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The Past, Present and Future Structure of the North American and Global Pharmaceutical Industry and its Impact on Planning Functions
2
Overview
Some definitionsBrief history to 1850Origins of pharma companiesChanging orientations
Impact of innovationSocial, cultural & political change
Development of organic chemistry & synthetic pharmaceuticalsImpact of 2 World Wars
Manufacturing nuts & bolts
5 generations of pharma innovation
Industry structure c.1980
“Linear development”
Recent M&A activity
Present situation
FuturePharmaceutical evolution
Types of innovation
Chemical genetics
3
Definition of StructureThe conventional concept of industry structure relates to:
– the pattern of ownership (who owns what), – intensity of competition (how many competitors there are)– and the economic power (ability to dictate price) of industry participants (firms or companies).
According to neo-classical economic theory, the more competitors there are within an industry, the lower is their individual ability to control price.
4
Economic Divisions, Industrial Sectors, Industries, and Industry Subsectors:
Economic Divisions, examples:Agriculture; Minerals; Manufacturing; Wholesale trade; Retail trade; Services; etc.
Industrial Sectors: Manufacturing examples:Food products; Chemicals and allied products; Fabricated metal products; etc.
Industries, Chemicals and allied products examples:Industrial inorganic chemicals; Plastics and synthetic resins; Drugs; Soaps and detergents; etc.
Industry Subsectors, Drugs examples:Medicinal chemicals and botanical products; Pharmaceutical preparations; In vivo and in vitro diagnostic substances; Biological products, except diagnostics.
5
The Chemical Process and Pharmaceutical Industries
Bulk or Commodity Chemicals:Sold on a price-per-weight basis.
Specialty Chemicals:Sold based upon performance-in-use characteristics.
Fine Chemicals:
Sold as precise chemical structures of very high purity.
Pharmaceutical Products:
10 Categories (see next 2 slides).
6
Categories of Pharmaceutical Products - 1
1) Ethical pharmaceuticals: “legend pharmaceuticals,” patented, brand name, prescription drugs:Lipitor, Prevacid, Risperdal, etc.
2) Generic pharmaceuticals: non-patented, prescription drugs, with “bioequivalence” to the legend pharmaceuticals:Atenolol, Alprazolam, Metoprolol, etc.
3) Biologics & Biological Products: Vaccines, serums, toxoids, etc.
4) Over-the-Counter Medications and Remedies:Bayer Aspirin, Lanacaine, Zantac 75, etc.
7
Categories of Pharmaceutical Products - 2
5) Homeopathic Medicines (minute quantities):Belladonna, Gelsemium, Nux Vomica, etc.
6) Vitamins & Minerals;7) Medicinal Botanicals & Herbal Medicines:Black Cohosh, Echinacea, Ginseng, etc.
8) Botanical Extracts & Phytochemicals:p-Courmaric Acid, Chlorogenic Acid, Sulforaphane, etc.
9) Dietary Supplements:Chondroitin Sulfate, Creatine, Shark Cartilage, etc.
10) Nutraceuticals.
8
Ancient PeriodO
ldes
t cul
tivat
ed o
pium
Sum
er
Edw
in S
mith
pap
yrus
Geo
rge
Ebe
rs p
apyr
us
4000
BC
_
3400
BC
_
3000
BC
_
1700
BC
_
600
BC
_
Ben
Cao
Kon
g M
o
Hin
du V
edas
– “
clas
sica
l”
Pen
Tso
a
9
Classical Period
Cle
opat
ra
Hip
pocr
ates
Theo
phra
stus
50 B
C_
400
BC
_
500
BC
_
300
BC
_
200
AD
_C
laud
ius
Gal
en
10
Medieval Period
Da
Vin
ci i
n M
edic
i gar
dens
“Rha
zes”
“Avi
cenn
a”
4th C
rusa
de13
00 A
D_
1400
AD
_
1000
AD
_
900
AD
_
1100
AD
_
1200
AD
_
1500
AD
_
11
Age of Discovery - 1Sa
ck o
f Med
ici p
alac
e
1650
_
1700
_
1500
_
1450
_
1550
_
1600
_
1750
_
“Par
acel
sus”
Da
Vin
ci m
oves
to F
ranc
e
Reg
ency
of C
athe
rine
de
Med
ici
Juan
del
Veg
oA
ntim
ony
as e
met
ic (L
ouis
XIV
)
Lad
y M
ary
Wor
tley
Mon
tagu
Cha
rles
Mar
ie d
e la
Con
dam
ine
12
The Proposition of the Usual Dose
Paracelsus
(1493-1541)
“The dose makes the poison”
13
Age of Discovery - 2
1825
_
1800
_
1775
_
1850
_
Hum
phre
y D
avy
Just
us v
on L
iebi
g
Frie
dric
h W
öhle
r
Mic
hael
Far
aday
Ale
xand
er v
on H
umbo
ldt
Will
iam
With
erin
g
Her
man
n K
olbe
Frie
dric
h W
ilhel
m S
ertü
rner
14
The changed context of drug discovery and development
The 1800s: natural sources; limited possibilities; prepared by individuals; small scale; not purified, standardized or tested; limited administration; no controls; no idea of mechanisms.
