1039/9781782622345-00001
DAVID TAYLOR
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ABSTRACT
The pharmaceutical industry has a number of unusual characteristics,
both in its structure and in the nature of its business operations, which
are little known outside the industry but which materially aect the
process of bringing new pharmaceuticals to the patient. The develop-
ment of a new pharmaceutical is very time consuming, extremely costly
and high risk, with very little chance of a successful outcome. The
process of research and development is described, together with all its
challenges, including environmental ones. The commercial realities
and constraints of the business, together with its current problems, are
discussed, followed by an exploration of some of the likely future
commercial and technical developments in the business, including the
development of a greener pharmacy.
1 Introduction
The pharmaceutical industry has a number of unusual characteristics that
make it very dierent from what people normally think of as industry. It
is also an industry replete with contradictions; for example, despite the
undisputed fact that for over a century the industry has made a major
contribution to human wellbeing and the reduction of ill health and
suering, it is still regularly identified by the public in opinion surveys as
one of the least trusted industries, often being compared unfavourably to the
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used interchangeably and the word drug can also mean both a medicine
and an illegal substance, depending on the context. In this chapter the
word pharmaceutical is arbitrarily assigned to the end-products of the
pharmaceutical industry that are used by patients. The word drug is mainly
used for potential pharmaceuticals whilst under development by the industry.
The science of pharmacology developed slowly during the next century and
Oswald Schmiedeberg (18381921) is now generally recognised as the
founder of modern pharmacology.14 In 1872 he became professor of
pharmacology at the University of Strassburg in Austria where he studied the
pharmacology of chloroform and chloral hydrate and in 1878 published the
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The post-war period from the 1950s to the 1990s saw major advances in
drug development with the introduction of new antibiotics, new analgesics,
such as acetaminophen and ibuprofen, and complete new classes of
pharmaceuticals such as oral contraceptives, -blockers, ACE inhibitors,
benzodiazepines and a wide range of novel anti-cancer medicines.
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In fact, the only common factor which unites pharmaceuticals is their use;
substances that we identify as pharmaceuticals are simply those substances
that we use as human (or animal) medicines. This means that, in principle,
any substance might be identified, at some point, as a pharmaceutical.
Not surprisingly therefore, many pharmaceuticals are also used for
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for new drugs.49,50 The majority of the candidate drugs never make it to the
market place because, during development, the drug is found not to work or
to have serious side eects that mean it can never be used in patients.
However, a small number of new pharmaceuticals do enter the market each
year and the patent system ensures that for a limited period of time the
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businesses. The products that they choose to manufacture and sell have
already been shown to be valuable and commercially successful in the
market place. Generic companies do not need to incur any research and
development costs, although some of the larger companies do undertake
process-orientated R&D in order to introduce more ecient, and lower cost,
manufacturing. Although manufacturing in the industry is highly regulated,
product volumes are small and manufacturing costs are relatively low.
Marketing costs are also very low since the products are already well
established in the marketplace and the demand is well understood. In many
ways, generic pharmaceutical companies are in commodity markets where
competitive dierentiation is based on cost of goods and profitability is
determined by market share.
The research pharmaceutical companies operate under a completely
dierent business model. It is these innovative companies that bring the
new pharmaceuticals to the market. This is very expensive, time consuming,
and involves extremely high risks. Research and development in the
pharmaceutical industry is very expensive, but it is the development activity
that dominates the costs, particularly in the clinical trials which follow the
pre-clinical development.
Research into ill health and disease can sometimes identify targets where
chemical intervention could generate positive outcomes. High-throughput
screening and other techniques can then be used to identify possible sub-
stances that might be suitable candidate drugs. The most likely candidate(s)
then move from research into development. This not only involves the major
issues of determining whether the candidate drug works satisfactorily
(ecacy) but also whether it causes any significant side eects (safety). It
is also necessary to investigate whether the active substance can be
delivered to the patient satisfactorily, i.e. can the substance be turned into a
useable drug?
The success rate though this development phase is extremely low: o1% of
candidate drugs eventually end up in the pharmacy. This rate is continuing
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We saw in Section 1.2 that almost any substance has the potential to find use
as a pharmaceutical, but how do we know which ones to use? In the days
of the herbalist and apothecaries, knowledge was derived from simple
empiricism, substances were used when they had been shown to work, and
such valuable information was passed on in oral tradition until documen-
tation became available. However, although at the beginning of the 21st
century we have far more knowledge than the first century herbalists had,
the process of identifying new drugs is, at least in principle, very similar. The
following recent quote from a medicinal chemisty is apposite:51
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manufacture trial batches of the substances (the active ingredients) for use
in the subsequent clinical trials and eventually for full-scale manufacture.
In parallel, work will begin on the potential druggability56 of these
substances, i.e. can the active ingredient be converted into a form that could
be taken by a patient such that the substance can interact with the target.
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can be taken forward rapidly to replace the lead candidate should any
unexpected problems arise during the clinical trials.
A candidate drug will take from six to ten years to complete the first three
phases of clinical trials. The time taken is determined by the duration of the
disease that is being treated and by the extended time that it can sometimes
take to assemble sucient patients for the trial.
