Annual Industry Report 2014Industry Expert Panel Submissions - Part 1.

www.cphi.com/europe/networking/cphi-pharma-insights

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PANEL MEMBER

Dilip G Shah CEO, Vision Consulting Group

Innovation and IPR Predictions

• IPR (Intellectual Property Rights) which was initially a tool to encourage innovation is now stifling it as it is creating ‘legal monopolies’ globally- the danger is that without change over the next five years pharmaceuticals will continue to increase in price but only demonstrate limited increases in efficacy.

• IPR positions in the USA will weaken over the next 10 years as the government recognizes what is in the interest of big pharma is not always in the interest of the USA.

• Strong IPR are preventing new technologies from disseminating to less developed and developing countries despite the TRIPS agreement. This will be an increasingly debilitating factor over the next five years.

• In order to promote growth governments in developing and less developed countries must reduce IPR.

• Coordination not harmonization in IPR is necessary; distinctions must be made between developed countries and developing and less developed countries, acknowledging that the global optimal level of protection requires an international coordination, not harmonization.

• Proponents of strong IPR in all countries fail to recognize the benefits experienced by industrialized countries of adopting a weaker IPR protection in earlier stages of their development.

IntroductionInnovation is a culture, a way of life. Intellectual Property Right (IPR) is a barrier, a way of doing business. One flows automatically and through generations. The other is imposed. From the times immemorial, the innovations have improved lives of people, produced more and better quality food, overcome diseases and won the wars. These include processes, devices and products that changed simple primitive societies as well as sophisticated and complex modern life styles. The history is full of such innovations both in war and peace. Some had greater impact, others not so great. But they all had impact on the people and the societies.

Innovation is significant if it delivers more from less for more. As is obvious from the phrase, innovation is far reaching if it results in high impact (e.g. cures cancer), costs less to develop and can touch the lives of many. The history has documented many innovations that have changed lives of people at various times in different parts of the world. The steamboat, reaper, sewing machine, telegraph, telephone, typewriter, phonograph, electric power system, airplane, transistor, medicines, internet and mobile phone are some examples of innovations that have changed the lives of many people across the world. These

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innovations are not rare. There are many innovations in the field of medicines that can touch lives of more people, but they are either unaffordable to most of the people as innovator companies do not subscribe to more from less for more or are greedy. Whatever may be the reason, they end up denying the benefits of the new product/processes to the society at large. Consider for example advanced power generation technologies such as Integrated Gasification Combined Cycle (IGCC) plants, “which use the latent heat of gasified coal to verily double thermal efficiency”.1 This is already in use in the USA. But the discovery of shale gas and its use to reduce emissions has made the IGCC innovation less attractive, if not redundant, in the USA. However, use of IGCC as a green-technology could not only change lives of millions of people in the rest of the world, but also significantly cut carbon emissions and protect environment for future generations. The challenge is to find a way to transfer this and similar other technologies to the developing and the less developed economies.

What is it that circumscribes the use of an innovation and prevents the society at large from benefiting from it? This is very often ascribed to intellectual property right (IPR) regime. The IPR regime is not universal. It varies from country to country and, within the same country, from time to time. In 1994, some 180 member states of the World Trade Organization (WTO) agreed to certain minimum standards of protection and enforcement of intellectual property rights. This has come to be known as Trade Related Intellectual Property Rights (TRIPS) Agreement. The developing and the less developed countries accepted obligations under this Agreement in return for a promise of transfer and dissemination of technology by the developed countries.2 Almost 20 years have elapsed since the signing of the TRIPS Agreement. But there are no signs of developed countries fulfilling their promise. Instead, they, led by the USA, are targeting one after the other poor economies to adopt an IPR regime that reaps benefits for their innovators. Those who cannot afford these innovative products/processes are left to suffer and die.

The proponents of a strong IPR regime argue that to promote innovation, all countries including the developing and the less developed should have an IPR regime similar to the developed economies. In the straight jacket

approach, they are pushing their governments and the governments of the developing countries to adopt standards that would benefit producers of technology by prolonging the monopoly and protecting the high prices. Thus, the IPR which was a tool to encourage innovation has become an end in itself, stifling the innovation. Joseph Stiglitz and Arjun Jayadev have drawn attention to the stifling of innovation in the current IP regime of the United States on the one hand and the impact on social welfare on the other, while commenting on the decision on Gleevec by the Supreme Court of India3:

“Not surprisingly, this (decision) has led to an overwrought response from them (pharmaceutical companies) and their lobbyists: the ruling, they allege, destroys the incentive to innovate, and thus will deal a serious blow to public health globally.