The 1990s: synthetic source; unlimited possibilities; prepared by companies; massive scale; highly purified, standardized and tested; world-wide administration; tight legislative control; mechanisms partly understood.
15
Sources of drugs
Animal insulin (pig, cow)
growth hormone (man) (Creutzfeldt-Jakob)
Plant digitalis (digitalis purpurea - foxglove)
morphine (papaver somniferum)
Inorganic arsenic mercury lithium
Synthetic chemical (propranolol)
biological (penicillin) biotechnology (human insulin)
16
Origin of Pharmaceutical Companies – 1
Important corporate entities emerged gradually in Germany, primarily during the late 19th century -- following Perkin’s discovery -- with companies like:
1) Leopold Cassella & Cie -- founded in Mainkur in 1807.
2) Boehringer Ingelheim -- Stuttgart in 1817, Mannheim in 1872.
3) Badische Anilin und Soda Fabrik (BASF) – Mannheim, association during 1861 between Friedrich Engelhorn and the Clemm brothers.
4) Farbenwerke Hoechst -- joint venture by Eugen Lucius, Wilhelm Meister and Adolf Bruning near Frankfurt in 1862, reorganized as a joint-stock company in 1880.
5) Farben Fabrik vormals Friedrich Bayer -- Friedrich Bayer in Leverkusen in 1863, reorganized as a joint-stock company in 1881.
6) Kalle & Co. -- established by Paul W. Kalle in 1864 in Biebrich.
7) Aktien Gesellschaft für Anilin Fabrikation (AGFA), established by Carl Martius and Paul Bartholdy, Rummelsberg (near Berlin) in 1873.
17
Origin of Pharmaceutical Companies – 2
Early companies in Switzerland:CIBA (Gesellschaft für Chemische Industrie Basel) -- founded in 1860 by Alexandre Clavel, reorganized as CIBA in 1884, following his death.
Geigy -- founded by J.J. Müller in 1860 while trading in imports on behalf of the Geigy family; Johann Rudolf Geigy took over the business in 1862.
Sandoz AG -- founded in 1886 by Edouard Sandoz and chemist, Alfred Kern, after Sandoz had worked for Durand & Huguenin.
F. Hoffman La Roche -- founded in 1894 by Fritz Hoffman, husband of Adèle La Roche.
18
Origin of Pharmaceutical Companies – 3
Early U.S. Companies (The 1st Wave):1824 - William S. Merrell & Co., Cincinnati, Ohio., purveyor of medicinal botanicals and their extracts; became notorious as the manufacturer of Thalidomide in 1950s-1960s.
1830 - Philadelphia pharmacy that became Smith, Kline & Co. in 1875 and Smith, Kline and French (SKF) in 1891. Manufactured extracts, elixirs, syrups, tablets and pills. Supplied U.S. troops with quinine during the Mexican-American War (1846-1848) and the Union army during the American Civil War (1861-1865).
1836 - Powers and Weightman Company began as Philadelphia manufacturing apothecary; 1905 merged with Rosengarten & Co.; 1927 merged with Merck & Co. 1849 - Charles Pfizer & Co. founded in Brooklyn, NY, to produce a flavored candy form of the drug santonin, an anthelmintic Wormseed plant extract. Supplied the Union army with large quantities of borax, camphor, chloroform, cream of tartar, iodine, morphine, tartaric acid, and mercurial compounds.
1857 - E.R. Squibb & Co. founded in Brooklyn, NY, to produce ether and chloroform in more consistent form than currently available. Contracted to supply the Union army with sturdy medicine chests, suitable for field use, each containing 52 standardized medicines in unbreakable tins, for $100.00 each.
1860 - John Wyeth & Brother, Philadelphia pharmacy that established a mail-order catalog for pharmaceutical products in 1862; became the Wyeth-Ayerst division of American Home Products in 1931.
19
Origin of Pharmaceutical Companies – 4
Early U.S. Companies (The 2nd Wave):1866 - Parke-Davis, Detroit, Michigan. Together with H.K. Mulford was 1st American company to produce diphtheria antitoxin. In 1902 was 1st American pharmaceutical company to build its own research laboratory; also 1902, 1st company ever to manufacture epinephrine (Adrenalin) -- by extraction from adrenal glands. In 1928 production of 2 pituitary hormones, vasopressin & oxytocin -- also by extraction.
1876 - Eli Lilly, Indianapolis, Indiana
1885 - Upjohn, Kalamazoo, Michigan
1888 - Abbott Laboratories, Chicago, Illinois
1888 - G.D. Searle, Chicago, Illinois
20
Pierre Pelletier and Joseph Caventou established the first modern pharmaceutical company to produce pure quinine from
imported cinchona bark in 1826.
