion of pharmaceutical industry in the future.
RESEARCH AND DEVELOPMENT EXPENDITURE
Research and Development is the cornerstone of the pharmaceutical industry since the extent and success of company research and development activities largely determine the future pattern of corporate earning and growth. The larger companies in the industry in general and multinational sector in particular are highly research and development intensive. Research and development intensity in terms of sales, net income and cash income (net income after tax). Research and development from 2000 to 2016 in the USA indicated that the pharmaceutical industry composition of research and development expenditure was 85 percent it is higher than world Pharma countries.
Most of the pharmaceutical R;D activity occurs in the Organization for Economic Co-operation ; Development (OECD) countries. As GDP share, the R;D spending in pharmaceuticals is highest in Switzerland (around 0.63%), Belgium and Slovenia (0.45%), Denmark (0.36%), USA (0.30%) and Japan (0.26%).
Table 1.1: R;D Expenditure
S.No. Country % Share of Expenditure
1. Switzerland 0.63
2. Belgium 0.45
3. Denmark 0.36
4. USA 0.30
5. Japan 0.26
Source: Own Compilation
In the US, the pharma industry spends more than any other industry on research processes as compared to sales revenue. As per various estimates, spending has increased from 3 to 6 folds in the past 25 years, but still a very small change or innovation has been observed in the drugs approved each year.
Figure1.1.8: Annual growth of pharmaceutical R;D spending in Europe and the U.S. between 2000 and 2016
Source: https://www.statista.com/statistics/315959/annual-growth-rate-of-pharmaceutical-research-and-development-expenditure/For the past 5 years (2011-2015), the global spending trends in pharmaceutical research and development, as reported by the Evaluate Pharma World Preview 2016, have been around 136 billion USD to 150 billion USD. According to the report, this represents an increase of around 4.7% in R;D spending for the year 2015 as compared to the previous year.
The R;D expenditure in the industry in OECD countries has effectively doubled between 2000 and 2011, while during this time highest expenditure growth was recorded in the US (+85%) followed by Japan (+76%) and Europe (+38%). China also observed an increase in the pharmaceutical R;D spending of about 3.4 folds during 2000-2011.
This statistic displays the pharmaceutical research and development spending annual growth rate in Europe and the U.S. in selected periods between 2000 and 2016. The pharmaceutical industry expenditure on R;D grew 5.2 percent annually in Europe from 2005 to 2009.
GLOBAL TRADE IN PHARMACEUTICALS
This statistic represents the worldwide exports of pharmaceuticals in selected countries in 2010, measured in million U.S. dollars. In 2010, the exports of the European Union amounted to more than 295 billion U.S. dollars. The worldwide exports generated more than 461 billion U.S. dollars in 2010.
During the 1990s, trade in pharmaceuticals grew substantially faster than production. Table No.2.10 shows that, in constant price terms, the international trade in pharmaceuticals has expanded dramatically since 1980, growing three times faster than current prices indicate.
International trade in pharmaceuticals is dominated by the high-income industrialized countries. In 1999, they accounted for 93 percent of global exports and 80 percent of global imports, by value. This concentration in trade has increased since 1980. Between 1980 and 1999, middle income countries’ share of world exports fell, and the shares of both low and middle income countries in world imports dropped significantly. With the notable exception of Japan, the countries, which contribute most to world, trade both in exports and in imports are the world’s major producers: the USA, UK, Germany and France. Japan, the world’s second largest producer, continues to produce primarily for the domestic market and since 1980 has reduced its share of the world’s pharmaceutical import.
Japan, the countries, which contribute most to world, trade both in exports and in imports are the world’s major producers: the USA, UK, Germany and France. Japan, the world’s second largest producer, continues to produce primarily for the domestic market and since 1980 has reduced its share of the world’s pharmaceutical imports.
Table 1.2: GLOBAL TRADE IN PHARMACEUTICAL 2005 TO 2015
Direction of trade 2005 2010 2015
Exports (current price) 14.53 36.04 104.22
Exports (constant 2005 price) 5.35 28.79 117.86
Imports(current price) 13.54 34.64 104.80
Imports (constant 2005 price) 4.98 27.67 118.53
Source: World Health Organisation Annual Report 2004, The World Medicines Situations, Commodity Trade Statistics Section, ITSB, United Nation Statistic Division, New York, US pharmaceutical price index, P.No.22
PHARMACEUTICALS EXPORT PATTERN
Table No. 2.11 shows the shares of countries by income level in world pharmaceutical exports from 1980 to 1999. The share of high-income countries rose from 1980 to 1999. In 1980 share of high income countries was to 90.5 percent to 91.8 percent in 1985 of the world total again in 1990 it was increased to 92.8 percent but in 1995 it was decreased to 91.5 percent of the world total. High income countries export increased steadily from 1980 to 1999.