These claims are wildly overstated. In both economic and social-policy terms, the Indian court’s decision makes good sense. Moreover, it is only a localized effort at rebalancing a global intellectual-property (IP) regime that is tilted heavily toward pharmaceutical interests at the expense of social welfare. Indeed, there is a growing consensus among economists that the current IP regime actually stifles innovation. (Emphasis added)

The impact of strong IP protection on social welfare has long been considered ambiguous. The promise of monopoly rights can spur innovation (though the most important discoveries, like that of DNA, typically occur within universities and government-sponsored research labs, and depend on other incentives). But there often are serious costs as well: higher prices for consumers, the dampening effect on further innovation of reducing access to knowledge, and, in the case of life-saving drugs, death for all who are unable to afford the innovation that could have saved them…….

The weight given to each of these factors depends on circumstances and priorities, and should vary by country and time. Advanced industrialized countries in earlier stages of their development benefited from faster economic growth and greater social welfare by explicitly adopting weaker IP protection than is demanded of developing

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countries today. Even in the United States, there is growing concern that so-called hold-up patents and me-too patents – and the sheer thicket of patents, in which any innovation is likely to become entangled in someone else’s IP claims – are diverting scarce research resources away from their most productive uses...

Indeed, the Gleevec decision is still only a small reversal for Western pharmaceuticals. Over the last two decades, lobbyists have worked to harmonize and strengthen a far stricter and globally enforceable IP regime. As a result, there are now numerous overlapping protections for pharmaceutical companies that are very difficult for most developing countries to contest, and that often pit their global obligations against their domestic obligations to protect their citizens’ lives and health.”

It is significant to note that the advanced industrialized countries in earlier stages of their development benefited

by adopting weaker IP protection. On the other hand, India had a strong patent law since 1911, except for a brief period from 1972 to 1995 when the product patent on medicines and agrochemicals were prohibited. However, consequent to the TRIPS Agreement in 1995, India amended its Patent Act in 2005 allowing product patents on medicines and agrochemicals also. The point to be noted is that legalized monopolies were granted to medicines and agrochemicals from about 1995 onwards. Indian GDP at the time of granting monopoly protection of medicines was a fraction of the GDP of industrialized countries when they adopted patent protection for medicines, as the table below shows, and India did not have (and still does not have) the advantage of higher GDP that industrialized countries had to cushion the welfare disbenefits when patent protection was extended to medicines.

Protection of Pharmaceutical Product Inventions: A Historical Perspective4

OECD adopters Year of adoptionGDP per capita

at adoption

GDP per capita

at adoption

relative to India's

at adoption

GDP per capita

relative to India's

in 2011

Japan 1976 14,193 9.7 8.4

Switzerland 1977 24,309 16.7 12.4

Italy 1978 15,380 10.6 8.1

Netherlands 1978 19,127 13.1 10.6

Sweden 1978 17,584 12.1 10.0

Canada 1983 21,977 15.1 9.8

Denmark 1983 19,683 13.5 9.9

Austria 1987 18,824 12.9 10.4

Spain 1992 16,881 11.6 8.0

Greece 1992 15,176 10.4 6.6

Norway 1992 24,032 16.5 14.6

Emerging Country adopters

Brazil 1995 7,594 5.2 2.6

China 1992/93 2,297 1.6 2.2

India 1995 1,456 1.0 1.0

Argentina 1995 9,078 6.2 4.0

Source: Penn World Tables, 8.0 and Lanjouw (2002)

Notes: GDP per capita is in PPP, constant 2005 dollars; the year of adoption for emerging countries (excluding China)

refers not to the enactment of their laws but to the TRIPs date for protecting pharmaceutical product inventions

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The impact on India apart, it is by no means clear that the stronger IPRs for pharmaceuticals is good from a global perspective or even for the United States. Paul Krugman, writing in the New York Times in the context of the Trans Pacific Partnership (TPP) says5:

“Is this a good thing from a global point of view? Doubtful. The kind of property rights we’re talking about here can alternatively be described as legal monopolies. True, temporary monopolies are, in fact, how we reward new ideas; but arguing that we need even more monopolization is very dubious — and has nothing at all to do with classical arguments for free trade.

Now, the corporations benefiting from enhanced control over intellectual property would often be American. But this doesn’t mean that the T.P.P. is in our national interest. What’s good for Big Pharma is by no means always good for America.”

Dr. Robert Shapiro had argued in his testimony to the US-International Trade Commission 2014 that “if India adopted IP rights and enforcement comparable to the United States, U.S. FDI to India’s pharmaceutical industry would increase three-fold over the next four years.” The Indian Pharmaceutical Alliance (IPA) has drawn attention to empirical studies that do not hold out the same assurance as the studies that Dr. Shapiro relies upon. The conclusion in a review of the literature bears repetition6:

“In summary, this survey draws the following conclusions from the literature. Firstly, different patent-policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should trade off the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.” (Emphasis added)

The UK Commission on Intellectual Property Rights report, found from literature that “…strong IP rights alone provide neither the necessary nor sufficient incentives for firms to invest in particular countries… The evidence that foreign

investment is positively associated with IP protection in most developing countries is lacking.”7

The contention that stronger intellectual property rights have a uniformly positive impact on innovation lacks evidence. In terms of welfare, especially for health and pharmaceuticals, it is an unambiguous finding that greater IPR protection will be seriously detrimental to the consumers. To summarize, it may be noted that it is difficult to make a compelling case that the IPR unambiguously improves innovation, especially in the low and middle income countries.