21
The “Orienting Effect” of Innovations
Occurs mainly because the scientific and medical principles, or mechanisms of action, are not well understood at the time of introduction.
Leads to:Drive to discover missing pieces of knowledge.
Imitation and incremental innovation by competitors.
Increase in knowledge and diffusion of technology.
Exhaustion of technological potential & commercial opportunity.
22
New orientations (scientific, political, social, cultural) can lead to dramatic changes in industry structure (the de facto ability to
control price).
23
The Birth of Organic Chemistry – 1856
Cl-
CH3
CH3
N+
N
NNH2
H
Mauveine William Henry Perkin
24
Mendeleyev Periodic Table – 1866
Mendeleyev, Dmitry
25
Dyes and Drugs – the fundamental relationship.(Blessings of the by-product coke oven)
In the beginning, reds came from the female cochineal, kermes insects, brazil wood, and the madder plant (of southern France); blues came from woad and the indigo plant (of northern India); and quinine came from cinchona.
O
O
OH
OH
NH
NH
O
ON
N
CH2
OH
O
CH3H
QuinineAlizarin Indigo
NH2
Aniline Naphthalene Anthracene
N
NH
NH
NH
NH
O-
O
O
O
O O
NH4+
Murexide
N+
N+
N+
O-
O-
O-
O
O
O
OH
Picric Acid
S
N
O
NO-
O
OH
Na+
Manchester Brown
26
Aniline Companies Following Perkin’s Discovery
Company Country DateK.G.R. Oehler (Griesheim Elektron) Germany 1856Perkin & Sons Britain 1857Renard Frères (Societe la Fuchsine/1864) France 1858Read Holliday Britain 1858Girard et Georges de Laire France 1860Alexandre Clavel (Gesellschaft für Chemische Industrie Basel – CIBA/1884) Switzerland 1860J.J. Müller (Geigy/1862) Switzerland 1860J. Poirrier (S.A. des Matières Colorantes et Produits Chimiques de St. Denis/1881) France 1861Badische Anilin und Soda Fabrik (BASF) Germany 1861Meister Lucius & Bruning (Farbwerke Hoechst) Germany 1862Durand & Huguenin Switzerland 1862Friedrich Bayer (Farben Fabrik vormals Friedrich Bayer) Germany 1863Kalle & Co. Germany 1864Leopold Cassella & Cie. Germany 1867Aktien Gesellschaft für Anilin Fabrikation (AGFA) Germany 1867Schoellkoph Aniline & Chemical Co. USA 1879Sandoz AG Switzerland 1886Benzol Products USA 1910DuPont USA 1916Calco USA 1916Dow USA 1916National Aniline and Chemical Company USA 1917
27
Bayer and Hoechst created the modern pharmaceutical industry
beginning in the 1880s.
28
Development of Synthetic Pharmaceuticals – 1
1884 - Antipyrin (phenazone), antipyretic, Ludwig Knorr, Hoechst.
1886 - Antifebrin (acetanilide), antipyretic, Cahn and Hepp, Kalle.
1888 - Phenacetin, analgesic/antipyretic, Bayer.
1893 - Pyramidon (aminopyrine), analgesic/antipyretic, F. Stolz, Hoechst.
1898 - Aspirin (acetylsalicylic acid), analgesic/antipyretic, Bayer.
1902 - Diphtheria antitoxin, Emil von Behring, Hoechst.
1904 - Veronal (barbital), hypnotic/sedative, Bayer/Merck.
1905 - Novocaine, anesthetic, Alfred Einhorn, Hoechst.
1909 - Salvarsan, anti-syphilitic, Paul Ehrlich, Hoechst.
1922 - Insulin, hormone/diabetes (pancreatic extract), Hoechst.
1928 - Progynon (estradiol), hormone/estrogen, Schering
1935 - Prontosil (sulfanilamide), antibacterial, Gerhard Domagk, Bayer.
29
Development of Synthetic Pharmaceuticals – 2
1938 - Sulfapyridine, antibacterial, May and Baker (Acquired by Les Etablissements Poulenc in late 1920s).
1938 - Sulfathiazol, antibacterial, May and Baker.
1939 - Dolantine, analgesic 4X as effective as Pyramidon, Hoechst.
1941 - Chloroquine, antimalarial, Winthrop, German Patent 683692 (1939).
1942 - Sulfamethazine, antibacterial, ICI.
1942 - Penicillin (C), antibacterial, A. Fleming, Merck, Pfizer, Squibb, etc.
1946 - Paludrine (chlorguanide), antimalarial, ICI
1948 - Streptomycin, antibacterial/tuberculostatic, Merck.
1954 - Hibitane, antibacterial, ICI.
1956 - Norethindrone (progesterone), precursor of oral contraceptives, Syntex (Mexico).
1957 - Fluothane, anesthetic, ICI.
1959 - Tolbutamide, antidiabetic, Hoechst.
1961 - Ampicillin, antibacterial (semi-synthetic penicillin), Beecham (GB).
1962 - Tolazamide, antidiabetic, Upjohn.
