The Past, Present and Future Structure of the North American and Global Pharmaceutical Industry and its Impact on Planning Functions

1
The Past, Present and Future Structure of the
North American and Global Pharmaceutical Industry
and its Impact on Planning Functions
2
Overview

• Some definitions
• Brief history to 1850
• Origins of pharma companies
• Changing orientations
• Impact of innovation
• Social, cultural political change
• Development of organic chemistry synthetic
  pharmaceuticals
• Impact of 2 World Wars

• Manufacturing nuts bolts
• 5 generations of pharma innovation
• Industry structure c.1980
• Linear development
• Recent MA activity
• Present situation
• Future
• Pharmaceutical evolution
• Types of innovation
• Chemical genetics

3
Definition of Structure

• The 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 Period
Hindu Vedas classical
Oldest cultivated opium
George Ebers papyrus
Edwin Smith papyrus
Ben Cao Kong Mo
Pen Tsoa
Sumer
600 BC_
3400 BC_
1700 BC_
4000 BC_
3000 BC_
9
Classical Period
Claudius Galen
Theophrastus
Hippocrates
Cleopatra
50 BC_
400 BC_
500 BC_
300 BC_
200 AD_
10
Medieval Period
4th Crusade
Da Vinci in Medici gardens
Avicenna
Rhazes
900 AD_
1100 AD_
1200 AD_
1500 AD_
1300 AD_
1400 AD_
1000 AD_
11
Age of Discovery - 1
Charles Marie de la Condamine
Da Vinci moves to France
Regency of Catherine de Medici
Juan del Vego
Antimony as emetic (Louis XIV)
Lady Mary Wortley Montagu
Sack of Medici palace
Paracelsus
1700_
1500_
1450_
1550_
1600_
1650_
1750_
12
The Proposition of the Usual Dose
The dose makes the poison
Paracelsus (1493-1541)
13
Age of Discovery - 2
Justus von Liebig
William Withering
Friedrich Wilhelm Sertürner
Alexander von Humboldt
Michael Faraday
Humphrey Davy
Friedrich Wöhler
Hermann Kolbe
1800_
1775_
1825_
1850_
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 Perkins 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
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.

Aniline
Naphthalene
Anthracene
Murexide
Picric Acid
Quinine
Alizarin
Indigo
Manchester Brown
26
Aniline Companies Following Perkins Discovery
Company Country Date K.G.R. Oehler
(Griesheim Elektron) Germany
1856 Perkin Sons Britain
1857 Renard Frères (Societe la Fuchsine/1864)
France 1858 Read Holliday
Britain 1858 Girard et Georges de Laire
France 1860 Alexandre Clavel
(Gesellschaft für Chemische Industrie Basel
CIBA/1884) Switzerland 1860 J.J. Müller
(Geigy/1862) Switzerland 1860 J.
Poirrier (S.A. des Matières Colorantes et
Produits Chimiques de St. Denis/1881) France
1861 Badische Anilin und Soda Fabrik (BASF)
Germany 1861 Meister Lucius Bruning
(Farbwerke Hoechst) Germany 1862 Durand
Huguenin Switzerland
1862 Friedrich Bayer (Farben Fabrik vormals
Friedrich Bayer) Germany 1863 Kalle
Co. Germany 1864 Leopold
Cassella Cie. Germany
1867 Aktien Gesellschaft für Anilin Fabrikation
(AGFA) Germany 1867 Schoellkoph
Aniline Chemical Co. USA 1879 Sandoz
AG Switzerland 1886 Benzol
Products USA 1910 DuPont
USA 1916 Calco USA
1916 Dow USA 1916 National
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
  worlds 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 IQuote 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.
• Hoechst
• Cassella (acquired by Hoechst in 1909)
• Kalle (acquired by Hoechst in 1908)
• 1906 the Dreibund A counter-measure to
  Hoechsts growing power.
• BASF
• Bayer
• AGFA
• 1916 the Little I.G. (Interessengemeinschaft
  der deutschen Teerfarbenfabriken)
• Dreibund Dreiverband the Two Independents
• Chemische Fabrik vormals Weiler-terMeer, and
• Chemische Fabrik Griesheim Elektron)
• 1925 Final integration of I.G. Farben
• Cassella 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
• Knoll
• Others (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
BASF (Ludwigshafen)

