“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change,” explained Charles Darwin in Origin of the Species, his treatise on natural selection and its role in evolution. For the generic drug industry, this universal maxim is hard at work, and it’s clearly evident the industry’s players are busy adapting to the pressures the current commercial and regulatory environment is presenting.
What does the future hold for the generic drug “species?” Time and profitability will tell, but it is obvious that some entities will thrive and prosper, while others less blessed with scale, cost-efficient operations, competitive agility and financial health will go the way of the mastodon — weakened by poorly understood or controlled processes and risk prone to expensive quality and compliance excursions — destined to be hunted down by faster, more efficient predators.
Global Market Warming
Total spending on medicines globally is projected to rise to $1 trillion in 2013 and to $1.2 trillion by 2016, says IMS Institute for Healthcare Informatics. For generic drugs, the market was worth $110.8 billion globally. In the report “Generic Drugs: World Market 2013-2023,” pharma industry analyst firm Visiongain predicts it will reach $156.9 billion by 2016, reflecting a compound annual growth rate of 5.5%. Visiongain set the U.S. market at $43.1 billion for generic drugs in 2011, making it the world’s largest national market for generics, followed by Germany, a distant second, at $8.6 billion. Visiongain says “the generics market is expected to achieve significant revenue growth over the forecast period owing primarily to the greater demand for cost-effective generic medicines.” (see sidebar: Generic Drugs: Cost Effective Indeed)
2012: A Pivotal Year
For the generic drug industry 2012 was a pivotal year. In 2012, more than 40 branded drugs representing some $35 billion in sales lost patent protection. Reporting for the New York Times, pharma industry observer Katie Thomas said the value of drugs scheduled to lose patent protection will be cut in half to some $17 billion and, consequently, have a negative impact similar to the effect patent expirations are having on the branded industry. While the ultimate effect of a constricting pipeline of generic drug patent expiration opportunities remains to be seen, generic producers, contract manufacturing operations (CMOs), excipient suppliers and other players are responding to market and competitive pressures, evolving and adapting to challenge adversity and win opportunity.
Some are seeking to exploit niche markets and technical acumen by focusing on producing difficult formulations. Others seek market share, global production assets and strategic therapeutic category positions through acquisitions, partnerships and alliances. When one starts looking across the supply chain, it’s obvious this behavior is being repeated again and again. A recent visit to CMO DSM Pharmaceutical Products affirms the pervasive view among industry players that smart collaborations and well-ordered alliances will provide longer-term advantages and healthy revenue streams. According to Wayne Weiner, vice president of Business Development, “DSM is establishing strategic alliances worldwide which build on our technical, manufacturing and regulatory expertise with partners’ understanding of patient needs to bring generic and specialty medicines to market in a reliable and sustainable way; and consistent with DSM’s Quality for Life program.”
Noteworthy, and with a certain irony, large generic pharma is also looking to secure positions in branded pharma to support strategic business goals and attain longer-term financial and business success, pursuing a hybrid business model to help assure sales and revenue, as well as investor returns. Of course, big branded pharma has also, over the years, been busy staking out its territory in the generics space.
Last October, Watson acquired Activis, adopted its name and in the process made itself the third largest generic maker in the world. Seven months later, Valeant Pharmaceuticals was reported to be chasing Activis, as was Mylan which offered $15 billion for the Parsippany, N.J.-based company — an offer it rejected according to a May 14 Reuters report. Just over a week later, media reported that Activis agreed to acquire specialty pharmaceutical company Warner Chilcott Plc. in a $5 billion deal. A Wall Street Journal piece May 21 provided insight: “The Warner Chilcott deal would help Activis — whose core generic-drug business faces difficult market conditions — further diversify into patented, brand name drugs.” According to the report, Activis said the Warner Chilcott acquisition would strengthen its portfolio and boost annual revenue to about $11 billion.
Other companies are creating alliances and defining new partnership models, as well as closely examining, then trimming asset costs or looking to divest noncore assets to achieve similar ends. Teva, widely acknowledged as the global generic drug industry’s leader (ranked 10th by IMS as among the top 20 pharma manufacturers in 2012 by sales of $24.8 billion), has been responding to business environment pressures, busy restructuring itself to compete in the generics industry’s fast-changing environment.