Secondly, its impact on the growth is ambiguous, and thirdly, its welfare impacts can be seriously negative, especially in critical areas like health.

Tipping PointThe excesses committed in the advocacy of IPRs by some companies as well as the powerful lobby group PhRMA have provoked many who were somewhat indifferent to their push for stronger IPR regime in the developing countries and the abuse of IPRs for unaffordable pricing. This was compounded by the PhRMA and Pfizer who misjudged mood of the then weak government in India and sought investigation by the US International Trade Commission (US-ITC) into India’s economic policies, primarily focused around its IPR regime for pharmaceuticals. Both Pfizer and PhRMA also argued before the Office of the United States Trade Representative (USTR) to downgrade India from Special Watch List to Priority Foreign Country (PFC).

In the backlash that followed, eminent academics from the USA appeared before the US-ITC to defend India’s IPR regime. The civil society argued vehemently against the American pharmaceutical lobby for pressurizing India to abandon use of TRIPs flexibilities. Separately, 119 specialists in chronic myeloid leukemia8, a condition for which Novartis’ Gleevec is indicated, questioned the three-fold increase in price of Gleevec from $30,000 in 2001 to $92,000 in 2012 as its sales grew rapidly. Reporting on this protest against high prices of Gleevec and other cancer treatments, The New York Times on 25 April 2013 states:

“Prices for cancer drugs have been part of the debate over healthcare costs for several years – and recently led to a

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public protest from doctors at a major cancer center in New York. But the decision by so many specialists, from more than 15 countries on five continents, to join the effort is a sign that doctors, who are on the front lines of caring for patients, are now taking a more active role in resisting high prices. In this case, some of the specialists even include researchers with close ties to the pharmaceutical industry.”

Bristol-Myers-Squibbs’s melanoma drug is priced at $120,000 for a course of treatment. Gilead’s hepatitis c drug costs $84,000 – all these have caused outrage among politicians and insurers. The Economist in its 7 June 2014 issue states:

“(Pricing) of the drug inspired a coalition ranging from doctors to trade unionists to launch a campaign against ‘unsustainable and abusive’ prices”.

Dr Steve Miller, Chief Medical Officer for Express Scripts, America’s biggest pharmacy-benefit-manager (PBM), hired by insurers and employers to control drug costs for the patients they cover, is quoted by The Economist as saying “if we don’t change the basic pricing structure of pharmaceuticals, this system will collapse”.

The diverse counter veiling forces have rallied to form a coalition of affordable healthcare. They include doctors, pension funds, insurers, research institutions, trade unions, etc. They are not under one banner but are slowly chipping away the clout of the powerful pharmaceutical lobby in Washington DC. The USTR decision not to be swayed by persistence of Pfizer and PhRMA for downgrading India is perhaps a lead indicator of the shape of things to come. “America might, at last, begin to act like the rest of the world”.9 That would change focus from litigation to innovation, from the IPR to Innovation.

References

1. The Economic Times, 10 June 20142. TRIPS Agreement, Article 7: “Objectives – The protection and

enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.”

3. http://www.project-syndicate.org/commentary/the-impact-of-the-indian-supreme-court-s-patent-decision-by-joseph-e--stiglitz-and-arjun-jayadev#5Sohj3STzVXckaOW.99

4. Subramanian, A. Written submissions to the USTR for the Special 301 Review, 2014 available at http://www.regulations.gov/#!documentDetail;D=USTR-2013-0040-0089

5. http://www.nytimes.com/2014/02/28/opinion/krugman-no-big-deal.html?_r=0

6. Chu, Angus C: Macroeconomic Effects of Intellectual Property Rights: A survey, Academia Economic Papers, 2009, Vol 37, pp 283-303, available at http://mpra.ub.uni-muenchen.de/17342/1/MPRA_paper_17342.pdf

7. UK Commission on Intellectual Property Rights, Integrating Intellectual Property Rights and Development Policy. 2002; available at http://www.iprcommission.org/papers/pdfs/final_report/ciprfullfinal.pdf p23

8. Experts in chronic myeloid leukemia: The Price of Drugs for Chronic Myeloid Leukemia (CML); A Reflection of the Unsustainable Price so Cancer Drugs: From the Perspective of a Large Group of CML Experts, Blood, Prepublished online April 25, 2013; doi:10.1182/blood-2013-03-490003, available at http://bloodjournal.hematologylibrary.org/content/early/2013/04/23/blood-2013-03-490003.full.pdf

9. The Economist, 7 June 2014

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PANEL MEMBER

Vijay Shah Executive Director & COO of Piramal Enterprises

Green chemistry will see a huge rise in pharma profits as well as enviromental improvements Summary predictions

• Green chemistry will be worth nearly $100 billion by 2020 (a ten fold increase in just 6-years)

• Green chemistry will save the industry $65 billion by 2020.

