Pharmaceutical company

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A pharmaceutical company, or drug company, is a commercial business licensed to research, develop, market and/or distribute drugs, most commonly in the context of healthcare. They can deal in generic and/or brand medications. They are subject to a variety of laws and regulations regarding the patenting, testing and marketing of drugs, particularly prescription drugs. From its beginnings at the start of the 19th Century, the pharmaceutical industry is now one of the most successful and influential, attracting both praise and controversy.

Contents

[edit] History

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 and US following suit.

Legislation was enacted to test and approve drugs and to require appropriate labeling. Prescription and nonprescription 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. This 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 pharmaceutical companies and prescribing physicians, including by the relatively new US FDA. Such calls increased in the 1960s after the thalidomide tragedy came to light, in which the use of a new tranquilizer 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. Phamaceutical 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.

The industry remained relatively small scale until the 1970s when it began to expand at a greater rate. Legislation allowing for strong patents, to cover both the process of manufacture and the specific products, came in to force in most countries. By the mid-1980s, small biotechnology firms were struggling for survival, which led to the formation of mutually beneficial partnerships with large pharmaceutical companies and a host of corporate buyouts of the smaller firms. Pharmaceutical manufacturing became concentrated, with a few large companies holding a dominant position throughout the world and with a few companies producing medicines within each country.

The pharmaceutical industry entered the 1980s pressured by economics and a host of new regulations, both safety and environmental, but also transformed by new DNA chemistries and new technologies for analysis and computation. Drugs for heart disease and for AIDS were a feature of the 1980s, involving challenges to regulatory bodies and a faster approval process.

Managed care and Health maintenance organizations (HMOs) spread during the 1980s as part of an effort to contain rising medical costs, and the development of preventative and maintenance medications became more important. A new business atmosphere became institutionalized in the 1990s, characterized by mergers and takeovers, and by a dramatic increase in the use of contract research organizations for clinical development and even for basic R&D. The pharmaceutical industry confronted a new business climate and new regulations, born in part from dealing with world market forces and protests by activists in developing countries. Animal Rights activism was also a problem.

Marketing changed dramatically in the 1990s, partly because of a new consumerism. The Internet made possible the direct purchase of medicines by drug consumers and of raw materials by drug producers, transforming the nature of business. In the US, Direct-to-consumer advertising proliferated on radio and TV because of new FDA regulations in 1997 that liberalized requirements for the presentation of risks. The new antidepressants, the SSRIs, notably Fluoxetine (Prozac), rapidly became bestsellers and marketed for additional disorders.

Drug development progressed from a hit-and-miss approach to rational drug discovery in both laboratory design and natural-product surveys. Demand for nutritional supplements and so-called alternative medicines created new opportunities and increased competition in the industry. Controversies emerged around adverse effects, notably regarding Vioxx in the US, and marketing tactics. Pharmaceutical companies became increasingly accused of disease mongering or over-medicalizing personal or social problems.

There are now more than 200 major pharmaceutical companies, jointly said to be more profitable than almost any other industry, and employing more political lobbyists than any other industry. Advances in biotechnology and the human genome project promise ever more sophisticated, and possibly more individualized, medications.

[edit] From drug discovery to market

[edit] Discovery/design

Drug discovery is the process by which drugs are discovered and/or designed. In the past most drugs have been discovered either by identifying the active ingredient from traditional remedies or by serendipitous discovery. A newer approach has been to understand how disease and infection are controlled at the molecular and physiology level and to target specific entities based on this knowledge. New technologies and Data Management/Informatics systems are now employed to speed up this process.

[edit] Development

Drug development is considered a costly and intensive process. Of all compounds investigated for use in humans only a small fraction is eventually approved, and only after heavy investment in pre-clinical development, clinical trials, and safety monitoring to determine the safety and efficacy of a compound. Most clinical trials are randomized and controlled. The cost for a new drug (new chemical entity), not including marketing, has been estimated at about 1 billion USD[1] although this includes expenditure on the development of other prospective drugs that fail to reach market. A study by the consulting firm Bain & Company reported that the cost for discovering, developing and launching (which factored in marketing and other business expenses) a new drug (along with the prospective drugs that fail) rose over a five year period to nearly $1.7 billion in 2003.[2] Calculations and claims in this area are controversial because of the implications for regulation and subsidization of the industry.

[edit] Related companies

A biotechnology company is any company that uses derivatives of biological systems or living organisms to make (or modify) products (or processes) for specific use. Often biotechnology companies produce pharmaceutical drugs. Typically a biopharmaceutical made in this manner is composed of very large molecules that are unstable and must be administered by injection. It remains a very exploratory area. Biotech companies very often start life as very small spin-offs from university research departments and are high-tech 'start-up' companies. They often need to get bought out or enter into a licensing agreement with a big mainstream pharmaceutical company to see their idea actually available for patients.