1964 - Inderal (propranolol), antihypertensive, ICI.
30
Million Mark Synthetics
From 1884 – 1899 Antipyrin was the largest selling drug in the world. Hoechst was producing 14,000 kg/yr (15.4 tons/yr) in 1900.Pyramidon (aminopyrine), produced by Hoechst in 1896, is 3 times more powerful than Antipyrin.Novocain (procaine), produced by Hoechst in 1903, was the top selling local anesthetic worldwide for the next 50 years.
31
Until World War I the most innovative companies were all in Germany, with
few notable exceptions: Burroughs Wellcome, Roche, CIBA, Parke-Davis
32
1 - On the Eve of the World War I
Status of U.S. companies in 1914: Still largely centered on natural products and imports, primarily from Germany.
At the time of WWI, the U.S. and China were the world’s largest consumers of synthetic dyestuffs. However, out of a total worldwide production of 160,000 tons, the U.S. produced only 3,000 tons. (Germany produced over 140,000 tons)
33
2 - On the Eve of the World War I
Status of British companies in 1914: By losing their dominance in synthetic dyestuffs to Germany, the British had put their entire chemical industry in jeopardy.
The three leading British dyestuffs firms: Ivan Levinstein, Read Holliday, and British Alizarine, all together produced only 4,000 tons of dyestuffs, whereas Germany produced 140,000 tons.
34
Aftermath of World War I
Quote taken from The Manchester Guardian – During the darkest days of WWI
… henceforth “dyes and drugs must be thought of together. Whatever serves the modern dyemaker directly serves national health.”
35
Impact of Early U.S. Federal Legislation
Forced companies to merge (eventually) in order to attain the size and financial strength to improve their scientific capabilities:
1902 Licensing Act – required manufacturers of vaccines, serums, & toxins to be licensed by the Secretary of Treasury through Laboratory of Hygiene.1906 Pure Food and Drug Act – regulated labeling & marketing claims about efficacy.
Permitted U.S. companies to manufacture German patented drugs:
1917 Trading with the Enemy Act.
36
The Formation of Interessen Gemeinschaft Farbenindustrie Aktiengesellschaft
(I.G.Farben)
Carl Duisberg – Bayer Carl Bosch – BASF Chairman of the Aufsichtsrat, 1925-35 Chairman of the Vorstand, 1925-1935
Chairman of the Aufsichtsrat, 1935-1940
37
I.G.FarbenA series of sequentially more powerful trusts
1904 – the Dreiverband – the very profitable Hoechst and its two satellites.
HoechstCassella (acquired by Hoechst in 1909)Kalle (acquired by Hoechst in 1908)
1906 – the Dreibund – A counter-measure to Hoechst’s growing power.
BASFBayerAGFA
1916 – the “Little I.G.” – (Interessengemeinschaft der deutschen Teerfarbenfabriken)
Dreibund + Dreiverband + the “Two Independents”Chemische Fabrik vormals Weiler-terMeer, andChemische Fabrik Griesheim Elektron)
1925 – Final integration of I.G. FarbenCassella and Kalle remained almost wholly owned subsidiaries, legally distinct but administered as part of the new corporation.
38
Other German Alliances
Some companies remained independent of I.G. Farben by:Forming an Interessengemeinschaft (shared interests association) of their own:
Merck Darmstadt
Böhringer & Söhne
KnollOthers (examples):
Degussa (Deutsch Geld und Silber Scheide Anstadt) - formed an association with Henkel (in 1926).
Schering - merged with Kahlbaum (in 1927).
J.D. Riedel (Riedel de Haen AG) – became a subsidiary of Cassella after WWII (1955).
Rutgerswerke - founded in 1848, an innovative leader in tar derivatives.
39
The Evolution of Imperial Chemical Industries
Following World War I, Read Holliday, Bradford Dyers, and Calico Printers merged to form British Dyes, Ltd.
1919 – British Dyes, Ltd. merged with Ivan Levinstein and several smaller British Dyestuffs companies to form the British Dyestuff Corporation, in which the British Government took a stake until 1925.
1926 – British Dyestuffs Corporation merged with Brunner, Mond & Co., Nobel Industries, Ltd., United Alkalai Co., and the British Alizarin Company to form Imperial Chemical Industries. Still, they were no match for I.G. Farben!
40
Aftermath of World War II
I.G. Farben
BASF (Ludwigshafen)
BASF (Leuna, etc.)
Bayer
Hoechst
USSRFrance
UKUSA
“In the interests of peace and democracy.”
41
The Time for Structural Change
Perceptions of the short- and medium-term outlook for an industry can change almost overnight, but structural change to diversify feedstocks and supply lines of intermediates can take years, if not decades to accomplish.