Phase 1 trials are to confirm that the results derived from the in silico,
in vitro and in vivo trials in experimental animals are replicated in human
subjects. Small numbers (1015) of healthy human volunteers are exposed to
very low amounts of the candidate drug for short periods under carefully
controlled and monitored conditions. Data from the trial are compared with
data from the pre-clinical studies to ensure that the drug is working as
anticipated. These studies are first time in man experiments and, despite
the care and preparation taken, the unexpected can happen. One of the
best-known examples is the recognition that sildenafil, a drug under
development by Pfizer to treat hypertension, subsequently marketed as
viagra, had a notable impact on male erectile dysfunction.62 However, in
some rare cases the consequences can also be severely adverse.63
If all has gone according to plan in Phase 1, Phase 2 trials can begin, the
primary purpose of which is to establish whether the drug works, i.e. is it
eective against the target disease? In addition, further information on
pharmacodynamics and safety is collected. These trials are larger (100300)
and now involve patients with the illness concerned.
In Phase 3 trials, the treatment is then given to much larger groups of
patients (10003000) in order to confirm its eectiveness, monitor any side
eects, compare it to commonly used treatments and collect information
that will allow it to be used safely. Despite the vast amount of information
that has been generated on the candidate drug before it enters its Phase 3
trials, many drugs fail at this point, with some analysts estimating the failure
rate to be as high as 30%.
This is the first time that the drug will have been given to a large number
of patients and only now will low-frequency side eects begin to appear.
Even a serious, potentially life-threatening, side eect that appears in less
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than 1 in 100 people will not have been identified previously.64 In addition,
the higher level of statistical power in the Phase 3 trial may also demonstrate
that the drug has, in fact, little if any ecacy.65 In fact, frequently the drug
doesnt work or works much less eectively than originally predicted or only
works on a sub-set of the population. This information is itself immensely
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4 Commercial Realities
4.1 Problems with Patents
A successful pharmaceutical, once approved by medicines regulators such as
the FDA in the United States and the EMA in the European Community, can
then be sold. The innovating company will have already patented the drug
and thus has exclusive rights to sell the product until the patent expires.
However, although patents in developed countries are usually granted for
20 years, the window of sales exclusivity will be significantly less, in most
cases no more than 10 years. This is because the innovating company
needs to patent the drug well before its first launch in order to protect its
intellectual property. During this short period, of ten years or less, the
innovating company has to recoup all the R&D costs of both the drug(s)
being sold and of all the other drugs that failed during development,
together with the manufacturing and marketing costs. The instant that the
patent expires, generic competition will lead to a dramatic reduction in price
and major loss of market share.
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Since patent life is one of the key determinants of the income that can be
generated from a product it is not surprising that research companies try to
extend patent life as much as possible.76 This patent evergreening48 can
sometimes be done simply by patenting the manufacturing process or the
drug formulation or, in some cases, the drug delivery system, all of which
can be implemented much closer to the launch date. Generic companies, on
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the other hand, endeavour to have patents set aside or to find ingenious
ways to get around the patents.
There has also been an increase in recent years in pay for delay agree-
ments between patent holders and generic manufacturers. Table 1 shows an
example of how these work. If the patent holder pays the generic company
not to manufacture then both the patent holder and the generic company
benefit, but the price remains higher after patent expiry than it would have
done. However, the legality of these deals is under question.77
It is not only the inevitable loss of market share from generic companies
that the innovating company must be concerned about. Once a candidate
drug is patented, many years before product launch, the concept and
principle on which the drug is based will become public knowledge. All
research pharmaceutical companies are keenly aware that everyone else is
keeping a close watch on their patents. Companies can be expected to begin
investigating interesting patents for areas of research in which they already
have major interests and it is, therefore, quite common for several drugs
with the same or similar modes of action to be simultaneously under
development in dierent companies, each one being carefully designed to
avoid infringing existing patents. Indeed, one of these follow-on drugs might
make it into the market first, which could have serious consequences for the
original innovators sales.
These drugs are often given the derogatory term me-toos and frequently
dismissed as being unnecessary and wasteful products of competition.
However, these drugs, which may only show incremental improvements on
the original, are nonetheless important to patients. It is frequently found
that a patient who cannot tolerate or fails to respond to one drug may benefit
from one of the me-toos.78
This short and increasingly diminished patent life available after
pharmaceutical launch has consequences throughout the business. This has
been recognised by legislators and a number of mechanisms have been
introduced to provide extensions to marketing exclusivity in order to
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The short useful patent life is the reason why research pharmaceutical
companies spend such large amounts of money on marketing. When the
patent expires and generic competition begins, marketing is largely
unnecessary because by then everyone is well aware that the new
pharmaceutical exists and understands its potential benefits for patients.
However, at product launch, the patent holder does not have the time to wait
for this information to slowly spread across the medical community. If the
investment is to be recovered, the new pharmaceutical has to be used
immediately by as many patients as possible. This requires intensive
marketing eorts leading up to the launch of the pharmaceutical to ensure
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companies to consider. For example, imagine the response that you would
get from a finance minister presented with the value proposition in the case
study above for the development of a single drug!