[edit] Patents

Depending on a number of considerations, a company may apply for and be granted a patent for the drug, or the process of producing the drug, for about 20 years. Only after rigorous study and testing, which can take as long as 12 years, will governmental authorities grant permission for the company to market and sell the drug.

[edit] Orphan drugs

There are special rules for certain rare diseases ("orphan diseases") involving fewer than 200,000 people in the United States. Because medical research and development of drugs to treat such diseases is financially disadvantageous, companies that do so are rewarded with tax reductions and a monopoly on that orphan drug for a limited time (seven years).

[edit] Post-approval surveillance

Phase IV trials are required by the FDA and consist of post-marketing surveillance for drug safety. Clinical trials are, by necessity, of a limited size, and less frequent side effects cannot be found until a large number of people use the drug. Post-marketing surveillance ensures that after marketing the safety of a drug is monitored closely. In certain instances, its indication may need to be limited to particular patient groups, and in others the substance is withdrawn from the market completely.

[edit] Legal issues

Where pharmaceutics have been shown to cause side-effects, civil action has occurred, especially in countries where tort payouts are likely to be large. Due to high-profile cases leading to large compensations, most pharmaceutical companies endorse tort reform. Recent controversies have involved Vioxx and SSRI antidepressants.

[edit] Regulation of marketing and distribution

The safety and effectiveness of prescription drugs in the U.S. is regulated by the federal Prescription Drug Marketing Act of 1987.

[edit] Controversy about drug development and testing

There have been increasing accusations and findings that clinical trials conducted or funded by pharmaceutical companies are much more likely to report positive results for the preferred medication[3].

Between 1980 and 1997, drug industry funding for academic research rose eight fold,[citation needed] as research costs rose, and the rate of federal support fell. Drug researchers not directly employed by pharmaceutical companies often look to companies for grants, and companies often look to researchers for studies that will make their products look favorable. Sponsored researchers are rewarded by drug companies, for example with support for their conference/symposium costs. Lecture scripts and even journal articles presented by academic researchers may actually be 'ghost-written' by pharmaceutical companies [4]. Some researchers who have tried to reveal ethical issues with clinical trials or who tried to publish papers that show harmful effects of new drugs or cheaper alternatives have been threatened by drug companies with lawsuits. [5][6]

[edit] Products

[edit] Drug information

In the US, Drug information and data are provided by the Food and Drug Administration (FDA) and are located at the Orange Book site.

In the UK, the British National Formulary is the core guide for pharmacists and clinicians [7]

[edit] Best-selling drugs

Pfizer's cholesterol pill Lipitor remains the best-selling drug in the world for the fifth year in a row. Its annual sales were $12.9 billion, more than twice as much as its closest competitors: Plavix, the blood thinner from Bristol-Myers Squibb and Sanofi-Aventis; Nexium, the heartburn pill from AstraZeneca; and Advair, the asthma inhaler from GlaxoSmithKline.[8]

[edit] Economics

[edit] Industry revenues

For the first time ever, in 2006, global spending on prescription drugs topped $600 billion, even as growth slowed somewhat in Europe and North America. Sales of prescription medicines worldwide rose 7 percent to $602 billion, according to IMS health, a pharmaceutical information and consulting company. The United States still accounts for most, with $252 billion in annual sales. Sales there grew 5.7 percent. Emerging markets such as China, Russia, South Korea and Mexico outpaced that market, growing a huge 81 percent.[9]

In 2004 the U.S. comprised roughly 45% of the pharmaceutical market worldwide, while Europe comprises about 25% (AMR Research). 2004 global dollar sales reached $550 billion, a 7% increase over 2003, which in turn represented a 9% increase over 2002. 2004 US sales grew to $235.4 billion, a growth rate of 8.3% compared with 11.5% growth from 2002 to 2003 [10]. US profit growth was maintained even whilst other top industries saw slowed or no growth.[11]

According to a 2002 study [12] the average expenditure required to develop a drug is US $403 million.

[edit] Top pharmaceutical companies by sales

The top 10 pharmaceutical companies by 2004 sales are:

Rank Company Revenues (USD billions) R&D Spend (USD billions)
1 Pfizer 50.516 7.614
2 Johnson & Johnson 47.348 5.203
3 GlaxoSmithKline 37.318 5.204
4 Sanofi-Aventis 31.615 4.927
5 Novartis 28.247 4.207
6 Hoffmann-La Roche 25.163 4.098
7 Merck 22.939 4.010
8 AstraZeneca 21.427 3.803
9 Abbott Laboratories 19.680 1.697
10 Bristol-Myers Squibb 19.380 2.500

Source: Top 50 pharmaceutical companies, MedAdNews, September 2005

See also the top 50 pharmaceutical companies and the top 100 biotechnology companies.