France
BASF (Leuna, etc.)
USSR
I.G. Farben
UK
Bayer
USA
Hoechst
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
47
Pharmaceuticals from Fermentation

• Statins
• Lipitor, etc.
• Antibiotics
• Penicillins
• Cephalosporins
• Tetracyclines
• Macrolides

48
4 Basic Building Blocks of Biosynthesis

• 1. Acetyl coenzyme A
• Major role in the synthesis of phenols,
  prostaglandins, macrolide antibiotics, and
  various fatty acids and their derivatives.
• 2. Deoxyxylulose phosphate
• Together with mevalonic acid is responsible for a
  vast array of terpenoids and other steroids.
• 3. Mevalonic acid
• Major precursor of cholesterol and other sterols.
• 4. Shikimic acid
• Major 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
CIBA Geigy
CIBA Specialties
Hoechst
1996
1996
1996
Clariant
2000
Astra AB
1999
1993
ICI
Zeneca
54
Mergers Acquisitions - 2
Union Carbide
Aventis CropScience
Bayer
Aventis
2002
2000
1997
Collaborative BioAlliance
1999
Rhodia
Celanese
Roussel Uclaf
1997
1999
1995
1997
1994
Marion Merrell
Rhône-Poulenc
Hoechst
Lilly
1990
1995
1996
Sandoz
Clariant
Rorer
Fisons
55
Mergers Acquisitions - 3
Proctor Gamble
DuPont
Glaxo
2001
2000
DuPont Pharmaceuticals
Glaxo Wellcome
Clairol
1989
Beecham Group
1989
1982
Squibb
Bristol-Myers
SmithKline French
Beckman Instruments
Allergen
56
Mergers Acquisitions - 4
2003
2003
Adams
2000
1998
2000
Medical Technologies
Solutia
1999
Animal Health
1997
1995
1970
Specialty Chemicals
1995
57
Industry Concentration 1996-2000
58
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)
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).
62
Companies Ranked by Pharmaceutical Sales
(Ethicals OTC) also shows Total Sales -1
63
Companies Ranked by Pharmaceutical Sales
(Ethicals OTC) also shows Total Sales - 2
64
Companies Ranked by Pharmaceutical Sales
(Ethicals OTC) also shows Total Sales - 3
65
The Future

• Assumptions, Paradigms, and Prospects

66
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?

67
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.

68
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

69
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.

70
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.

71
Patent Expirations Pre-2002-2004Global Sales
2000-2001 (in MILLIONS of USD) Year
Brand Sales Manufacturer Therapeutic
Class
72
Patent Expirations 2005-2007 Global Sales
2000-2001 (in MILLIONS of USD) Year
Brand Sales Manufacturer Therapeutic Class
73
Evolution of Pharmaceutical Science
Cell pharmacology, Molecular biology
Chronic Degenerative Disease,
Cancer, Inflammation
Genetic engineering
Enzymes
Biotech drugs
Receptors
Serendipity
Lipid lowerers, ACE inhibitors
Natural products derivatives
H2-antagonists, Beta blockers
NSAIDS
Psychotropics
Aspirin, Sulfa drugs, Penicillins
1900 1950 1960 1970 1980 1990 2000 2010 2020 2030
74
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).

75
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 is
• Chlordiazepoxide (Librium), 1st benzodiazepine
  anxiolytic (1960) 37 is
• Propranolol (Inderal), 1st antihypertensive
  ß-blocker (1964) 24 is
• Cimetidine (Tagamet), 1st treatment for peptic
  ulcers (1977) 7 is.

76
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).

77
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.)