Pharmaceutical company

A pharmaceutical company, or drug company, is a commercial business whose focus is to research, develop, market and/or distribute drugs, most commonly in the context of healthcare.^[1] They can deal in generic and/or brand medications. They are subject to a variety of laws and regulations regarding the patenting, testing and marketing of drugs. The pharmaceutical industry is now one of the most successful and influential, attracting both praise and controversy.

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History

The earliest drugstores date back to the Middle Ages. The first known drugstore was opened by Arabian pharmacists in Baghdad in 754,^[2] and many more soon began operating throughout the medieval Islamic world and eventually medieval Europe. By the 19th century, many of the drug stores in Europe and North America had eventually developed into larger pharmaceutical companies.

Most of today's major pharmaceutical companies were founded in the late 19th and early 20th centuries. Key discoveries of the 1920s and 1930s, such as insulin and penicillin, became mass-manufactured and distributed. Switzerland, Germany and Italy had particularly strong industries, with the UK and US following suit.

Legislation was enacted to test and approve drugs and to require appropriate labeling. Prescription and nonprescription drugs became legally distinguished from one another as the pharmaceutical industry matured. The industry got underway in earnest from the 1950s, due to the development of systematic scientific approaches, understanding of human biology (including DNA) and sophisticated manufacturing techniques.

Numerous new drugs were developed during the 1950s and mass-produced and marketed through the 1960s. These included the first oral contraceptive, “The Pill”, Cortisone, blood-pressure drugs and other heart medications. MAO Inhibitors, chlorpromazine (Thorazine), Haldol (Haloperidol) and the tranquilizers ushered in the age of psychiatric medication. Valium (diazepam), discovered in 1960, was marketed from 1963 and rapidly became the most prescribed drug in history, prior to controversy over dependency and habituation.

Attempts were made to increase regulation and to limit financial links companies and prescribing physicians, including by the relatively new US FDA. Such calls increased in the 1960s after the thalidomide tragedy came to light, in which the use of a new tranquilizer in pregnant women caused severe birth defects. In 1964, the World Medical Association issued its Declaration of Helsinki, which set standards for clinical research and demanded that subjects give their informed consent before enrolling in an experiment. Phamaceutical companies became required to prove efficacy in clinical trials before marketing drugs.

Cancer drugs were a feature of the 1970s. From 1978, India took over as the primary center of pharmaceutical production without patent protection.^{[citation needed]}

The industry remained relatively small scale until the 1970s when it began to expand at a greater rate.^{[citation needed]} Legislation allowing for strong patents, to cover both the process of manufacture and the specific products, came in to force in most countries. By the mid-1980s, small biotechnology firms were struggling for survival, which led to the formation of mutually beneficial partnerships with large pharmaceutical companies and a host of corporate buyouts of the smaller firms. Pharmaceutical manufacturing became concentrated, with a few large companies holding a dominant position throughout the world and with a few companies producing medicines within each country.

The pharmaceutical industry entered the 1980s pressured by economics and a host of new regulations, both safety and environmental, but also transformed by new DNA chemistries and new technologies for analysis and computation.^{[citation needed]} Drugs for heart disease and for AIDS were a feature of the 1980s, involving challenges to regulatory bodies and a faster approval process.

Managed care and Health maintenance organizations (HMOs) spread during the 1980s as part of an effort to contain rising medical costs, and the development of preventative and maintenance medications became more important. A new business atmosphere became institutionalized in the 1990s, characterized by mergers and takeovers, and by a dramatic increase in the use of contract research organizations for clinical development and even for basic R&D. The pharmaceutical industry confronted a new business climate and new regulations, born in part from dealing with world market forces and protests by activists in developing countries. Animal Rights activism was also a problem.

Marketing changed dramatically in the 1990s, partly because of a new consumerism.^{[citation needed]} The Internet made possible the direct purchase of medicines by drug consumers and of raw materials by drug producers, transforming the nature of business. In the US, Direct-to-consumer advertising proliferated on radio and TV because of new FDA regulations in 1997 that liberalized requirements for the presentation of risks. The new antidepressants, the SSRIs, notably Fluoxetine (Prozac), rapidly became bestsellers and marketed for additional disorders.