This then has a direct impact on research priorities. It is clear that despite
their size, pharmaceutical companies do not have sucient resources to
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economic. Antibiotics are used by patients for very short periods and sales
volumes are now insucient to justify the necessary development costs. This
is exacerbated by the fact that any new antibiotic would now be prescribed
sparingly to ensure that antibiotic resistance was minimised. This problem
was identified as early as 200388 but only recently have serious attempts been
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risk of the material being exported. This type of legal but unethical arbitrage
has recently been happening so frequently within the European Union that
artificial pharmaceutical shortages have ensued, leading to manufacturers
trying to impose a quota system.96
However, it is not only patients in developing countries that have dif-
ficulties arising from pharmaceutical pricing. In most countries pharma-
ceutical pricing is at least partially controlled by the state. Pressure on
national health services and private health insurance companies is leading
to increased downward pressure on prices and, in some cases, complete
refusal to allow a new pharmaceutical to be prescribed.97 This market
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information then feeds back into the commercial decisions made by the
industry as to what areas of research should be pursued, which in turn leads
to more orphan diseases to the overall detriment of patients.
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A year later, in 2009, Bernard Munos said in print101 what had been
obvious to many in the industry for some time:
The fact that the blockbuster drug model doesnt work has dramatic
consequences for the future of the industry. Profits from successful
pharmaceuticals are necessary to maintain the R&D eort, but unless new
pharmaceuticals replace successful pharmaceuticals when their patent
expires it becomes increasingly dicult to maintain the R&D. The scale of
the problem can be seen in Table 2.102
Faced with this patent cli, the industry has adopted two dierent
strategies: firstly, seeking to improve its record of innovation by acquisitions
of biotechnology companies, e.g. the acquisition of Medimmune by
AstraZeneca in 2007 for US$ 16 billion103 and the acquisition of Human
Genome Science by GSK in 2012 for $ 3.6 billion,104 together with a host of
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In recent years there have been many suggestions that, in the light of the
discovery of residues of pharmaceuticals in water, the pharmaceutical in-
dustry should begin to produce green pharmaceuticals.106108 This then
raises the question of what do we mean by green and how green is the
present generation of pharmaceuticals?
The most comprehensive data that currently exist come from the Swedish
environmental classification system.109 This categorises pharmaceuticals
into five classes based on their risk to the environment, which has been
calculated from their intrinsic hazard data and predicted environmental
exposure. Although work is still underway, it is already clear that the ma-
jority of pharmaceuticals (497%) fall into the insignificant risk category.
Another recent study, carried out under the European Union Framework 6
research programme, has produced a similar outcome.31 This reported that
a large body of literature is now available on the ecotoxicity of pharma-
ceuticals and that analysis of the data, together with an increasing amount
of monitoring and modelling data, indicates that the environmental risks of
the majority of pharmaceuticals are low.
Although the environmental risk can be shown to be very low, residues of
many pharmaceuticals can still be detected in the aquatic environment
using modern analytical techniques. Consequently, many people, invoking
the precautionary principle, continue to put pressure on the industry
to develop greener drugs. The objective of greener drug design is to
produce pharmaceuticals which leave lower residues in the environment.108
A number of environmental scientists continue to make the assumption
that this means that all new pharmaceuticals should be biodegradable.
However, this somewhat simplistic approach, even if it were possible to
realise, would not be a panacea and is certainly not simple to accomplish
given our current state of knowledge. There are a number of pharma-
ceuticals that are biodegradable,109 but this has happened by chance and
none of our current pharmaceuticals has been designed with this in mind.
Pharmaceuticals, like most products, do not need to be 100% persistent
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to transit through the highly acidic stomach. Not only is stability needed for
the treatment to be eective, but instability can result in side eects caused
by the toxicity of breakdown products, particularly in the liver. The ideal
pharmaceutical would therefore be a substance which only began to break
down after it had been excreted by the patient.
However, producing pharmaceuticals that are more degradable in the
environment will not necessarily eliminate environmental residues. The very
low environmental residues that are currently being detected represent the
equilibrium concentration reached between a constant input from waste-
water treatment plants and the degradation rate in the environment. The
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The first three of the criteria listed in the table would lead to lower
residues of active substances entering the environment; in other words,
reduction at source. The last two would lead to even lower potential impact
of the residual active material on ecosystems.
Current developments are already leading to candidate drugs with a lower
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easily biodegraded, and modified natural compounds even less so. Struc-
turally related compounds such as plasmids have already been detected in
the environment and it is known that the protein structures known as prions
are very environmentally stable.113
The second therapeutic revolution also stems from our improved under-
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to more precise treatment options for each patient sub-group. This should
enable much more precise and eective prescribing to occur which will, in
turn, mean less overall drug use, since every prescribed dose will be eective
first time.
6 Conclusions
The research pharmaceutical industry remains beset with problems, for
most of which there do not appear to be obvious solutions.
Although it has exclusive rights to the sale of a new drug during its patent
life:
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