Any economic historian who sets out to sketch the evolution of global business during the 60 years since the second world war is bound to seize on the case of the western pharmaceutical industry. It provides an inspiring example of how well a successful enterprise has served the society in which it evolved. It is linked directly with an unprecedented evolution in healthcare and a series of revolutions in science - and its earnings have made a major contribution to social progress and economic stability.
From the business point of view, the pharmaceutical industry has weathered enough storms to inspire confidence in its future well into a new century.
All the same, in continuing to prosper as society has changed, the industry itself has gone through a long process of change. The names may be familiar - Beecham, Bayer, Lilly and many others date back to Victorian times - but the business behind the names has altered dramatically, taking its place in a new global economy that is likely to demand many more fundamental changes. What does that mean for a pharmaceutical business with truly global ambitions?
It is fair to say that, from the western point of view, much of the developing world has long remained a pharmaceutical backwater. Innovative new drugs from the west may have found their way into private pharmacy chains in many capital cities in the third world, but only at prices that make them inaccessible to all but the most affluent. Extensive patent protection has prevented 'generic' firms from copying such products and making them available more widely and at affordable prices. The result is that a wide range of diseases among the less affluent in the world remains largely untreated.
The emergence of HIV/Aids threw this problem into sharp relief. As a global disease, it threatened all levels of society and demanded an immediate solution. Western pharmaceutical companies developed a series of drugs, all intended for lifelong treatment, but the yearly costs could amount to as much as $12,000 per patient. With some 30 million sufferers in Africa alone, where annual per capita income may be a mere $200 or less, such treatment is entirely out of reach.
Initially, multinational firms argued that their prices reflected both research investment and manufacturing costs, yet there was evidence that neither explanation was entirely tenable. Then, at a meeting convened by the European Community in 2000, Indian corporation Cipla offered to provide HIV/Aids drug at a 10th of the prices offered by western companies; by 2003, the firm was providing a three-drug Aids therapy in Africa for a mere $304 per patient per year. Western companies reacted by cutting their prices, though their products still cost more than double the Cipla equivalents.
For a decade and more, the problems of the developing world have been alleviated in part by the emergence of a 'generic' industry providing copies of western products at low prices. This was feasible in those countries where there had historically been no system of patent protection, such as India. Quality standards have varied, but a hard nucleus of generic suppliers makes pharmaceutical products to the highest standards.
However, the provision of these low-cost medicines was threatened in 1994 by the Agreement on Trade-Related Intellectual Property Rights (Trips), under the auspices of the World Trade Organisation (WTO), which resulted in the emergence of a watertight system of patent protection. The reaction to Trips, a primarily western initiative with massive industry support, was violent, both from activist organisations and from developing countries.
As a result, the Doha Declaration, drawn up at a ministerial meeting of the WTO in 2001, allows developing countries to ignore patents and buy generic copies where a health crisis is considered to exist. Aids was the first such crisis to be identified, but many others are likely to follow.
Faced with challenges such as these, it is clear that the research-based industry needs to react with sufficient transparency to earn credibility.
There is no doubt that senior management is well aware of what needs to happen, though in its public statements the industry continues to defend the status quo. Accurate information on the industry's performance is now increasingly available and accessible, and public health and insurance bodies have called for a reform of drug pricing, and a better balance between expenditure on creative research and the costs of advertising and promotion.
Some firms have abandoned as unproductive their traditional screening programmes to test new chemicals for biological activity. As a result, investigative research agreements with universities, state institutions and promising biotechnology enterprises have increasingly come to the fore as a means of revitalising innovation. Globally, differential pricing is being adopted as a means of meeting the needs of poorer populations while maintaining income from prosperous markets. But the industry clearly needs something more than a defensive policy when facing the challenge from generic producers in low-cost countries.
Historically, the pharmaceutical industry has achieved many of its goals by intensive lobbying of governments, conducting astute public relations and, when necessary, denigrating those who would question or challenge its performance. When the UN's Millennium Project, after a long debate, issued a consensus report in 2005 on the world's drug needs, western drugs companies issued a statement of dissent. That suggests the extent to which the industry has fallen out of step with worldwide public thinking - something it cannot afford to do.
Of all the challenges that the western pharmaceutical industry had to face during its first century of development, that presented by regulation was the most fundamental. In the early 1900s, the British Medical Association and other like-minded bodies called attention to the fact that many medicines entering the market possessed dubious efficacy or none at all; yet several decades elapsed before clinical pharmacology emerged as a tool to determine whether a new product really served its purpose.
Safety issues came dramatically to the fore as a series of drug disasters hit the headlines, none more emphatically so than in 1961: thalidomide, when used in pregnancy, led to the birth of thousands of children with grossly deformed limbs. The new laws and regulations that were passed as a result placed huge demands on the research capabilities of pharmaceutical companies and were responsible for an ongoing process of consolidation in the industry. By 1970, it was estimated that only a firm with 1,000 or more research scientists could develop the flow of new drugs that would maintain its place in the market. Small manufacturers faded away; national and transnational mergers became the order of the day. Big Pharma had arrived.
By the turn of the century, the world supply of modern pharmaceuticals was in the hands of a relatively small number of corporations. Most had their origins in Western Europe and the US, and they were attuned primarily to the opportunities and needs of the countries with which they were most familiar. What this meant in practice was that no expense was spared in the battle for market share, whether this involved directing research into profitable directions, investing heavily in publicity and public relations, or building a wall of patent protection around every discovery.