Drug development progressed from a hit-and-miss approach to rational drug discovery in both laboratory design and natural-product surveys. Demand for nutritional supplements and so-called alternative medicines created new opportunities and increased competition in the industry. Controversies emerged around adverse effects, notably regarding Vioxx in the US, and marketing tactics. Pharmaceutical companies became increasingly accused of disease mongering or over-medicalizing personal or social problems.^[3]

There are now more than 200 major pharmaceutical companies, jointly said to be more profitable than almost any other industry, and employing more political lobbyists than any other industry.^{[citation needed]} Advances in biotechnology and the human genome project promise ever more sophisticated, and possibly more individualized, medications.

Research and development

Main article: Drug discovery and Drug development

Drug discovery is the process by which potential drugs are discovered or designed. In the past most drugs have been discovered either by isolating the active ingredient from traditional remedies or by serendipitous discovery. Modern Biotechnology often focuses on understanding the metabolic pathways related to a disease state or pathogen, and manipulating these pathways using molecular biology or Biochemistry. A great deal of early-stage drug discovery has traditionally been carried out by universities and research institutions.

Drug development refers to activities undertaken after a compound is identified as a potential drug in order to establish its suitability as a medication. Objectives of drug development are to determine appropriate Formulation and Dosing, as well as to establish safety. Research in these areas generally includes a combination of in vitro studies, in vivo studies, and clinical trials. The amount of capital required for late stage development has made it a historical strength of the larger pharmaceutical companies.^{[citation needed]}

Often, large multinational corporations exhibit vertical integration, participating in a broad range of drug discovery and development, manufacturing and quality control, marketing, sales, and distribution. Smaller organizations, on the other hand, often focus on a specific aspect such as discovering drug candidates or developing formulations. Often, collaborative agreements between research organizations and large pharmaceutical companies are formed to explore the potential of new drug substances.

The cost of innovation

Drug discovery and development is very expensive; of all compounds investigated for use in humans only a small fraction are eventually approved by the FDA. Each year, only about 25 truly novel drugs (New chemical entities) are approved for marketing. This approval comes only after heavy investment in pre-clinical development and clinical trials, as well as a commitment to ongoing safety monitoring. Drugs which fail part-way through this process often incur large costs, while generating no revenue in return. If the cost of these failed drugs is taken into account, the cost of developing a successful new drug (New chemical entity or NCE), has been estimated at about 1 billion USD^[4](not including marketing expenses). A study by the consulting firm Bain & Company reported that the cost for discovering, developing and launching (which factored in marketing and other business expenses) a new drug (along with the prospective drugs that fail) rose over a five year period to nearly $1.7 billion in 2003.^[5]

These estimates also take into account the opportunity cost of investing capital many years before revenues are realized (see Time-value of money). Because of the very long time needed for discovery, development, and approval of pharmaceuticals, these costs can accumulate to nearly half the total expense. Some approved drugs, such as those based on re-formulation of an existing active ingredient (also referred to as Line-extensions) are much less expensive to develop. The consumer advocacy group Public Citizen suggests on its web site that the actual cost is under $200 million, about 29% of which is spent on FDA-required clinical trials. For me-too-drugs and for generics, the cost are even less.

Calculations and claims in this area are controversial because of the implications for regulation and subsidization of the industry through federally funded research grants.

Controversy about drug development and testing

There have been increasing accusations and findings that clinical trials conducted or funded by pharmaceutical companies are much more likely to report positive results for the preferred medication.^[6]

In western countries generally the law allows pharmacy companies to withhold information from research that they do not wish to disclose and the usual procedure is that several research programmes are carried out and only the most favorable ones are published.^{[citation needed]} In response to public outcry about specific cases in which unfavorable data from pharmaceutical company-sponsored research was suppressed, the Pharmaceutical Research and Manufacturers of America have published new guidelines urging companies to report all findings and limit the financial involvement in drug companies of researchers.^[7]

Drug researchers not directly employed by pharmaceutical companies often look to companies for grants, and companies often look to researchers for studies that will make their products look favorable. Sponsored researchers are rewarded by drug companies, for example with support for their conference/symposium costs. Lecture scripts and even journal articles presented by academic researchers may actually be 'ghost-written' by pharmaceutical companies.^[8] Some researchers who have tried to reveal ethical issues with clinical trials or who tried to publish papers that show harmful effects of new drugs or cheaper alternatives have been threatened by drug companies with lawsuits.^[9][10]

Product approval in the US

Main article: Food and Drug Administration #Regulation of drugs

In the United States, new pharmaceutical products must be approved by the FDA as being both safe and effective. This process generally involves submission of an Investigational new drug filing with sufficient pre-clinical data to support proceeding with human trials. Following IND approval, three phases of progressively larger human clinical trials may be conducted. Phase I generally studies toxicity using healthy volunteers. Phase II can include Pharmacokinetics and Dosing in patients, and Phase III is a very large study of efficacy in the intended patient population.