This statistic shows the exports of the chemical-pharmaceutical industry worldwide from 2012 to 2015, broken down by industry. In 2012, the total exports of the chemical-pharmaceutical industry worldwide had a value of some 1.43 trillion euros. Of that amount, the global chemical industry accounted for nearly 1.01 trillion euros, and the global pharmaceutical industry accounted for 419.18 billion euros.
Figure 1.9: Total chemical-pharmaceutical exports worldwide from 2012 to 2015, broken down by industry (in billion euros)
Source: https://www.statista.comLEADING PHARMACEUTICAL EXPORTING COUNTRIES
Figure 1.10: Worldwide exports of pharmaceuticals in selected countries
PHARMACEUTICALS IMPORT PATTERN
This statistic displays the pharmaceutical exports and imports of EFPIA (European Federation of Pharmaceutical Industries and Associations) members from 1990 to 2015. In 2012, the members of EFPIA exported pharmaceutical products worth 312.4 billion euros.
Figure 1.11: Pharmaceutical imports and exports of EFPIA members from 1990 to 2015
Source: https://www.statista.com/statistics/315914/exports-and-imports-of-pharmaceuticals-of-efpia-members/1.7MAJOR PLAYERS OF THE WORLD PHARMACEUTICAL MARKET
U.S. companies play a key role in the world pharmaceutical industry 8 out of 15 leaders of this market are headquartered in the United States; moreover, the largest world pharmaceutical company, NJ-based Pfizer, has sales of pharmaceutical products that are approximately 1.5 times higher than those of its closest competitor. The pharmaceutical industry is characterized by a high level of concentration with fifteen multinational companies dominating the Industry. Several factors are worth mentioning. First, for almost all companies presented in the table, the pharmaceutical segment is the largest; and only for one of them, world giant Johnson and Johnson, sales of pharmaceutical segment are below 50 percent.
Figure 1.12: Global pharmaceutical market revenue from 2008 to 2015
Source: https://www.statista.com/statistics/266039/global-pharmaceutical-market-revenues/1.7.1Major Countries Revenues of World Pharma
This statistic shows the revenues of the top 10 pharmaceutical markets worldwide in 2015. In that year, the revenue of the Chinese pharmaceutical market totaled approximately 115 billion U.S. dollars.
Figure 1.13: Revenues of the top 10 pharmaceutical markets worldwide in 2015 (in million U.S. dollars)
Source: https://www.statista.com/statistics/266469/revenues-of-the-top-10-global-pharmaceutical-markets/KEY DEVELOPMENTS IN REGULATROY ENVIRONMENT
The pharmaceutical industry is influenced by a host of practices, which may primarily relate to price regulations, patent laws, safety policies, promotion regulation, insurance, procurement regulation, etc. Hence, the regulatory mechanism plays a crucial role in the trade and development of the pharmaceutical industry. Some of the recent developments and key trends in the regulatory environment that might significantly govern the global pharmaceutical sector.
Impact of FDA and court Rulings – Several decisions made by the Supreme Court of the USA in 2013 are anticipated to have a profound impact on the US as well as global pharmaceutical industry. For generic pharmaceuticals, the Court confronted the law governing a controversial pharmaceutical marketing practice known as reverse payment agreements (pay for delay) in which branded drug companies pay generic companies to delay the commercialization of their products. The verdict is anticipated to bring about increased competition in the branded drug segment earlier in its commercial lifecycle. Though this is envisaged to be good for consumers, but disadvantageous for innovator companies.
Quality Risk Management (QRM) – The International Committee of Harmonization (ICH) issued its ICH Q8, Q9 and Q10 guidance’s between 2005 and 2009. Validation guidance in 2011 formally began the agency’s push to instill the concepts of scientific understanding and risk management as a basis for product design and quality. Despite these frameworks the industry has been slow to adopt these principles as part of its core drug development philosophy as the list of companies under warning letters or consent decrees continues to lengthen. However, several factors are driving the change at seemingly slow pace.