Industry surveys indicate strong belief that green chemistry will improve ROI

• Regulatory incentives need to be created so that industry increases green chemistry adoption. FDA must simplify its re-certification rules for production process changes, as current regulations are hindering innovation

• Greater collaborations across the next few years

will help drive R&D process innovation and deliver green chemistry

• Technologies such as catalysis, chemocatalysis, biocatalysis, flow chemistry and parallel screening will help revolutionise process research - reducing the number of steps in each process and creating efficiencies

• Green Chemistry by Design (GCbD) will be taken up by the leading CRAMs industry players to help drive efficiency savings

• In the future green chemistry methodologies will be ingrained into the R&D stage

Introduction

The pharmaceutical Industry is currently valued at $990 bn and is currently growing at a CAGR of 5% per year.1 Developed economies, such as the US and the EU, comprise 53.5% and 28% of the global market share respectively, with Asia-Pacific comprising the rest (18.5%).1

The pharmaceutical industry relies heavily upon the chemical manufacturing industry to source the active pharmaceutical ingredients (APIs), with the global API

manufacturing industry valued at $132.8 bn and expected to grow at a CAGR of 7.4% over the period from 2011 to 2017.2

Industrial chemical manufacturing processes use a number of organic solvents for separation and purification of products. The manufacturing process is energy intensive and is associated with generation of waste that

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is environmentally hazardous in nature. An important parameter to understand the efficiency of chemical reactions is the Environmental (E)-factor, which measures the kilograms of waste produced per kilogram of product.

The pharmaceutical industry produces a higher ratio of waste per kilogram of product when compared to other chemical industries, such as petrochemical, bulk and fine chemicals, and polymers.

The API production process takes an average of six to eight steps.4 This process has a median Process Mass Intensity (PMI) of 120, i.e., it utilises median 120 Kg of raw material per Kg of API produced5 and has an E-factor of 25–100. Solvents typically comprise 85–90% of non-aqueous waste generated during API processing.6 Compared to API manufacturing, formulations manufacturing results in a lesser amount of waste, as most of the starting ingredients are incorporated into the final product. For a long time the chemical manufacturing industry has tried to develop alternative processes that could address the issue of wastage, which is potentially hazardous to the environment. Green chemistry is one such alternative that will help the industry to achieve its environmental goals.

Broadly defined as the design of chemical products and processes that reduce or eliminate the use and generation of hazardous substances, green chemistry allows companies to develop more sustainable products and processes.

The first application and scale-up of green chemistry in the industry is not known. Even though the term was formally coined in 1991 by Paul Anastas, industries have long worked to develop processes that improve their environmental credentials. The adoption of green chemistry provides a framework to increase efficiency in the manufacturing process, not only minimising waste, but also helping businesses to improve profits, to differentiate, and to gain competitive advantage.

Market for Green Chemistry

Green chemistry can be practised in a variety of industries and has a broad area of application. As a discipline, it is evolving in response to a wide range of challenges posed by the chemical industries. Business leaders and corporations globally have increasingly come to believe that green chemistry will ultimately transform industrial production protocols. As a result of its comparatively high E-factor, the pharmaceutical industry stands to benefit from green chemistry more than other industries and, as a result, has many more initiatives focused on developing greener and sustainable processes in comparison to peer industry

segments such as Petrochemicals and Bulk Chemicals.

A report by Pike Research suggests that while the global chemical industry is expected to grow from $4 tr in 2011 to $5.3 tr by 2020, green chemistry represented a market opportunity of $2.8 bn in 2011 with expected growth to $98.5 bn by 2020.7 In the chemical industry, the polymer sector will represent the highest penetration for adoption of green chemistry, c. 5.7%, while the fine and commodity chemical industries will have slightly lower penetration levels.

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Many surveys have been conducted across industry segments to understand what is driving the adoption of green chemistry practices. One such survey, conducted

by Alcereco Inc., indicated that cost savings, consumer awareness and increased R&D investment are some of the key factors leading to increased adoption.

Also, one of the fundamental reasons driving increased adoption of green chemistry among organisations is the increased commitment of senior management to pursue greener and more sustainable alternatives to existing processes. This is also highlighted in a UN report on sustainability, which found that global CEOs believe that adopting green and sustainable processes is critical to the

future success of their businesses. According to the report, such initiatives must be fully integrated with the long-term strategy and operations of the company. Further, business leaders believe that “Brand, Trust and Reputation” are the top three factors that motivate them to adopt sustainable business processes.