42
Sources of Pharmaceuticals
1. Plants and plant extracts
2. Animal extracts
3. Minerals
4. Chemical Synthesis
5. Fermentation
6. Biotechnology
43
The Seven (7) Basic Organics
1. Benzene
2. Butylene
3. Ethylene
4. Methane
5. Propylene
6. Toluene
7. Xylene
44
Hydrocarbon Feedstocks and Organic Raw Materials
45
Feedstock Processing to Basic Organics
46
“Trunk” of the Chemical Tree
Benzene Butylene Ethylene Methane Propylene Toluene Xylene Acetone Acetic
Acid Acetic Acid
Acetic Acid
Acetone Benzene Dimethyl Terephthalate
Adipic Acid Butadiene Ethylbenzene Dimethyl Terephthalate
Acrylonitrile Terephthalic Acid
Caprolactam Methyl t-Butyl Ether
Ethylene Dichloride
Formaldehyde Cumene para-Xylene
Cumene Vinyl Acetate
Ethylene Glycol
Methanol Isopropanol
Cyclohexane Ethylene Oxide
Methyl t-Butyl Ether
Phenol
Ethylbenzene Vinyl Acetate
Vinyl Acetate
Propylene Oxide
Phenol Vinyl Chloride
Styrene Styrene
47
Pharmaceuticals from Fermentation
StatinsLipitor, etc.
AntibioticsPenicillins
Cephalosporins
Tetracyclines
Macrolides
48
4 Basic Building Blocks of Biosynthesis
1. Acetyl coenzyme AMajor role in the synthesis of phenols, prostaglandins, macrolide antibiotics, and various fatty acids and their derivatives.
2. Deoxyxylulose phosphateTogether with mevalonic acid is responsible for a vast array of terpenoids and other steroids.
3. Mevalonic acidMajor precursor of cholesterol and other sterols.
4. Shikimic acidMajor precursor of phenylalanine, tyrosine, and tryptophan and, hence, the majority of plant alkaloids. Also involved in the biosynthesis of lignin, flavonoids, and other aromatics.
49
Five “Generations” of Drug Development
1. Discovery of “active principles” in natural products, fermentations, and simple coal-tar derivatives: analgesics, antipyretics, anesthetics, hypnotics, sedatives (1820 - 1880).
2. Experimental therapeutics and chemotherapy. Use of synthetic organic dyes to identify pathogenic microorganisms and to manufacture antiprotozoal medicines, serums, toxins, and vaccines (1880 - 1930).
3. Introduction of sulfa drugs, antibiotics, antihistamines, vitamins, corticosteroids, and sex hormones (1930 - 1960).
4. Drugs to treat hypertension and other cardiovascular diseases; antianxiety drugs, antidepressants, other CNS; oral contraceptives; semisynthetic penicillins, cephalosporins; and NSAIDS (1960 - 1980).
5. Bio-engineered proteins, antineoplastics, antivirals; new drug delivery systems, and diagnostic tests based on recombinant DNA and monoclonal antibodies (1980 - ?).
50
Evolution of Abbott Laboratories
51
Evolution of GlaxoSmithKline
52
Evolution of Wyeth
53
Mergers & Acquisitions - 1
1996
1996
CIBA Geigy
Sandoz
Novartis 1996
Hoechst
Clariant
CIBA Specialties
1996
Crop Protection
Merck
1997
Syngenta
AstraZeneca
2000Astra AB
Zeneca
1999
ICI1993
54
1997
2002
1999
19971999
2000
1995
1996
1994
Mergers & Acquisitions - 2
Dow
Elanco
Rohm & Haas Ag
Mycogen1997
Lilly
Union Carbide
Collaborative BioAlliance
Marion Merrell Hoechst
Roussel Uclaf
Sandoz Clariant Rorer
1990 1995
Fisons
Rhône-Poulenc
RhodiaCelanese
Aventis
Aventis CropScienceBayer
55
Mergers & Acquisitions - 3
1995
SmithKline Beckman
SquibbBristol-Myers
Bristol-Myers Squibb
1982
Glaxo
Burroughs Wellcome
Glaxo Wellcome
SmithKline & French
Allergen Beckman Instruments
Beecham Group
SmithKline Beecham
1989
GlaxoSmithKline
2000
1989
ClairolDuPont
Pharmaceuticals
DuPont Proctor & Gamble
2001
56
Mergers & Acquisitions - 4
Pfizer Pharmacia
Warner-Lambert
2000
2003
Agouron
1999
Parke-Davis
1970
SmithKline Beecham
Animal Health
1995
MedicalTechnologies
1998
Adams 2003
UpjohnPharmacia A.B.