Drug serialization – Anti-counterfeiting activities are rapidly becoming the central focus of many countries’ regulatory landscape. Global pharmaceutical industry faces counterfeiting challenges as well as theft, diversion and false returns to manufacturers. The World Health Organization (WHO) estimates counterfeit drugs to constitute approximately 1 per cent of the supply in developed countries and 30 per cent to 40 per cent in developing countries. In November 2013, the U.S. passed the Drug Quality and Security Act (H.R. 3204), which would preempt all state laws relating to drug pedigrees and track-and-trace systems, to assure the security and safety of drug supply chain. The rollout is anticipated to take place over the next decade with the goal of acheiving unit level traceability for all drugs manufactured in the USA. Serialization regulations are also in place currently in Turkey, India, China, Brazil, Argentina and South Korea. At the latest Global Track and Trace Roundtable, held in October 2013, almost every major pharmaceutical market stated plans to formalize serialization by 2017.
Anti-counterfeit Measures – On October 1, 2011, Anti-Counterfeiting Trade Agreement (ACTA) has been signed as a multilateral treaty by thirty-one countries (Australia, Canada, Japan, Morocco, New Zealand, Singapore, South Korea, USA, EU, and its 22 member states), for the purpose of establishing international standards for intellectual property rights enforcement. The Agreement aims to establish an international legal framework for targeting counterfeit goods, generic medicines and copyright infringement, and propose to create a new governing body outside the existing regulatory framework, such as WTO, WIPO, and the United Nations.
Licensing Agreements – The ensuing patent expiration of blockbuster drugs and apprehensions of resultant revenue loss have been prompting the large innovator companies, mostly multinationals, to reduce their focus on new drug discoveries. Instead, these companies tweak the existing compounds, and calling them new. This practice, increasingly followed by drug manufacturers in the developed countries, is being opposed by the national patent organizations in the developing countries, such as India and Egypt.
SSFFC – WHO has come up with another initiative, called Substandard/ Spurious/ Falsely labelled/ Falsified/ Counterfeit medical products (SSFFC), which has excluded the originally inclusive IP Issues, such as patent infringement from its ambit. SSFFC has been making slow but steady progress through meetings in 2012, 2013 and the latest on October, 2014. The goal of the SSFFC Mechanism is to promote international collaboration on strategies to address the falsification of medicines from the standpoint of public health, excluding trade and intellectual property considerations.
Current Good Manufacturing Practices (cGMP) – The US FDA inspects manufacturing sites in order to check adherence to current good manufacturing practices. The manufacturing operations must comply with current good manufacturing practices (CGMP) in order to have a site clearance. In case of deviations from ideal manufacturing practices, the FDA lists down deviations in Form 483, and share the observations with the manufacturers, who then are expected to reply to the FDA with their corrective and preventive actions that will provide assurance of their adherence to the CGMP requirement.
Figure 1.14: No. of Warning Letters Issued
Source: US FDA
As of March 2014, import alerts were issued against 100 drug manufacturing firms. Import alerts are publicly available documents that enable the physical impounding of any drug substance produced at the affected plant site. The manufacturer has to stop all production from the factory site, until resolution of the issues. The FDA generally imposes an import alert against a drug manufacturing site in cases where the FDA deems that sufficient response to a warning letter is missing. Most import alerts have thus been issued against firms which failed to comply even after receiving the warning letters.
At present leading global pharmaceutical players in world market in terms of sales, production, import and export and research and development expenditure. USA, Europe and Japan are the largest pharmaceutical market, approximately share of United State 33 percent of the total world market. During the study period developed countries pharmaceutical production shares increased from 89.1 percent in 1985 and 92.9 percent in 1999. Global pharmaceutical production located in five developed countries the USA, Japan, Europe, UK and Germany.
The global pharmaceutical sale has increased during the period under study. The global pharmaceutical sales was only US$ 289 billion in 1997 which increased to US$ 712 billion in 2007 representing more than 2.46 fold over the period and compound growth rate is 10.07 during the study period. The majority of global pharmaceutical sales originate in the USA, Europe and Japan accounting for 80 percent of market. The North America has been by far the largest pharmaceutical market by volume and value means US$ 304.5 billion in 2007 half of global sales, with the strongest growth among key markets, contributing 51 percentage global market growths in 2002, the US accounted for a 45.9 percentage of blockbuster sales compared with only 8.8 percentages from Japan and 31.1 percentages from Europe. . The sale of North America has increased 1.99 fold in 2007 over 2000. The Compound rate was 10.03 percent during the period under study but compared to EU countries it has decreased. The sale of European Countries has increased 2.73 fold in 2007 over 2000. Its Compound rates was16.43 percent during the period under study. The sale of Asia (excluding Japan), Africa ; Australia shows increasing trends during the period under the study. The sale of Asia (excluding Japan), Africa ; Australia has increased 3.32 fold in 2007 over 2000. compound growth rate of sales of this region was 16.38 percent during the period under study.