“Perceptions and Experiences of Green Chemistry Practitioners”, Alcereco, 2014

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Even as individual stakeholders in the market are working to develop sustainable processes, the global green chemistry market is beset with its own set of hurdles, with many technologies still at laboratory or pilot scale. So far, the progress of green chemistry has largely revolved around the development of less toxic alternatives to existing conventional methods. Also, the market for green chemistry is only a fraction of the global chemical industry with a slower than the expected rate of adoption

and penetration in other industry segments. This may be attributed to the slow adoption of green chemistry initiatives in areas such as the bulk-chemicals and petrochemicals industries. The E-factor for the chemicals industry is 1–5, while that for the petrochemicals industry is as low as 0.1. Therefore, even though it is technically possible to further reduce wastage, investments in such process optimisation and its implementation may not be economical.

(“A New Era of Sustainability”, UN Global Compact-Accenture CEO Study 2010)

Business Case and Benefits of Green Chemistry

The increase in drug development costs over past decades has led to increasing cost pressures on the pharmaceutical industry. Based on the therapy area in which a new chemical entity (NCE) is being developed, it may cost in the range of $500 mm to $2 bn to take a NCE from lab to the market.8 Of these total costs, approximately 25% of the cost of developing a NCE is related to APIs, with manufacturing costs comprising 36–38% of the total expense.9 With such high cost obligations, it is pertinent that the industry plugs holes wherever possible to improve process efficiency and reduce expenses and liabilities.

The business case for the adoption of green chemistry by the pharmaceutical industry lies not only in good corporate citizenship, but also in the cost benefits that it can deliver. It is estimated that green chemistry will save the industry an estimated $65.5 bn by 2020.7 The traditional organic chemical synthesis methods currently

result in higher manufacturing costs due to the high E-factor, combined with the costs associated with disposing of the waste produced. Developing processes that reduce waste, and decrease the raw material and resource consumption, will help companies cut down on operating and manufacturing expenditure. Such processes also result in reduced legal, regulatory and social risks, and ultimately improve bottom-line benefits. In addition to the financial benefits, companies can also benefit from increased customer retention achieved by way of passing on the cost savings generated in production. These improved processes provide competitive advantage in the market place, while being environmentally conscious can result in brand enhancement.

Pharmaceutical companies have experienced the benefits that green chemistry can confer and are now taking active measures to reduce the environmental impact of waste

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produced by improving process efficiencies. This has led to increased investment in R&D to conduct process research and identify greener routes to existing drug synthesis processes. Large companies, small businesses, as well as universities, have invested in green chemistry R&D. In line with the global industry trends, in-house R&D teams also conduct process research to improve atom

economy (a metric to understand yield of a reaction), and process optimisation to further enhance E-factor or PMI. Further, most green chemistry practitioners believe that developing greener alternatives for existing processes has more impact than developing new products via green chemistry.

In contrast to the perception that investing in R&D for green chemistry may hamper return on investment (ROI) or may lead to higher prices for the customer, many industry

practitioners believe that investment in R&D to develop greener processes can actually increase ROI and ultimately drive down costs for the customers.

Green chemistry brings about more cost savings as it seeks to avoid exotic reagents, minimise energy use, and replace organic solvents with water. For an industry where the development of new drugs is

expensive, time-consuming, and has a falling rate of market approval, developing greener and more efficient methodologies for existing processes can help improve cost efficiencies.

“Perceptions and Experiences of Green Chemistry Practitioners”, Alcereco, 2014

“Perceptions and Experiences of Green Chemistry Practitioners”, Alcereco, 2014

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Regulatory Initiatives

Regulatory surveillance is also one of the leading incentives for companies to develop greener alternatives to existing processes. In the US, the Environmental Protection Agency (EPA) has been actively involved in the policy making and implementation of legislation to promote adoption of green chemistry in the pharmaceutical industry. The Office of Research and Development at the EPA also conducts R&D in the areas of Catalysis Research, Green Synthesis Research and Process Intensification Research. In addition, it has also developed the Toxicity Estimation Software Tool (TEST) software that can identify the toxicity of molecules selected for possible chemical production. In order to promote and incentivise the adoption of green chemistry by the industry in the US, the EPA has also instituted the “Presidential Green Chemistry Challenge Awards.” These prestigious annual awards recognise industry players and chemical technologies that incorporate the principles of green chemistry into chemical design, manufacture and use.

In the EU, the European Council and the European Parliament adopted a European Chemicals Legislation in 2007, REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals), to ensure protection of

human health and safeguard the environment. The REACH legislation holds companies accountable for the management of hazards and potential risks of substances that are manufactured or imported by them.