A fourth phase of post-approval surveillance is also often required due to the fact that even the largest clinical trials cannot effectively predict the prevalence of rare side-effects. Post-marketing surveillance ensures that after marketing the safety of a drug is monitored closely. In certain instances, its indication may need to be limited to particular patient groups, and in others the substance is withdrawn from the market completely.

The FDA provides information about approved drugs at the Orange Book site.^[11] In the UK, the British National Formulary is the core guide for pharmacists and clinicians.

Orphan drugs

Main article: Orphan drug

There are special rules for certain rare diseases ("orphan diseases") involving fewer than 200,000 patients in the United States, or larger populations in certain circumstances. ^[12] Because medical research and development of drugs to treat such diseases is financially disadvantageous, companies that do so are rewarded with tax reductions, fee waivers, and market exclusivity on that drug for a limited time (seven years), regardless of whether the drug is protected by patents.

Legal issues

Where pharmaceutics have been shown to cause side-effects, civil action has occurred, especially in countries where tort payouts are likely to be large. Due to high-profile cases leading to large compensations, most pharmaceutical companies endorse tort reform. Recent controversies have involved Vioxx and SSRI antidepressants.

Patents

Depending on a number of considerations, a company may apply for and be granted a patent for the drug, or the process of producing the drug, for about 20 years. Only after rigorous study and testing, which can take as long as 12 years, will governmental authorities grant permission for the company to market and sell the drug.^{[citation needed]}

Industry revenues

For the first time ever, in 2006, global spending on prescription drugs topped $600 billion, even as growth slowed somewhat in Europe and North America. Sales of prescription medicines worldwide rose 7 percent to $602 billion, according to IMS Health, a pharmaceutical information and consulting company. The United States still accounts for most, with $252 billion in annual sales. Sales there grew 5.7 percent. Emerging markets such as China, Russia, South Korea and Mexico outpaced that market, growing a huge 81 percent.^[13]

In 2004 the U.S. comprised roughly 45% of the pharmaceutical market worldwide, while Europe comprises about 25% (AMR Research). 2004 global dollar sales reached $550 billion, a 7% increase over 2003, which in turn represented a 9% increase over 2002. 2004 US sales grew to $235.4 billion, a growth rate of 8.3% compared with 11.5% growth from 2002 to 2003.^[14] US profit growth was maintained even whilst other top industries saw slowed or no growth.^[15]

Pfizer's cholesterol pill Lipitor remains the best-selling drug in the world for the fifth year in a row. Its annual sales were $12.9 billion, more than twice as much as its closest competitors: Plavix, the blood thinner from Bristol-Myers Squibb and Sanofi-Aventis; Nexium, the heartburn pill from AstraZeneca; and Advair, the asthma inhaler from GlaxoSmithKline.^[13]

IMS Health publishes an analysis of trends expected in the pharmaceutical industry in 2007, including increasing profits in most sectors despite loss of some patents, and new 'blockbuster' drugs on the horizon.^[16]

Teradata Magazine predicted that by 2007, $40 billion in U.S. sales could be lost at the top 10 pharma companies as a result of slowdown in R&D innovation and the expiry of patents on major products, with 19 blockbuster drugs losing patent.^[17]

Sales leaders

The top ten pharmaceutical companies by 2006 sales are:^[18]

NB The top 25 Pharmaceutical Company lists produced by Wood-Mackenzie for the years 2004-2006 can be found at: http://www.p-d-r.com/ranking/ranking.html on the P-D-R website.