In April, Bloomberg reported Teva is reducing manufacturing operations as part of a $2 billion, 5-year cost-cutting effort, with most of the savings under the plan coming from lowering procurement expenses. Teva CEO Jeremy Levin offered this assessment: “Some parts of manufacturing will be affected, but this is not the major thrust of this,” said Levin.
Teva is also pursuing the production of difficult formulations as is Mylan (ranked 20th on IMS’ top 20 list with $10.5 billion in 2012 revenues) — both looking to create generic versions of Advair, a tough nut to crack because it combines two APIs delivered via a specialized inhaler.
Headwinds and Undercurrents
Macro market themes aside, there are numerous undercurrents and headwinds buffeting the generic drug industry challenging large, medium and small companies alike. Despite its market successes, several generics producers and suppliers in recent years have been troubled by well-publicized product recalls, process quality excursions, bioequivalency issues and even industrial accidents.
Ranbaxy provides the most recent, if not spectacular, cautionary tale. In May, Ranbaxy pleaded guilty to federal drug safety violations and forced to pay $500 million in fines to settle claims it knowingly sold drugs that fell short of FDA required standards. According to the Justice Department, the settlement is the largest in history involving a generic drug manufacturer and drug safety. The settlement comes in the wake of the FDA’s consent decree issued to Ranbaxy after officials identified a rash of manufacturing lapses at plants in the United States and India, as well as finding that it knowingly submitted false data to the FDA. A New York Times report on the announced settlement noted that “Ranbaxy’s troubles have not been limited to lapses outlined in the federal settlement. Last November the company halted production of generic Lipitor while it investigated why glass particles turned up in pills distributed to the public.” In fact, among the prosecuted violations, the company admitted that in August 2007, batches of gabapentin tested positive for unknown impurities and that the subsequent recall involved some 73 million doses.
Do Ranbaxy’s problems shine a light on poor oversight of overseas generic drug producers by the FDA? Perhaps. The New York Times reported that off-shore plants are inspected once every 7 to 13 years compared to domestic plants which are inspected every two years. Certainly not optimal and the agency recognizes it: The FDA’s recent budget request included an additional $10 million for inspections in China for fiscal year 2014.
More or Less?
Do the recurring reports of quality and bioequivalency lapses support the notion that there is actually more regulatory scrutiny or is it that manufacturers have become more lax in managing quality? Nigel J. Smart, VP & managing partner for Smart Consulting Group, proposes that “One shouldn’t over-generalize because there are a lot of things going on in the industry right now. Remember the regulatory climate is always an evolving situation, so one must continuously upgrade what one is doing to maintain a state of compliance.”
Smart explains that, like other federal agencies, the FDA is going about enforcing the laws on the books and is using its resources to assure compliance so the public is protected. “One must remember that in the last few years we’ve had a number of unfortunate situations with poorly manufactured drugs and medical products, some from overseas, and this always causes Congress to ask questions of the FDA. Domestically when things change, generic companies don’t always have the resources to respond quickly enough and that’s why these companies fall out of compliance. Process validation is a good example of this changing landscape and it’s taking time for companies to adapt from how they’ve been working for the last 30 years.”
At GPhA’s annual meeting in February, FDA commissioner Margaret Hamburg set the table for the agency’s renewed focus on generic drug quality oversight in her speech to attendees: “Year in and year out we say much about safety and efficacy. But without product quality, none of us can feel confident that the product will be either safe or effective ... and unfortunately, we’ve seen far too many quality lapses throughout the pharmaceutical industry over the past few years. Quality concerns are not exclusively the province of generic drugs, as you well know. I’m sure you’ve cringed when you heard some of the stories — glass shards and other particulates in products, ... bacterial or endotoxin contamination found in products manufactured in an aging sterile injectable facility, and concerns about prescription meds mixed in with bottles of over-the-counter medication. These are not the norm, but they are warning signals that we can and must do more.”