However, there is a strong belief within the pharmaceutical industry that more initiatives need to be taken at the federal level to help improve adoption of green chemistry. For example, the existing regulatory landscape requires that every time a manufacturer changes the production process, it has to undergo a recertification process with the FDA. This process is both costly and time-consuming.

The industry invests in R&D to develop greener alternate routes to synthesis but there are currently no regulatory incentives provided to manufacturers for developing such environment friendly processes. Additionally, there is a lack of funding to invest in R&D to develop processes. It is hence imperative to have regulations that support and reward the development of greener alternatives to existing manufacturing processes. Further, greater collaboration between industry players will help overcome liabilities and improve R&D climate that will help drive the green chemistry market.

Legal Implications

In order to safeguard the environment and public health from the harmful effects of toxic chemical wastes, many governments have set in place regulations that outline specific waste disposal methods. The US Federal Agency’s “Toxic Substances Control Act (TSCA)” seeks to monitor the chemicals in the market and assess the environmental hazards that they present. The TSCA contains a list of more than 70,000 chemicals10 available in the US market whose environmental hazards have been characterised.

The implementation and enforcement of the TSCA is overseen by the US EPA. The law requires that all chemical substances currently in the US market be tested and assessed for their environmental hazards. Additionally, for any new chemicals that are being imported into the US

market, a prior notification and toxicity testing need to be conducted and approvals sought before importation. In line with the EPA’s aim to increase greener processes, various states in the US have also set up their own laws and legislations that promote clean manufacturing practices. With this aim, the state of California has taken significant steps, as its Department of Toxic Substances Control (DTSC) looks to prevent releases of hazardous waste by ensuring that those who generate, handle, transport, store and dispose of waste do so properly.

California is the largest consumer market in the US and generates two million tons of hazardous waste each year.11 There are an estimated 90,000 locations in the state which are believed to be contaminated with varying levels

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of toxic waste. At any given time, the DTSC supervises approximately 220 hazardous substance release sites and completes an average of 125 cleanups each year.12 As part of the enforcement process, the DTSC also conducts about 200 inspections a year, with violations resulting in a penalty of up to $25,000 per incident.13 Other states in the US, such as Washington, Michigan and Maine among others,

have also taken active initiatives towards environmental management of wastes generated in the state.

Such initiatives by governments across the globe will serve to remind the industry of its environmental obligations, while ensuring that innovative manufacturing processes are identified to safeguard the interests of all involved.

The Role of Technology in Green Chemistry:

There is a significant increase in the E-factor in the fine chemical and pharmaceutical industry compared to that of the bulk chemical industry. This is mainly due to the increased complexity of the chemistry involved, leading to greater waste production. Yet there are avoidable factors that aggravate the waste generation concern in pharmaceuticals. Organic synthesis and its utility in pharmaceuticals has come a long way over the years. This field has developed from an art into a logical science that continues to pave the way for life saving drug discoveries. Emerging new technologies, to boost process research and development programmes, have led to the invention of newer and greener reactions, processes, techniques and approaches in the synthesis of APIs. There is currently a greater opportunity to achieve green chemistry through process research supported by new technologies than ever before. Some of these are listed below:14

CatalysisTraditionally stoichiometric quantities of reagents, leading to correspondingly large quantities of by-products, add to the burden of wastage and ‘non-green’ pharmaceutical processes. Catalysis allows reactions to be run with minimal impact on the environment, constituting one of the twelve principles of green chemistry. It enables a business to enhance product value, while minimising waste streams, cycle times and volumes. In recent years, excellence in catalysis has paved the way for many valuable applications, notably in the synthesis of APIs and intermediates. However, there is a need within the fine chemical and pharmaceutical industry for widely applicable, scalable and green catalytic systems. High levels of selectivity can be attained with two main types of catalysis:

chemocatalysis and biocatalysis, and their application has led to ground-breaking green processes.

Chemocatalysis has developed sufficiently to be used extensively in manufacturing today.15 It includes metal catalysis of various kinds and organocatalysis, both of which have transformed the field of organic synthesis over the past few decades.

Biocatalysis offers many attractive features such as mild temperatures, biodegradable nature of the enzyme catalyst, high selectivity and functional group compatibilities, all of which favour green chemistry. Interestingly, biocatalysis has gained prominence only in the recent decades due to biotechnology advancements such as enzyme availability and the ability to manipulate them, with recombinant DNA techniques allowing commercial availability of any enzyme and immobilisation to improve operational stability and recovery. Piramal is one organisation that takes proactive steps to maximise the use of bio- or chemo- catalysis for asymmetric synthesis. When scalable and inexpensive enzymatic conditions are screened and identified at the process research stage, the process ultimately becomes significantly more cost-effective, resulting in reduced E-factors, fewer steps and therefore less waste. A process research programme can excel when expertise available in catalysis is well utilised toward green synthetic routes.