Pharmacia & Upjohn
1995
Monsanto
2000
Agracetus
DekalbGenetics
Calgene
1997
Solutia
1997
Merck
SpecialtyChemicals
1995
57
Industry Concentration 1996-2000
1999-2000 Combined 1997-1998 CombinedSales Number of Pharmaceutical Percent Number of Pharmaceutical PercentCategory Companies Sales of Total Companies Sales of TotalGreater than $10 Billion 10 141,189.9 48.5 3 37,671.4 16.0$5 Billion - $10 Billion 8 57,742.0 19.8 12 89,515.3 38.0$4 Billion - $5 Billion 2 9,062.5 3.1 5 22,405.7 9.5$3 Billion - $4 Billion 4 12,446.5 4.3 4 13,874.2 5.9$2 Billion - $3 Billion 6 14,426.0 5.0 7 16,370.5 7.0$1 Billion - $2 Billion 15 20,301.2 7.0 15 22,553.3 9.6$500 Million - $1 Billion 27 18,913.5 6.5 22 14,923.5 6.3$100 Million - $500 Million 54 15,064.3 5.2 63 16,375.1 7.0Less than $100 Million 45 1,852.1 0.6 41 1,709.3 0.7TOTAL 171 290,998.00 100.0 172 235,398.30 100.0
1998-1999 1996-1997 Greater than $10 Billion 6 77,258.8 29.9 2 24,643.9 10.6$5 Billion - $10 Billion 11 81,313.4 31.5 14 100,731.8 43.2$4 Billion - $5 Billion 4 18,711.1 7.2 2 8,884.4 3.8$3 Billion - $4 Billion 1 3,651.0 1.4 6 21,914.6 9.4$2 Billion - $3 Billion 7 17,403.3 6.7 8 18,410.9 7.9$1 Billion - $2 Billion 16 23,305.1 9.0 16 24,549.6 10.5$500 Million - $1 Billion 24 17,332.7 6.7 25 17,047.0 7.3$100 Million - $500 Million 68 17,569.2 6.8 57 15,212.0 6.5Less than $100 Million 41 1,745.6 0.7 40 1,793.2 0.8TOTAL 178 258,290.20 100.0 170 233,187.40 100.0
The Present
What do we think we know?And why do we think we know it?
59
Worldwide approximately 5 million people die each year from just 3
infectious diseases:
Tuberculosis
Malaria
HIV/AIDS
60
Worldwide Sales of Leading Therapeutic Classes
(in BILLIONS of $USD) and Percent Growth (in local currency)
Class Therapeutic Sales Percent Sales PercentRank Class 1999-2000 Growth 2000-2001 Growth
1 Anti-Ulcers 15.8 12 17.4 132 Cholesterol & Triglycerol Reducers 13.4 21 15.9 213 Antidepressants 11.7 17 13.4 184 Calcium Antagonists (plain) 9.9 4 9.8 25 NSAIDS 7.7 23 9.5 266 ACE-Inhibitors (plain) 7.4 5 7.3 37 Cephalosporins & Combinations 7.3 4 6.9 -58 Non-narcotic Analgesics 6.2 1 6 39 Antipsychotics 5.1 26 6 2210 Oral Antidiabetics 4.8 13 5.9 26
61
Pharmaceutical Sales in 13 Key MarketsRetail Pharmacy Sales (plus hospital sales in Japan only); Sept. to Sept.; in MILLIONS of (current; i.e., variable exchange rate)
$US Dollars and Percent Change from Previous Year (at a constant exchange rate; i.e., in local currency).
Region/ Retail Sales Percent Retail Sales Percent
Country 1999-2000 Change 2000-2001 Change
North America 100,202 16 133,380 16 United States 94,827 16 127,400 16 Canada 5,375 16 5,980 16Europe (top 5) 52,233 8 52,266 9 Germany 14,762 4 14,820 10 France 13,689 9 13,495 7 Italy 9,279 11 9,324 12 United Kingdom 9,111 8 9,117 7 Spain 5,392 8 5,507 11Japan 51,774 4 48,385 4Latin America (top 3) 13,235 6 13,071 -1 Brazil 5,129 -2 4,396 -14 Mexico 4,692 25 5,381 15 Argentina 3,414 -2 3,294 -4Australia/New Zealand 2,896 11 2,849 -2SELECTED TOTAL 220,340 10 249,951 11
62
Companies Ranked by Pharmaceutical Sales (Ethicals + OTC); also shows Total Sales -1
IndustryRank Pharmaceutical Percent Change Total Percent(2001-2002) Company Sales Pharmaceuticals Sales Pharmaceuticals
1 Pfizer 26,949.00 19.40 32,259.00 83.542 GlaxoSmithKline 24,775.00 6.00 29,504.00 83.973 Merck 21,347.00 5.60 47,715.50 44.744 Bristol-Myers Squibb 19,423.00 22.30 19,423.00 100.00
5 AstraZeneca 16,480.00 5.00 16,480.00 100.006 Aventis 15,844.70 6.30 20,566.60 77.047 Johnson & Johnson 14,851.00 24.20 33,004.00 45.008 Pharmacia 13,837.00 9.40 13,837.00 100.009 Novartis 11,980.00 15.00 19,018.70 62.99
10 Wyeth 11,716.50 8.50 14,128.50 82.93Group Subtotal 177,203.30 245,936.30Group Avg. Ratio 78.00Percent of Grand Total 55.00 48.30
63
Companies Ranked by Pharmaceutical Sales (Ethicals + OTC); also shows Total Sales -
2
IndustryRank Pharmaceutical Percent Change Total Percent(2001-2002) Company Sales Pharmaceuticals Sales Pharmaceuticals
11 Eli Lilly 11,542.50 13.20 11,542.50 100.0012 F.Hoffman-LaRoche 11,281.30 7.80 17,312.00 65.1613 Schering Plough 8,565.00 0.20 9,802.00 87.3814 Takeda 6,319.30 -4.20 8,281.70 76.3015 Abbott 6,277.00 6.60 16,285.30 38.5416 Sanofi Synthelabo 5,816.50 8.50 5,816.50 100.0017 Boehringer Ingelheim 5,717.90 4.90 6,001.20 95.2818 Bayer 5,136.00 -9.70 27,141.50 18.9219 Akzo Nobel 3,625.40 2.00 12,649.60 28.6620 Sankyo 3,478.90 -6.70 4,522.90 76.92