[edit] Patents and generics

Drugs are patentable. A typical patent lasts for 20 years. However, it often takes as long as 12 years to approve a drug for patient use. Patent protection allows the owner of the patent to charge high margins for the branded drug. When the patent for the drug runs out, a generic drug [13] is usually created by a competing company and released, causing the price to drop markedly. Often the owner of the branded drug will introduce a generic version before the patent runs out in order to get a head start in the generic market.

[edit] Medicare Part D

In 2003 the United States enacted the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), a program to provide prescription drug benefits to the elderly and disabled. This program is a component of Medicare (United States) and is known as "Medicare Part D." This program, set to begin in January 2006, will significantly alter the revenue models for pharmaceutical companies. Revenues from the program are expected to be $724 Billion between 2006 and 2015 [14].

Pharmaceuticals developed by biotechnological processes often must be injected in a physician's office rather than be delivered in the form of a capsule taken orally. Medicare payments for these drugs are usually made through Medicare Part B (physician office) rather than Part D (prescription drug plan).

[edit] Mergers, acquisitions, and co-marketing of drugs

A merger, acquisition, or co-marketing deal between pharmaceutical companies can occur if the companies have complementary capabilities. A small biotechnology company might have a new drug but no sales or marketing capability. Conversely, a large pharmaceutical company might have unused capacity in a large sales force due to a gap in the company pipeline of new products. It may be in both company's interest to enter into a deal to capitalize on the synergy between the companies. The difference between the value of the two companies after the deal and before the deal is known as the synergy value of the deal.

[edit] Predictions

IMS publishes an analysis of trends expected in the pharmaceutical industry in 2007, including increasing profits in most sectors despite loss of some patents, and new 'blockbuster' drugs on the horizon.[15]

Teradata Magazine [16] predicted that by 2007, $40 billion in U.S. sales could be lost at the top 10 pharma companies as a result of slowdown in R&D innovation and the expiry of patents on major products, with 19 blockbuster drugs losing patent.

[edit] Sales and marketing

Pharmaceutical companies commonly spend a large amount on advertising, marketing and lobbying. Advertising is commonly in healthcare journals as well as through more mainstream media routes. In some countries, notably the US, they are allowed to advertise direct to the general public. Pharmaceutical companies generally employ sales people (often called 'drug reps' or, an older term, 'detail men') to market directly and personally to physicians and other healthcare providers. In some countries, notably the US, pharmaceutical companies also employ lobbyists to influence politicians.

[edit] Marketing to healthcare professionals

Physicians are perhaps the most important players in pharmaceutical sales because they write the prescriptions that determine which drugs will be used by the patient. Influencing the physician is often seen as the key to prescription pharmaceutical sales.[17] A medium-sized pharmaceutical company might have a sales force of 1000 representatives. The largest companies have tens of thousands of representatives. Currently, there are approximately 100,000 pharmaceutical sales reps in the United States pursuing some 120,000 pharmaceutical prescribers.[18] The number doubled in the four years from 1999 to 2003. Drug companies spend $5 billion annually sending representatives to physician offices.

[edit] Insurance and public health bodies

Private insurance or public health bodies (e.g. the NHS in the UK) decide which drugs to pay for, and restrict the drugs that can be prescribed through the use of formularies. This, along with the high margins companies can realise for their most successful medicines, makes pharmaceutical marketing complex. There are a number of firms that specialize in data and analytics for pharmaceutical marketing (Yellowikis).

Public and private insurers restrict the number and types of drugs that they will cover. Not only can the insurer affect drug sales by including or excluding a particular drug from a formulary, they can affect sales by tiering, or placing bureaucratic hurdles to prescribing certain drugs. In January 2006, the U.S. instituted a new public prescription drug plan through its Medicare program. Known as Medicare Part D, this program engages private insurers to negotiate with pharmaceutical companies for the placement of drugs on tiered formularies.

[edit] Retail pharmacies and stores

Commercial stores and pharmacies are a major target of non-prescription sales and marketing for pharmaceutical companies.

[edit] Direct to consumer

Since the 1980s new methods of marketing for prescription drugs to consumers have become important. Direct-to-consumer media advertising was legalised in the FDA Guidance for Industry on Consumer-Directed Broadcast Advertisements. Patients are now less deferential to doctors and will inquire about or request particular medications they have seen advertised. In almost all European countries, direct to consumer media advertising is banned. It is hugely controversial in Europe and to a lesser extent in the US. US Drug companies spent $900 million on consumer ads in the first half of 1999 alone.[citation needed] Patient groups and charitable organizations can also advertise for the drug companies or promote particular products, without necessarily revealing their sources of funding, being unregulated by the FDA in the US.