Patents and generics

Drugs are patentable, granting exclusivity rights typically for 20 years.^{[citation needed]} However, it often takes as long as 12 years to approve a drug for patient use.^{[citation needed]} Patent protection enables the owner of the patent to recover the costs of research and development through high profit margins for the branded drug. When the patent protection for the drug expires, a generic drug is usually developed and sold by a competing company. The development and approval of generics is less expensive, allowing them to be sold at a lower price. Often the owner of the branded drug will introduce a generic version before the patent expires in order to get a head start in the generic market.^{[citation needed]}

Medicare Part D

In 2003 the United States enacted the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), a program to provide prescription drug benefits to the elderly and disabled. This program is a component of Medicare (United States) and is known as Medicare Part D. This program, set to begin in January 2006, will significantly alter the revenue models for pharmaceutical companies. Revenues from the program are expected to be $724 billion between 2006 and 2015.^[19]

Pharmaceuticals developed by biotechnological processes often must be injected in a physician's office rather than be delivered in the form of a capsule taken orally. Medicare payments for these drugs are usually made through Medicare Part B (physician office) rather than Part D (prescription drug plan).

Mergers, acquisitions, and co-marketing of drugs

A merger, acquisition, or co-marketing deal between pharmaceutical companies may occur as a result of complementary capabilities between them. A small biotechnology company might have a new drug but no sales or marketing capability. Conversely, a large pharmaceutical company might have unused capacity in a large sales force due to a gap in the company pipeline of new products. It may be in both companies' interest to enter into a deal to capitalize on the synergy between the companies. The difference between the value of the two companies after the deal and before the deal is known as the synergy value of the deal.

Marketing

Pharmaceutical companies commonly spend a large amount on advertising, marketing and lobbying.^{[citation needed]} In the US, drug companies spend $19 billion a year on promotions.^[7] Advertising is common in healthcare journals as well as through more mainstream media routes.^{[citation needed]} In some countries, notably the US, they are allowed to advertise direct to the general public.^{[citation needed]} Pharmaceutical companies generally employ sales people (often called 'drug reps' or, an older term, 'detail men') to market directly and personally to physicians and other healthcare providers.^{[citation needed]} In some countries, notably the US, pharmaceutical companies also employ lobbyists to influence politicians.^{[citation needed]} Marketing of prescription drugs in the US is regulated by the federal Prescription Drug Marketing Act of 1987.^{[citation needed]}

To healthcare professionals

Physicians are perhaps the most important players in pharmaceutical sales because they write the prescriptions that determine which drugs will be used by the patient. Influencing the physician is often seen as the key to prescription pharmaceutical sales.^[20] A medium-sized pharmaceutical company might have a sales force of 1000 representatives. The largest companies have tens of thousands of representatives. Currently, there are approximately 100,000 pharmaceutical sales reps in the United States pursuing some 120,000 pharmaceutical prescribers.^[21] The number doubled in the four years from 1999 to 2003. Drug companies spend $5 billion annually sending representatives to physician offices. Pharmaceutical companies use the service of specialized healthcare marketing research companies to perform Marketing research among Physcians and other Healthcare professionals.

To insurance and public health bodies

Private insurance or public health bodies (e.g. the NHS in the UK) decide which drugs to pay for, and restrict the drugs that can be prescribed through the use of formularies.

Public and private insurers restrict the brands, types and number of drugs that they will cover. Not only can the insurer affect drug sales by including or excluding a particular drug from a formulary, they can affect sales by tiering or placing bureaucratic hurdles to prescribing certain drugs as well. In January 2006, the U.S. instituted a new public prescription drug plan through its Medicare program known as Medicare Part D. This program engages private insurers to negotiate with pharmaceutical companies for the placement of drugs on tiered formularies.

To retail pharmacies and stores

Commercial stores and pharmacies are a major target of non-prescription sales and marketing for pharmaceutical companies.

Direct to consumer advertising

Main article:Direct-to-consumer advertising

Since the 1980s new methods of marketing for prescription drugs to consumers have become important. Direct-to-consumer media advertising was legalised in the FDA Guidance for Industry on Consumer-Directed Broadcast Advertisements.

Controversy about drug marketing and lobbying

There has been increasing controversy surrounding pharmaceutical marketing and influence. There have been accusations and findings of influence on doctors and other health professionals through drug reps, including the constant provision of marketing 'gifts' and biased information to health professionals;^[22][23] highly prevalent advertising in journals and conferences; funding independent healthcare organizations and health promotion campaigns; lobbying physicians and politicians (more than any other industry in the US;^[24] sponsorship of medical schools or nurse training; sponsorship of continuing educational events, with influence on the curriculum;^[25] and hiring physicians as paid consultants on medical advisory boards.