And the FDA is doing more. Between 2009 and 2010 the number of warning letters sent by the FDA increased 42%. Recent regulatory zeal is also causing drug shortages (see sidebar “Caught Short”). Between 2010 and 2011, the number of warning letters increased 156%. According to Siegfried Schmitt, principal consultant and QBD practice lead for contract research provider PAREXEL, “For many makers, some prominent compliance issues are related to unreliable or even falsified records. Warning letters and 483s are clear indicators of this widespread issue.”
A review of the Food & Drug Administration’s Inspections Citations data supports Schmitt’s assertion. Most compliance issues in 2012 point to gaps in process understanding and from poor or non-existent documentation.
Bikash Chatterjee, president and CTO of Pharmatech Associates offers context and perspective to help better understand the emerging generic drug regulatory environment. “Generic manufacturers have been operating under a quality model that was first established in the mid-80s. Despite admonitions from the FDA and other regulatory bodies to adapt and evolve, little has changed in the scientific level of product development and quality assessment. The level of enforcement we see today is much more in line with brand drug manufacturers and that is why there is more regulatory action of generic drug manufacturers. However, the agency is in a pickle: With a mandate from Congress to drive down payer costs while maintaining public safety and meeting the demands of the marketplace, the inevitable drug shortages from regulatory actions hurt everyone.”
Survival of the Fittest
The pressure to succeed and thrive in this industry is enormous; the stakes are high, but superlatives aside, the rewards are there to reap for companies able to leverage the tools and the technological resources required to achieve business success manufacturing and marketing generic drugs. The market (which at its heart, are millions of people seeking better health and longer lives through the therapeutic consumption of medicines) is demanding the generics industry deliver ever increasing quantities of safer, more effective and less expensive drugs. The industry, in turn, is seeking to supply this demand within the context of capitalistic free enterprise, but due in part to its growing complexity, technical density and scale, is struggling to achieve the almost mandatory perfection demanded by regulators, society and the financial community.
For the most part, the industry’s major issues of supply, quality, formulation, purity, batch and process understanding, compliance, profitability, etc., all tend to point to gaps and disconnects across the manufacturing continuum and the slow adoption of applied processing science and supporting technologies. Following this are regulatory imperatives that are insisting the industry invest in and integrate what producers can prove empirically are current good manufacturing processes that assure product quality by process design.
Controlling process variability and assuring product quality in real time (RTQA) is the desired state of pharma manufacturing as prescribed by regulators. The focus on QBD is prompting pharma manufacturers to make larger investments in the means of production earlier in the product development lifecycle. The strongest, if not the fittest, are indeed recognizing that the road to redemption for some, and long-term financial health for others is paved with GMP and QBD methodologies. Successful companies are investing time, resources and especially capital to implement these tools, not merely for survival commercially, but to move themselves and their organizations further up the generic drug industry food chain.
Companies adept at sensing opportunities in the market’s dynamics are moving into generics with a competitive agility that leverages their technical and business acumen achieved in other segments of the pharmaceutical industry supply chain. For example, in March, BD (Becton, Dickinson and Company) announced the FDA approved its first drug to be offered in the just-launched BD Simplist product line of ready-to-administer prefilled injectables to be commercialized by BD Rx, its wholly owned subsidiary.
As recent regulatory actions suggest, producing high volumes of sterile injectables is neither easy nor very profitable if not done with high-volume precision. Delivery systems are also evolving in response to medication errors stemming from a number of issues involved in the physical administration of injectable drugs. For BD Rx, “Our initial goal was to create a new value proposition for injectable drugs,” says Mark Sebree, president and CEO, “that merged the idea of what an original container would be with what the final delivery device would be.” Sebree notes that a lot has changed in the environment, the call for companies to transition away from older technologies, for instance, and especially away from older manufacturing processes. "Two things come to mind," says Sebree, "... the durg shortages and the sterility issues we've seen with outsource compounding."
In pursuit of scale, quality and flexibility, BD Rx created its new facility to integrate high-order GMP and QBD principles to process the formulations and package them in an innovative and safer form. Tracy Hottovy, director of operations, says that early on they wanted to take a ground-up approach. After taking a close look at existing processes and facilities they concluded that “what we wanted to go after was to put in place the best manufacturing process we could … to ensure the best quality of products in the supply.”
