Big Pharma: Who's Your Role Model, Toyota or Edsel?

June 12, 2007
Failure to innovate in manufacturing has hurt Detroit’s top automakers. There’s a lesson here for Big Pharma.

Generic drug manufacturers must grapple with the tightest of all pharmaceutical profit margins. This is especially true of generic manufacturers in developing countries. Branded drug makers had not suffered from such constraints in the past, but this situation is about to change.

As key drug patents expire over the next five years, manufacturers of name-brand pharmaceuticals will lose about $100 billion in revenue and associated profit to generics manufacturers, at a time when there are fewer blockbuster drug candidates in the pipeline and costs for drug discovery, development and commercialization have escalated.

Branded pharma is also seeing increased competition from generic manufacturers in developing nations. Despite cost and other pressures, Indian and Chinese generic manufacturers have challenged existing business models, and are realizing the benefits of intellectual property (IP) protection by developing patents of their own, channeling increased profits into developing branded drugs.

Big Pharma could learn a few lessons in manufacturing efficiency and agility from some of its generic competitors in Asia. History is full of examples like this: 60 years ago, an obscure company in Japan began to pursue manufacturing innovation. Toyota soon surprised Detroit and the world with what it had learned.

Today, name-brand drug companies are attempting to improve margins by consolidating or outsourcing manufacturing, repositioning their R&D and realigning their sales forces. But have enough of these companies looked at how they are designing their processes for API manufacturing? So far, unlike generics manufacturers, especially those operating in the developing world, branded drug makers have had little incentive to reduce drug prices to consumers, or to reduce their own costs.

Efforts to cut manufacturing costs must be escalated. Today, most drugs are still produced by inherently inefficient and costly batch processes. Very little has been done to advance improved batch and continuous processes in pharmaceutical manufacturing. This is a real shame because the benefits of better manufacturing methods and technologies can be realized quickly.

FDA is encouraging implementation of process improvements in the manufacture of active pharmaceutical ingredients (API) and dosage formulations. Conversion yields of most existing commercial API processes are poor, resulting in wasted raw materials, inefficient manufacturing and unnecessarily high costs to the consumer. A quick and concerted effort is needed to improve API manufacturing, involving a thorough understanding of process chemistry, reaction kinetics, physical chemistry, unit processes and their incorporation into the simplest unit operations. The results will not only be high conversion yield but “greener” manufacturing processes.

As to the naysayers, let history be their guide. In the early 1970s, when the global environmental movement arose, many believed that effluent regulations would bring manufacturing to a stop. They didn’t. Instead they improved efficiency, as those who complied with the new regulations improved their processes, which led to greater profitability.

Pharmaceutical manufacturing has been meeting environmental standards and FDA guidelines. But FDA and EPA cannot force manufacturers to improve their operations or reduce cost. Change must come from within.

Will that change ever come? Recently, I saw a reaction process that took about 60 hours to carry out. The same reaction step could be done in a different way without altering the basic process, reducing the cycle time by 75% and increasing the process capacity by the same percentage. ROI for this project could be realized in about three months.

There are many other examples of different API chemistries where improving cycle times and conversion yield will improve margins, reduce waste and environmental emissions, and reduce the cost to the customer — a win-win for all.

Toyota transformed automaking, not only with its business process management system but also with the engineering and improved fuel efficiency of its engines. If Big Pharma does not begin to innovate in its manufacturing and use of process control, it, too, may meet the fate of automakers who were slow to respond to market forces.

About the Author

Girish Malhotra | P.E.