Global pharmaceutical industry is highly Research and development intensive. US alone account for about 77.7 percent of world Research and development expenditure. At the same time, although the share of world pharmaceutical research and development expenditure in developing countries at this point of time is much lower, India’s and Pakistan research and development expenditure is very low means it is to US$ 10.9 million. Share in world pharmaceutical research and development expenditure only 0 percent. They show negative growth rate than developed countries do.
Developed countries are dominating in international trade because of high income countries trade increased from 1980 to 1999 share of these countries to increased 90.5 percent to 92.9 percent during the study period. They are interested in Asian market because of wide area and population. In 1999 total world export was to US$ 103.19 billion. The low income manufacturing countries produce predominantly for the local market. Even in India, with over 20000 pharmaceutical manufacturers, where the export share of local production has tripled since 1985 less than 20 percent of total production enters international trade.
The pharmaceutical industry is changing fast. To survive and to prosper involves managing drug pipelines as drugs come off patents they no longer bring in enough revenues and must be replaced quickly by other drugs with durable patents. This means that the companies have to think ahead, something that sounds easy but involves great risks. Huge sums must be invested in uncertain in-house research and development and/or must go toward mergers and acquisitions with other promising companies. Strategic alliances can be used to augment opportunities as well.
As companies develop their new pipelines, they must be mindful of changes caused by regulations and deregulations in countries all over the globe. While most of drug consumption and sales is a U.S., European, Japanese affair deregulation means sales opportunities are growing rapidly in the developing world. China, Thailand, Egypt, Mexico, Argentina, Brazil, and Venezuela have been increasing their imports of pharmaceuticals products at rapid rates. Of course, where there is growing demand there is also growing supply and competition. Many new drug companies are springing up in developing countries and the biggest global firms are moving into those territories. However, even this has more than the usual global risk for drug companies because of the importance of intellectual property protection. Picking places and partners takes more than the usual scrutiny or a company can lose valuable resources. Speaking of places we noted that the U.S. is the largest market for pharmaceutical sales and therefore will continue to be a hotbed of competition for Lilly and the other U.S. producers. Non U.S. companies have been very active in mergers and acquisitions and will be more formidable competitors on U.S. soil.
This global competitive environment creates challenges and opportunities for the companies with equal importance for the communities in which they reside. If size matters in the drug industry then both domestic and foreign mergers, acquisitions, and strategic alliances will continue to be critical. Such changes always have implication for location requiring communities around the globe to think harder about their roles as globalization unfolds. Communities that desire to maintain or build pharmaceutical clusters must be mindful that investment is always a two-way street. Building strong and growing pharmaceutical clusters at home will entail both inbound and outbound investments since whatever companies locate or stay in their areas they will be compelled by global competition to own production facilities abroad.
This research offers no new insights into what it takes to build a viable pharmaceutical cluster but it surely underlines two facts that it is worth doing in Indiana and that it will involve retaining and attracting companies that need to take sizeable financial risks. This suggests an infrastructure that supports not only the usual needs for top-flight talent and communications/transportation advantages but it suggests an environment that allows for flexibility and risk taking. While clusters bring to mind new facilities and higher employment, global competition suggests that drug companies will survive and prosper sometimes by shedding unprofitable lines of business. It is always painful for any community when firms restructure. It is tempting to regulate firms so that the blows to the community are softer. However, the truth of the drug industry is that competitiveness and growth will require many actions on the parts of these firms and not all of them will seem to be in the best short-run interest of the community.
Regulatory compliance has emerged as a critical challenge for the pharmaceutical industry, particularly in emerging markets, such as Southeast Asia, India, China and Latin America. Noncompliance is cost intensive, and may expose the companies to revenue losses, reputational risks, patient safety issues, criminal sanctions, and can jeopardize the future of the entire business unit. Compliance issues facing the pharmaceutical industry include government policies, drug safety, counterfeiting, information security and privacy, intellectual property protection, corruption and adulteration, and M&A/joint venture (JV) and other third-party risks.
Policies and regulatory frameworks of the USFDA and the EU’s EMA have strong implications on the global pharmaceutical industry. While each country develops and enforces its own regulations, increasing number of countries are enhancing cross-border agency collaboration to strengthen regulatory decision making and enforcement actions. Drug safety standards, particularly those associated with quality systems implementation, data integrity, and validation of manufacturing and testing processes continue to tighten in countries around the world. The new and stricter Good pharmacoVigilance Practice (GVP) module introduced by EMA is proposed to be implemented throughout the EU; increased inspections by USFDA on India’s FDA approved manufacturing units; are some examples to cite.
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