Hottovy explains that risk always comes from variation and that inevitably, that variation is caused by humans. At every point in the processing line where human activity might impinge on quality, the BD Rx team and its technology suppliers sought technical solutions to remove direct human interventions from the process and designing in critical control parameters and quality control attributes right from the start. “So what we really did, says Hottovy, “was develop an innovative process … a closed manufacturing system.” How closed? “Closed meaning from the time our process starts; bringing the API into the facility. We dispense it; do our compounding, filling sterilization, inspection, assembly, packaging … all that is within our control.” Hottovy explains that the new BD Rx processing line is technically a batch process, but incorporates continuous principles once the batch is in process, and that risk from human-introduced variation or contamination is virtually 100% eliminated. “We actually put in place a … continuous process that starts the batch; and all of our … materials move through the entire plant without people moving them. That creates a great opportunity for us to get very rapid feedback … on the manufacturing process and detect any variation that could come at any time.”
Leadership by the Leader
According to Uri Hillel, head of R&D Quality and Corporate Quality & Compliance for Teva Pharmaceuticals, Teva has worked on implementing the FDA guidelines defining Quality by Design (QbD) guidance and has adopted the QbD philosophy in its development of generic products. “For Teva, this means understanding the products, formulations and processes in depth, and submitting appropriate applications to the authorities using a more systematic development approach.”
Hillel explains that Teva implemented a global training program to train scientists and engineers on QbD methodology principles and applications. Teva also developed internal QbD Guidelines as well. “Design of experiments methodology and statistical tools have been successfully implemented at global R&D sites,” says Hillel, and “R&D is interactively working with operations, regulatory and QA on the manufacturing process prior to production of the registration batches [while] identifying and proposing mitigation to risks at scale up, reviewing together the proposed control strategy, operation ranges and product specifications.”
Achieving appropriate quality outcomes is the generally understood goal of prevailing regulatory guidance, and those companies that adopt both QbD and (ICH Q10) Pharmaceutical Quality Systems will achieve the “desired state” of pharma manufacturing. Teva’s Hillel agrees: “By implementing QbD (ICH Q8, 9) together with ICH Q10 (which is an integrated part of QbD implementation) we can reach the ultimate goal: providing uninterrupted supply of affordable, high-quality medicines to our patient. This is the desired state for the customer and for the industry, while enhanced product and process understanding will facilitate substantial efficient tech transfers, higher rates of successful validation and timely introduction of new medicines to the patients.”
Proper Knowledge Used Properly
The FDA has coined the term “Design for Manufacturing” to describe the use of process information to achieve acceptable quality standards. For Teva, says Hillel, “Proper prior knowledge utilization is one of the main tools for successful QbD implementation in the generics industry. Having such a variety of in-house capabilities and product developed, it is critical to utilize this accumulated information and data to gain better understanding for future developed products.” At Teva, data-mining techniques are being utilized for historical data trending and modeling in order to identify potentially critical process parameters and materials attributes, or any additional sources of variability. “In addition,” adds Hillel, “based on knowledge and experience gained, an internal database of Ishikawa diagrams for each unit operation was created in order to streamline the Risk Assessment process.”
Accidental changes which occur in the sequence of DNA result in mutations. Mutagenic chemicals, radiation, viruses, etc., all can cause mutation in the DNA of a cell, as well as errors from Meiosis or replication of DNA during cell division. Many times these errors are induced by an organism through what is known as hyper mutation. Most understand now that mutations can be good or bad. Depending on the environment and circumstances, mutation-caused changes in protein sequence can improve an organism’s chance of surviving changes to its environment. For many generic drug processors, the environment is forcing change, but is it causing positive mutations at the “DNA” level to sustain commercial success? There is certainly evidence out there supporting the theory; the fittest are adapting, integrating new tools, and science-based process understanding to survive the tectonic lurches in the plates of the pharmaceutical market and changes to the business climate’s temperature. The fittest will survive because companies are evolving, and it’s coming from something inside.
Published in the June 2013 edition of Pharmaceutical Manufacturing magazine