Group Subtotal 67,759.80 119,355.20Group Avg. Ratio 68.70Percent of Grand Total 21.00 23.40
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Companies Ranked by Pharmaceutical Sales (Ethicals + OTC); also shows Total Sales -
3
IndustryRank Pharmaceutical Percent Change Total Percent(2001-2002) Company Sales Pharmaceuticals Sales Pharmaceuticals
21 Eisai 3,341.60 10.30 3,557.00 93.9422 Shionogi 3,275.40 -5.20 3,462.30 94.6023 Azwell 3,236.90 N/A 3,364.40 96.2124 Yamanouchi 3,145.60 -1.50 3,966.10 79.3125 Merck KGaA 2,978.80 10.40 6,749.20 44.1426 Schering AG 2,893.90 13.40 4340.9 66.6727 Novo Nordisk 2,860.00 10.80 2,860.00 100.0028 Fujisawa 2,812.80 18.00 2,812.80 100.0029 Baxter International 2,786.00 18.40 7,663.00 36.3630 Daiichi Pharmaceutical 2,598.90 -5.90 2977.8 87.28
Group Subtotal 29,929.90 41,753.50Group Avg. Ratio 79.90Percent of Grand Total 9.30 8.20
The Future
Assumptions, Paradigms, and Prospects
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Three Major Questions of Strategic Importance
1. In what direction is the pharmaceutical industry heading globally?
2. What are the key determining factors that will affect the future structure?
3. What impact will the future structure have on planning needs and functions?
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In what direction is the pharmaceutical industry heading globally?
The industry is simultaneously pursuing three macro-objectives:
A) Increased specialization;A function of the complex and highly technical nature of virtually all aspects of the discovery, development, manufacturing and marketing of pharmaceutical products.
B) Global consolidation;A function of economies of scale, eliminating redundancies, reducing costs, streamlining operations, garnering larger shares of emerging markets, and monopolizing intellectual property.
C) Bio-integration;A function of the growing potential for natural and/or engineered biological systems (e.g., botanical, microbial, mammalian cell cultures, etc.) to produce economic (large-scale, low-cost) quantities of active pharmaceutical ingredients or their intermediates, particularly (though not exclusively) those involving novel targets and/or peculiar disease states.
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What are the key determining factors that will affect the future structure?
The key determining factors will include:A) managed care, formularies, and the worldwide trend toward socialized medicine;
B) the growth of generics;
C) D-T-C advertising and more, better brand management and marketing;
D) the availability of capital;
E) better drug delivery;
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What are the key determining factors that will affect the future structure? (continued)
The key determining factors will (also) include:
F) biotechnology;
G) economic geography;
H) improved chemical engineering, industrial processes, and better yields;
I) new forms of leadership, and superior managerial ability;
J) patent and tax reform, other legal inducements or obstacles, and moral impediments.
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What impact will the future structure have on planning needs and functions?
The impact on planning needs and functions will be largely four-fold:
A) a need for better methods of monitoring, analyzing, and interpreting emergent and potential new innovations;
B) a need for increased quality of communication with and paradigm sharing among firms and operating units that represent various areas of specialization within the organization or channel of distribution;
C) a need for generalists with broad backgrounds and experiences to understand and manage the growing herds of “cat-like” specialization and entrepreneurship that will continue to characterize the industry;
D) a need for better methods of conceptualizing and operationalizing the consolidation and integration of discovery, development, manufacturing, and marketing processes in order to minimize price.