[edit] Controversy about drug marketing and lobbying

There has been increasing controversy surrounding pharmaceutical marketing and influence. There have been accusations and findings of influence on doctors and other health professionals through drug reps, including the constant provision of marketing 'gifts' and biased information to health professionals[19][20]; highly prevalent advertising in journals and conferences; funding supposedly independent healthcare organizations and health promotion campaigns; lobbying physicians and politicians (more than any other industry in the US [21]); sponsorship of medical schools or nurse training, with influence on the curriculum; hiring physicians as paid consultants on medical advisory boards.

There have been related accusations of disease-mongering (over-medicalising) to expand the market for medications. An inaugural conference on that subject took place in Australia in 2006[3].

A 2005 review by a special committee of the UK government came to all the above conclusions in a European Union context[4] whilst also highlighting the contributions and needs of the industry.

[edit] Pharmaceutical companies and the developing world

The role of pharmaceutical companies in the developing world is a matter of some debate, ranging from those highlighting the aid provided to the developing world, to those critical of the use of the poorest in human clinical trials, often without adequate protections, particularly in states lacking a strong rule of law. Other criticisms include an alleged reluctance of the industry to invest in treatments of diseases in less economically advanced countries, such as malaria; Criticism for the price of patented AIDS medication, which could limit therapeutic options for patients in the Third World, where the most people have AIDS.

Under World Trade Organization rules, a developing country has options for obtaining needed medications under compulsory licensing or importation of cheaper versions of the drugs, even before patent expiration (WTO Press Release). Pharmaceutical companies often offer much needed medication at no or reduced cost to the developing countries. Proposals to allow the manufacture of generic AIDS drugs are not without controversy; it is sometimes claimed that this might cause pharmaceutical companies to move away from AIDS drug research and focus their research on other, more profitable areas. In March of 2001, South Africa was sued by 41 pharmaceutical companies for their Medicines Act, which allowed the import and generic production of cheap AIDS drugs. The case was later dropped after protest around the world.

[edit] In popular culture

Recent books and movies have been written in the west criticizing the western pharmaceutical companies role, or lack thereof, in healthcare in Africa. The most prominent of these is probably The Constant Gardener, a novel by John le Carré that was also turned into a movie.

[edit] Tragedies in developing countries

An example of a tragedy is described in a Washington Post article from December 2000 [5], in which a clinical trial conducted by a corrupt MD in Pfizer's name in Nigeria in 1996.[22] That study allegedly used children to test Trovan, which had been proven efficacious in adults but not in children.{[23]}

[edit] Charitable programmes

Charitable programs and drug discovery & development efforts are sometimes undertaken by phamaceutical companies. Some examples include:

[edit] Animal rights activists

Animal rights activists often challenge the use of animal testing in drug development.

There has been criticism in the US of the increased number of drug tests on animals required before FDA approval is given.[citation needed]

[edit] Industry associations

[edit] Regulatory authorities

[edit] See also

[edit] Notes

  1. ^ Tufts Center for the Study of Drug Development
  2. ^ Has the Pharmaceutical Blockbuster Model Gone Bust?, Bain & Company press release, December 8, 2003. Press release
  3. ^ [1] PLOS collection on disease-mongering
  4. ^ http://www.epha.org/a/1773] UK report on the influence of the pharmaceutical industry
  5. ^ http://www.washingtonpost.com/ac2/wp-dyn/A11939-2000Dec15
  6. ^ http://www.cartercenter.org/healthprograms/showdoc.asp?programID=2&submenu=healthprograms
  7. ^ http://www.aegis.com/pubs/atn/2000/ATN34003.html

[edit] Further reading

  • Coyne J. Lessons in conflict of interest: “The construction of the martyrdom of David Healy and the dilemma of bioethics.” American Journal of Bioethics 5 (1): W3-W14, 2005.
  • Ray Moynihan, Alan Cassels: Selling sickness: How the world's biggest pharmaceutical companies are turning us all into patients". Nation Books, New York, 2005.
  • Merrill Goozner: The $800 million pill. [24] University of California Press, Berkeley, 2004, 297 S. ISBN 0-520-23945-8.
  • Marcia Angell: The truth about the drug companies. Random House, New York, 2004, 305 S. ISBN 0-375-50846-5.
  • Diana A. Taylor: HEALTHYWORDS Towards a Betterment in Medical Communications across the Drug Industry ISBN 3-8288-9083-0 Tectum Verlag 2006 S.187
  • Joanna Moncrieff, "An Unholy Alliance? Psychiatry and the influence of the pharmaceutical industry", Spinwatch, 27 June 2006.

[edit] External links

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