Some advocacy groups, such as No Free Lunch, have criticized the effect of drug marketing to physicians because they say it biases physicians to prescribe the marketed drugs even when others might be cheaper or better for the patient.^[26]

There have been related accusations of disease mongering^[3] (over-medicalising) to expand the market for medications. An inaugural conference on that subject took place in Australia in 2006.^[27]

A 2005 review by a special committee of the UK government came to all the above conclusions in a European Union context^[28] whilst also highlighting the contributions and needs of the industry.

Developing world

The role of pharmaceutical companies in the developing world is a matter of some debate, ranging from those highlighting the aid provided to the developing world, to those critical of the use of the poorest in human clinical trials, often without adequate protections, particularly in states lacking a strong rule of law. Other criticisms include an alleged reluctance of the industry to invest in treatments of diseases in less economically advanced countries, such as malaria; Criticism for the price of patented AIDS medication, which could limit therapeutic options for patients in the Third World, where the most people have AIDS.

Under World Trade Organization rules, a developing country has options for obtaining needed medications under compulsory licensing or importation of cheaper versions of the drugs, even before patent expiration (WTO Press Release). Pharmaceutical companies often offer much needed medication at no or reduced cost to the developing countries. Proposals to allow the manufacture of generic AIDS drugs are not without controversy; it is sometimes claimed that this might cause pharmaceutical companies to move away from AIDS drug research and focus their research on other, more profitable areas^{[citation needed]}). In March of 2001, South Africa was sued by 41 pharmaceutical companies for their Medicines Act, which allowed the import and generic production of cheap AIDS drugs. The case was later dropped after protest around the world.

Nigerian clinical trial

In 1996, a pediatric clinical trial conducted on behalf of Pfizer tested the antibiotic Trovan allegedly without first obtaining the informed consent of participants or their parents.^{[29][30][31][32]}

Charitable programmes

Charitable programs and drug discovery & development efforts are routinely undertaken by phamaceutical companies. Some examples include:

• "Merck's Gift," wherein billions of River Blindness drugs were donated in Africa ^[33]
• Pfizer's gift of free/discounted fluconazole and other drugs for AIDS in South Africa ^[34]
• GSK's commitment to give free albendazole tablets to the WHO for, and until, the elimination of lymphatic filariasis worldwide.
• In 2006, Novartis committed USD 755 million in corporate citizenship initiatives around the world, particularly focusing on improved access to medicines in the developing world through its Access to Medicine projects, including donations of medicines to patients affected by leprosy, tuberculosis, and malaria; Glivec patient assistance programmes; and relief to support major humanitarian organisations with emergency medical needs.^[35]

Industry associations

• European Federation of Pharmaceutical Industries and Associations (EFPIA)
• European Pharmaceutical Market Research Association (EphMRA)
• International Federation of Pharmaceutical Manufacturers and Associations (IFPMA)
• Japan Pharmaceutical Manufacturers Association (JPMA)
• New York Health Products Council (NYHPC)
• Pharmaceutical Research and Manufacturers of America (PhRMA)
• Irish Pharmaceutical Healthcare Association (IPHA)

Regulatory authorities

• International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH)
• European Medicines Agency (EMEA)
• Food and Drug Administration (FDA)
• Ministry of Health, Labour and Welfare (Japan)
• Medicines and Healthcare products Regulatory Agency (MHRA)

See also

Notes

Further reading

• Coyne J. Lessons in conflict of interest: “The construction of the martyrdom of David Healy and the dilemma of bioethics.” American Journal of Bioethics 5 (1): W3-W14, 2005.
• Ray Moynihan, Alan Cassels: Selling sickness: How the world's biggest pharmaceutical companies are turning us all into patients. Nation Books, New York, 2005.
• Merrill Goozner: The $800 million pill. University of California Press, Berkeley, 2004, 297 S. ISBN 0-520-23945-8.
• Marcia Angell: The truth about the drug companies. Random House, New York, 2004, 305 S. ISBN 0-375-50846-5.
• Diana A. Taylor: HEALTHYWORDS Towards a Betterment in Medical Communications across the Drug Industry ISBN 3-8288-9083-0 Tectum Verlag 2006 S.187
• Joanna Moncrieff, "An Unholy Alliance? Psychiatry and the influence of the pharmaceutical industry", Spinwatch, 27 June 2006.
• E. Kumar Sharma, "The best Pharmaceutical company to work for in India", Business Today, October 26, 2007.