Who’s Got It Made?

John du Pre Gauntt, an analyst for the Economist Intelligence Unit who specializes in economics of IT and pharmaceuticals, gives the lowdown on drug manufacturing outside the US…

NGP. India has the largest number of drug manufacturing facilities approved by the US’s Food and Drug Administrations (FDA). Why do you think the country is such a hotbed for drug manufacturing – is cost savings the only reason why many pharma companies develop and manufacture drugs there?

Aside from the cost benefit, India can do business in English. Also, there are a number of well-trained Indian doctors and they can run clinical trials in a way that is actually cheaper. One of the big challenges that they have is moving away from just simply imitation and actually go into more innovation of certain drug categories. Pharma companies got in there from a cost-savings point of view in the same way that India is looked at for IT outsourcing. They found that there is a tremendous number of extremely talented people who can do higher level R&D if they have got the resources and the infrastructure. At the same time, they are paid 15 or 20 percent of the salary of someone in a Western country. There is a real innovative talent that can be found in India.

NGP. Are any other countries showing promise in this area?

It has to be China. Most manufacturing factories outside of pharma are concentrated along the Yellow River. Most of those businesses start from the premise that they are going to export – they don’t even think about the Chinese market. They decide to build a business to, say, export cell phones.

The Chinese started in electronics with simple imitation, lost cost production. However, you pick up a lot of knowledge about what really works when you have to manufacture 100 million of anything. It would follow that they would follow a pharma model so that these factories go after mid-tier pharmaceutical compounds that can allow them to learn much more about how to do pharmaceutical manufacturing for the rest of the world. Then they build the factories to the highest international standards possible and outsource manufacturing for people. Through that process of manufacturing, the Chinese can start learning a lot more about what might be some good candidate compounds.

NGP. How do you how do you see drug manufacturing developing over the next five years? Will it become an even greater part of big pharma’s operations?

Drug manufacturing, aside from being capital intensive, has a lot of legacy organizational practices to work through. Previously, in all drug companies the scientists were the rock stars – they actually manufactured the pills, were the ones that got the glory and were profiles on the covers of the general business press. Then they throw it over to the people that actually have to figure out how to do volume manufacturing at quality. That is a different stage of complexity but I would argue that it is just as complex. One scientist said last year that all the easy drugs have been done and that they can identify a disease pathway and find a point of intervention where they can stop the disease from progressing. He also said they can model it very well in chemistry and manufacture it – that was his definition of easy!

One of the things that drug manufacturing is going to have to overcome is almost a mass-customization of drug manufacture. This big batch processing model that they grew up with since the 19th Century and is yielding to more of a mass-customized model where we have smaller drug markets, especially as we get more genetic markers.

Looking at the future, running stage one and stage trials in India is definitely going to get bigger, especially animal trials. For big pharma, picking winners at this stage is a lot more important than killing loses quickly. If I have 100 candidate compounds and I am going from stage one to stage two, it is more profitable for me to find out which of the one third of this 100 I should kill first – not what the final winner is – instead of failing further down the road when it is going to be a lot more expensive. It’s better to lose US$100 million than US$800 million. In that sense, having countries like India that can do professional level, early trials a lot quicker and cheaper than doing it here can be very profitable to the bottom line of big pharma.