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Patent Expirations – Pre-2002-2004Global Sales 2000-2001 (in MILLIONS of $USD)
Year Brand Sales Manufacturer Therapeutic ClassPre-2002 Premarin 2,074 Wyeth Estrogen Prozac 1,990 Lilly Antidepressant Allegra 1,577 Aventis Antihistaminic Taxol 1,197 Bristol-Myers Squibb Antineoplastic Neoral 1,084 Novartis Immunosuppressant Humulin 1,061 Lilly Antidiabetic Vasotec 1,050 Merck Antihypertensive 2002 Prilosec 5,684 AstraZeneca Antiulcerative Clarit in 3,267 Schering-Plough Antihistaminic Glucophage 2,682 Bristol-Myers Squibb Antidiabetic Augmentin 2,047 GlaxoSmithKline Antibacterial Intron 1,447 Schering-Plough Antiviral/Antineoplastic Priniv il 1,260 Merck Antihypertensive Zestril 1,097 AstraZeneca Antihypertensive 2003 Cipro 1,758 Bayer Antibacterial Neurontin 1,751 Pfizer Anticonvulsant Plavix 1,350 Sanofi-Synthelabo Antithrombotic Flovent 1,318 GlaxoSmithKline Antiallergic Advair 1,224 GlaxoSmithKline Antiasthmatic Celexa 1,087 Forest Antidepressant Levaquin 1,052 Ortho-McNeil Antibacterial Rocephin 1,006 Roche Antibacterial 2004 Procrit 3,430 Ortho Biotech Hematinic Epogen 2,108 Amgen Hematinic Lovenox 1,301 Aventis Antithrombotic Diflucan 1,066 Pfizer Antifungal
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Patent Expirations – 2005-2007 Global Sales 2000-2001 (in MILLIONS of $USD)
Year Brand Sales Manufacturer Therapeutic Class
2005 Zocor 6,670 Merck Antihyperlipidemic
Prevacid 2,951 TAP Antiulcerative
Zoloft 2,366 Pfizer Antidepressant
Novolin 1,829 Novo Nordisk Antidiabetic
Zithromax 1,506 Pfizer Antibacterial
Biaxin 1,159 Abbott Antibacterial
2006 Norvasc 3,582 Pfizer Antihypertensive
Paxil 2,674 GlaxoSmithKline Antidepressant
Pravachol 2,173 Bristol-Myers Squibb Antihyperlipidemic
Melavotin 1,621
Oxycontin 1,486 Purdue Analgesic (narcotic)
Neupogen 1,364 Amgen Hematopoietic Stimulant
Imigran 1,092 GlaxoSmithKline Antimigraine
2007 Risperdal 1,845 Janssen Antipsychotic
Fosamax 1,760 Merck Bone Resorption Inhibitor
Effexor 1,542 Wyeth Antidepressant
TOTAL 81,588
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Evolution of Pharmaceutical Science
1900 1950 1960 1970 1980 1990 2000 2010 2020 2030
Aspirin, Sulfa drugs,Penicillins
PsychotropicsNSAIDS
H2-antagonists,Beta blockers
Lipid lowerers,ACE inhibitors
Biotech drugs
ChronicDegenerative Disease, Cancer, Inflammation
Natural products& derivatives
Serendipity
Receptors
Enzymes
Genetic engineering
Cell pharmacology,Molecular biology
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Two Types of Radical Innovations - 1
1. Those that result in new industries or new subsectors of an existing industry:
Smallpox vaccine (1796);
Morphine, 1st alkaloid (1806);
Carbolic acid (phenol), 1st antiseptic (1860);
Phenazone (Antipyrin), 1st synthetic drug (1884);
Arsphenamine (Salvarsan), 1st chemotherapeutic agent (1911);
Sulfamidochrysoidine (Prontosil), 1st antibacterial (1935);
Penicillin, 1st antibiotic (1942);
Process for recombinant DNA, beginning of biotechnology (1975).
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Two Types of Radical Innovations - 2
2. Those that widen the scope and markets of existing sectors or subsectors by applying new scientific principles, technology, or materials to displace existing products or processes; and serve as models for further innovation by imitation:
Barbital (Veronal), 1st barbiturate hypnotic (1903) – 32 imitations;
Chlorothiazide (Diuril), 1st antihypertensive diuretic (1958) – 15 i’s;
Chlordiazepoxide (Librium), 1st benzodiazepine anxiolytic (1960) – 37 i’s;
Propranolol (Inderal), 1st antihypertensive ß-blocker (1964) – 24 i’s;
Cimetidine (Tagamet), 1st treatment for peptic ulcers (1977) – 7 i’s.
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Incremental Innovation
The preeminent vehicle for diffusing innovation among competing companies.
Can be big money makers.
Designed on models of existing products or processes with only modest differences in science, technology, materials, etc.; and do not provide scope for further innovation by imitation.
Trifluoperazine (Stelazine), tranquilizer (1959);
Cefaclor (Ceclor), antibacterial (1979);
Enalapril (Vasotec), ACE inhibitor (1985);
Ranitidine (Zantac), antiulcer (1982);
Atorvastatin (Lipitor) cholesterol reducer (1997).
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Chemical Genetics
The systematic use of small molecules to explore biology.Transition from ad hoc or “targeted” organic synthesis.Biological space – region of multidimensional, biological descriptor space, e.g., specific diseases (cancer, diabetes) or areas of biology having common characteristics, e.g., cell-cycle check points. Chemical space – region of multidimensional, chemical descriptor space, “analogs;” i.e., molecules having similar overall properties (volume, charge, number of bonds with low barriers to rotation, etc.)