Flow Chemistry Batch processes are perceived to provide flexibility since, in principle, a single vessel can allow multiple operations to be performed. However, this is not necessarily true.

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A sustainable production method, that is yet to demonstrate its full potential in the scale-up of APIs, is the incorporation of continuous manufacturing processes. Flow chemistry can minimise the amount of waste generated, with increased productivity and decreased capital at the large scale, when compared to batch processes. The reason for these advantages is their superior reaction mechanics and better rates of heat and mass transfer, leading to safe and economic processes. While conventional batch processes require the chemistry to be modified for the plant equipment, flow chemistry allows the design of a reactor based on the reaction..

Parallel ScreeningMolecules in the API business are typically NCEs or novel intermediates and reported procedures do not always work as expected. As a consequence, existing conditions may have to be modified to make them practical. Reaction scouting to find new conditions may be necessary, requiring significant experimentation. Parallel reaction screening saves a substantial amount of time and enables timely activities during process research, provided it is planned and utilised well. With the aid of high throughput screening, and automation in activities such as weighing, quenching and analysis, it is possible to conduct hundreds of reactions in parallel for a given transformation during the feasibility stage of route scouting.

Use of Biocatalysis for Green Chemistry

Advancements in the field of biotechnology have enabled the production of engineered enzymes that can be incorporated in industrial production. The use of biocatalysts in industrial production helps to replace organic solvents and to do away with toxic metal catalysts. Pharmaceutical companies such as Pfizer and Merck among others have used biocatalysis in their effort to design greener reactions.

Pfizer: In 2007, Pfizer employed a biocatalytic process for the manufacture of pregabalin, the active ingredient in its anticonvulsant drug Lyrica. The traditional chemical synthesis of pregabalin involved conventional organic solvents and had an E-factor of 86. However, the new biocatalytic process was reported to decrease the reaction inputs by more than five times, reduced energy use by 83% and decreased the use of solvents by 90%. Further, the E-factor for the process was shown to dramatically improve from 86 to 17.16 As per estimates, this new biocatalytic method for pregabalin will cut down Pfizer’s organic

chemical waste production by 200,000 MT in the period from 2007 to 2020.17 Pfizer has also employed biocatalysis to synthesise its other drugs, such as atorvastatin, artemisinin, oseltamivir and pelitrexol.

Merck: In 2007, Merck also successfully demonstrated the benefits of employing a biocatalytic process for its type-2 diabetes drug Januvia (sitagliptin) as a greener alternative to conventional chemical synthesis. The original synthetic process was energy intensive and required a rare metal, rhodium, as a catalyst which was removed at the end of the reaction. In collaboration with Codexis, Inc., Merck developed customised enzymes which resulted in by-passing the need to involve rhodium metal as catalyst. The new biocatalytic reaction potentially improved productivity by 56%, increased yield by 10–13% and reduced overall waste generation by 19%.18 Over the lifetime of Januvia, Merck expects to eliminate the formation of at least 150,000 MT of waste, including nearly 50,000 MT of aqueous waste 19

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Commitment of Global Pharma Industry for Green Chemistry

The global pharmaceutical industry has shown the drive to adopt greener alternatives to existing manufacturing processes. Pharmaceutical companies, including Pfizer, GlaxoSmithKline, Merck, Johnson & Johnson, AstraZeneca, Bristol-Myers Squibb, Sanofi and Bayer, have adopted their own initiatives to reduce their carbon footprint. These initiatives are focused on developing a product portfolio which is environmentally friendlier than that which was under development 10–15 years ago. In order to achieve these environmental goals, pharmaceutical companies are now setting up dedicated R&D teams that work with cross-functional domains such as the Technical Department, Production, and Environment, Health & Safety (EHS) teams, to develop greener alternatives to existing manufacturing processes. Moreover, companies are also forging partnerships with leading universities to support research into green chemistry. Overall, there is an increased focus on R&D to develop processes that are environmentally friendly and are cost efficient.

In addition to working at an individual level, these companies have also come together within a group set up by the American Chemical Society (ACS) in a spirit of collaboration. The ACS Green Chemistry Institute’s (GCI) Pharmaceutical Roundtable strives to create a platform to take up issues pertaining to green chemistry, to encourage innovation, and to facilitate the integration of green

chemistry and green engineering in the pharmaceutical industry. It also seeks to influence the research agenda, provide the necessary tools and resources for innovation, and to promote global collaboration. The Roundtable reflects the fact that green chemistry initiatives are imperative for business and environmental sustainability. Current members of the ACS GCI Roundtable are Amgen, AstraZeneca, Boehringer-Ingelheim, Bristol-Myers Squibb, Cubist Pharmaceuticals, Eli Lilly and Company, GlaxoSmithKline, Johnson & Johnson, Merck & Co., Inc, Novartis, Pfizer Inc., Roche and Sanofi.

