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P.R. pharmaceutical industry must win products in pipeline to survive
Island must play without incentives in worlds level manufacturing field
May 20, 2005
Marketing expert Reinhard Angelmar warned a group of Pharmaceutical Industry Association of Puerto Rico representatives and members of the Department of Economic Development & Commerce that manufacturing contracts for new products must continue to be attained to maintain the islands position as a pharmaceutical industry center.
Among the challenges facing the pharmaceutical industry worldwide are patent expirations, generic company challenges to brand drugs, and regulatory problems such as product withdrawals, said Angelmar, marketing professor at Insead, a business school with full-fledged campuses in Singapore and Europe and an alliance with Whartons campuses in Philadelphia and San Francisco, which delivers business education and research across a global learning network.
Angelmar teaches executive MBA and Ph.D. programs and other executive-development series and has directed tailor-made curriculums for such companies as Eli Lilly & Co., Hewlett-Packard Corp., and Pfizer Inc. He currently is researching the pharmaceutical industry to complete case studies on several companies and is a court expert for pharmaceutical litigation.
"Puerto Rico must understand the challenges and frustrations of pharmaceutical manufacturing companies," said Angelmar. "If it can help the industry cope with its challenges better than its global competitors, the answer is yes, and Puerto Rico has a good chance to survive the industrys globalization. If the answer is no, just like the islands strong industrialization era of the 1950s, the pharmaceutical sector could just disappear."
Angelmar added that even though companies have been phenomenally successful in many aspectssuch as the growth of sales and profits, stock-market permanence, job creation, and improving patients healthsuccess tends to breed overconfidence and eventually failure. In the case of Puerto Rico, the island had the Internal Revenue Codes Section 936 to attract manufacturing companies to the island in the 1970s, which gave it a competitive advantage. Now, it has to play on a level field against the rest of the world.
"The safest plan to insure [a solid pharmaceutical manufacturing industry in Puerto Rico] is to realize that anything produced here in large volumes cant be taken for granted," Angelmar said. "It will disappear, not during the next year, but over a 10-year horizon given patent expiration trends in the industry. Puerto Rico must plan to win new products day after day so those products that are gone are replaced. The battle is on to win the fight for who gets to produce the new molecules and where."
Can we compete?
"I think Puerto Rico can compete, provided it understands the current challenges of the pharmaceutical / healthcare industries and deals with these challenges faster than competitors can," said Angelmar. "The key is to understand the industrys challenges and to help."
Among the three most important challenges are new products in the pipeline, patent expirations, and legal actions from generics against brand products. The stagnation in new products has been accompanied by an increase in research & development, with production costs rising from $318 million in 1991 to $800 million by 2000, which doesnt include manufacturing and marketing costs once products are approved by the regulatory agencies.
Patents for pharmaceutical drugs become active once the chemical molecules are discovered. The time from discovery to launch can be as long as 10 years. The pharmaceutical company then has about 10 years more to sell the product, less if the drug is withdrawn from the market. In addition, generic manufacturing companies are covered by a legal provision called the Paragraph 4 application, which provides incentives to challenge patented drug brands. If the generic company is successful, it has 18 months to exclusively market the generic drug.
Biotechnology is healthcares second-wave trend
According to Angelmar, biotechnology is a clear growth trend. The ability for pharmaceutical chemical products (those with small molecules) to deal with diseases is limited in the way they function in the body. These chemicals have pushed diseases as far as they can or made diseases disappear. So, small molecules always will be needed, but the share of biotechnologys molecules will increase.
"Biotechnology [which works with large molecules] is an increasing source of new products for the pharmaceutical industry, which poses another challenge to Puerto Rico," said Angelmar. "According to the latest trends, 27% of the active pipeline consists of biotechnology products that have captured 10% of global sales; this is the fastest-growing trend. The drug pipeline composition for the industry [in terms of chemical molecules vs. biotechnology products] also indicates that for the top-20 pharmaceutical companies, the share of biotechnology products in the pipeline is high, headed by companies such as Amgen, Wyeth, and Roche / Genentech. Puerto Rico must look at what its manufacturing capability is and what its chances are of attracting biotechnology companies to the island."
Global growth in Asia
While the U.S. has been winning the battle for the global pharmaceutical industry during the past 10 years, in the future, the center of gravity is likely to shift to Asia, according to Algerman. Asia currently generates 8% of global pharmaceutical industry sales. However, this will change because Asia accounts for 61% of the worlds population, whereas North America accounts for 5%. Angelmar said it isnt sustainable for 5% of the worlds population to generate 50% of the sales of the future pharmaceutical industry.
"The growth of the pharmaceutical industrys global opportunities is in China and India," said Angelmar. "In 2004, Chinas pharmaceutical drug sales grew 28% compared to 7% for the total industry. What drives the pharmaceutical industry is market income. As a country becomes richer, it spends more of its worth on healthcare. So, Asia is very likely to become a growth factor and a dominant market."
"Since both China and India are moving to adopt intellectual property laws that will protect pharmaceutical drug patents, both countries soon may become dominant markets. Next, non-Asian pharmaceutical companies will begin investing heavily in this region. So, there is a good chance the pharmaceutical companies currently in Puerto Rico will play a big role in Asia," Angelmar said.
This Caribbean Business article appears courtesy of Casiano Communications.