With national health and insurance systems willing to foot much of the bill and well-heeled private citizens demanding the best at any cost, drugs have become expensive items. A course of treatment with an innovative drug might sometimes run to thousands of dollars; and even a bottle of paracetamol passes over the counter for a hundred times the manufacturing cost.
Health funding agencies began to question their burgeoning drug costs, and consumer and activist organisations - increasingly well-informed and well-funded - point to the industry's preoccupation with developments that promise spectacular profits rather than meeting basic health needs.
They argue that while major corporations battle for market share in the treatment of, for example, obesity, little is being done for the populations of the third world facing the threat of drug-resistant tuberculosis and malaria. Several major corporations have found themselves in court charged with the suppression of vital information on drug risks and liability.
Even the overall output of the industrial drug process appears to be falling, with little in the way of real medical progress. Such is the increasingly critical view of the industry in the west, and the challenge to Big Pharma is growing in other parts of the world.
Countries such as India and China, long the home of low-cost generic production, have shown in recent years that they can also achieve the highest technical and ethical standards, develop true innovation and increasingly serve the real health needs of their populations. Companies such as Cipla will not go away; they are likely to multiply and become suppliers to the world, competing with western companies even on their home ground.
It could very well be that the Big Pharma firms of Europe and America, which have until now been content to regard themselves as transnational or multinational, will need to become global in a true sense. True, the flagship products of most multinational drug companies are to be found on the shelves of city pharmacies in Africa and Asia, yet in terms of sales these firms have barely scratched the surface of the market on these continents. Price is one reason; failure to adapt marketing to national needs is another.
As for research and product planning, very few western firms today have fully functioning units outside Europe and North America. Whether in terms of management, sales or science, the 'local' companies set up by multinationals tend to be heavily dependent on the budgeting and thinking that emerges from London, Zurich or New Jersey.
It is worth remembering that one of the first truly international companies was established more than a century ago, when Unilever was formed by the merger of Holland's United Margarine and the UK's Lever Brothers. There is no good reason why a pharmaceuticals company should not move in the same way, sstepping across the borders of western society to the rest of the world.
Good science, good management training, good living and, above all, good ideas are to be found today from Rio to Riyadh and Bombay to Beijing.
The time to harvest them and serve the world's population is surely now.
- Graham Dukes is a former research manager of a multinational pharmaceutical company, medical director of a national regulatory agency and regional officer of the World Health Organisation. His books include Meyler's Side Effects of Drugs and The Law and Ethics of the Pharmaceutical Industry
MAJOR US PATENT EXPIRY 2005-2007 Brand Compound Indication Owners Zocor Simvastatin Hyperlipidaemia Merck & Co Norvasc Amlodipine Hypertension, angina Pfizer Zoloft Setraline Depression Pfizer Pravachol Pravastatin Hyperlipidaemia BMS, Sankyo Zithromax Azithromycin Bacterial infections Pfizer, Pliva Ambien Zolpidem Insomnia Sanofi-Aventis Zofran Ondansetron Chemotherapy-induced nausea GSK Zyrtec Cetirizine Allergic rhinitis Pfizer, UCB Source: IMS LifeCycle Patent Focus
THE WORLD'S TOP 10 PHARMACEUTICAL COMPANIES, ACCORDING TO THEIR MARKET VALUE (MARCH 2006)
- Pfizer, US, $194bn: Viagra (erectile dysfunction), Celebrex (painkiller), Lipitor (cholesterol)
- GlaxoSmithKline, UK, $152bn: Advair (asthma), Paxil CR (antidepressant), Combivir (HIV)
- Novartis, Switzerland, $125bn: Diovan (hypertension), Gleevec (cancer)
- Sanofi-Aventis, France, $114bn: Lovenox (deep vein thrombosis), Plavix (thrombosis), Avapro (hypertension), Ambien (insomnia)
- Roche, Switzerland, $105bn: Tamiflu (influenza), Avastin (colon cancer), Mabthera (lymphoma), Heceptin (breast cancer)
- Merck, US, $77bn: Gardasil (cervical cancer, to be launched), Zocor (cholesterol), Vioxx (painkiller, withdrawn but FDA to review)
- AstraZeneca, UK, $72bn: Crestor (cholesterol), Nexium (ulcers)
- Wyeth, US, $66bn: Effexor (antidepressant), Prevnar (meningitis)
- Eli Lilly, US, $64bn: Prozac (antidepressant), Zyprexa (schizophrenia), Gemzar (pancreatic cancer)
- Schering-Plough, US, $27bn: Remicade (auto-immune conditions), Clarinex (allergies)
US: In February 2006, US drug maker Merck won a major court victory after a federal jury cleared the firm of any responsibility for the death of a 53-year-old man who suffered a heart attack after taking Merck's once-popular painkiller Vioxx for less than a month. But the company faces further lawsuits at the end of the year from plaintiffs who took the drug for longer than 18 months
BRAZIL: Of the population of Brazil, 40% still cannot afford to pay even for generic drugs
EUROPE & US: The world's top drugs companies are worth $1,000bn, but they will need to globalise their outlook to survive
INDIA: In 2003, generic drug company Cipla started manufacturing an HIV/Aids drug therapy at a mere $304 per patient per year
MIDDLE EAST/DOHA: The 2001 Doha Declaration allows developing countries to ignore drugs patents where a health crisis exists.