In addition to adopting green chemistry, companies are now also working on other sustainable initiatives in a bid to be environmentally conscious and as a part of their corporate responsibility efforts. Factors such as ensuring the safety of employees and contractors, measuring the environmental effect of emissions of greenhouse gases from their manufacturing activities, overall energy consumption, waste recycling, and responsible handling of hazardous waste, have all gained significance. As part of their sustainability initiatives, companies are now measuring and tracking such performances and setting long-term goals. It is important that in addition to adopting green chemistry practices at the manufacturing level, other such parallel initiatives are also taken for sustainable development to deliver maximum benefits.

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Conclusion

Green chemistry will play an important role in helping the pharmaceutical and drug industries to achieve their environmental target and deliver economic benefits. Many pharmaceutical companies have now begun investing in R&D to develop and employ green synthetic strategies wherever possible. Even companies in the contract research and manufacturing services (CRAMS) segment have now steadfastly started working on employing green chemistry principles, including calculating the E-factor to measure the waste generated, maximising the use of bio- or chemo- catalysis for asymmetric synthesis, and understanding the atom economy of the process during route scouting or the route selection stage itself. CRAMS players are now keen to use reagents and reaction conditions that are as safe, environmentally friendly and scalable as possible. Further, internal process research programmes

in these companies aim to achieve Green Chemistry by Design (GCbD), where syntheses are designed based on the safety, environment, legal, economics, control and throughput (SELECT) criteria, and the emphasis is placed on reducing the number of steps and developing safe and scalable approaches, thus leading to greener processes.

Though it will be an uphill task for many pharmaceutical companies to develop and adopt new environmentally friendly routes utilising green chemistry for existing drugs, most companies can evaluate this on a case by case basis, based on the economic benefits it provides. The industry can also look at adopting green chemistry routes during the drug development stage itself. This would be a sound and environmentally prudent business practice, as it will decrease the E factor on an ongoing basis.

References

1. IMS Health – Global Pharmaceutical Market2. “Green Chemistry and Green Engineering”, 2012, Athanasios

Valavanidis, Thomais Vlachogianni, University of Athens Dept. Of Chemistry

3. “Active Pharmaceutical Ingredients (API) Global Market to 2017”, GBI Research

4. “Green Chemistry and Green Engineering”, 2012, Athanasios Valavanidis, Thomais Vlachogianni, University of Athens Dept. Of Chemistry

5. ACS Pharmaceutical Roundtable Release, “Lessons learned through measuring green chemistry performance – The pharmaceutical experience”, Richard K Henderson, John Kindervater, Julie B Manley

6. Bruggink A, Straathhof AJ, van der Wielen LA. A “fine” chemical industry for life science products: green solutions to chemical challenges. Review. Adv Biochem Eng Biotechnol 80:69-113, 2003.

7. “Green Chemical Industry to Soar to $98.5 Billion by 2020”, Navigant Research, June 20, 2011

8. “Estimating The Cost Of New Drug Development: Is It Really $802 Million?”, Christopher P. Adams and Van V. Brantner, Health Affairs, March 2006 vol. 25 no. 2 420-428

9. “Current and future impact of green chemistry on the pharmaceutical industry”, Joseph Fortunak, Future Med. Chem. (2009) 1(4), 571-575

10. US Federal Chemicals Policy (http://www.chemicalspolicy.org/chemicalspolicy.us.federal.tscaindetail.php)

11. “California’s green chemistry law goes into effect”, Sustainable Business News, Sept.30, 2013

12. California Department of Toxic Substances Control (http://www.dtsc.ca.gov/InformationResources/DTSC_Overview.cfm)

13. “The safer consumer Products regulation – California’s green Chemistry initiative”, Fulbright and Jaworski LLP

14. “Process Research as a Tool to Attain Green Chemistry in the Pharmaceutical Industry”, Dr. Narendra Ambhaikar, Chemistry Today

15. Sustainable Catalysis: Challenges and Practices for the Pharmaceutical and Fine Chemical Industries; Dunn, P. J.; Hii, K. K.; Krische, M. J.; Williams, M. Eds.; WILEY, 2013

16. “Green Chemistry at Pfizer”, Pfizer Release, Peter Dunn17. “Green Chemistry and Green Engineering”, 2012, Athanasios

Valavanidis, Thomais Vlachogianni, University of Athens Dept. Of Chemistry

18. Merck Green Chemistry Case Study, Merck Release19. “Quantifying the Benefits of Green Chemistry”, Karen Peabody O’Brien,

February 2007

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PANEL MEMBER

Girish Malhotra President EPCOT International

Pharma’s business model is broken: QbD needed to open up developing markets

Predictions

A shift is taking place in global pharmaceutical businesses, whether we like it or not, and is being brought on by generics manufacturers based in developing countries. Serving a limited population that can afford high-priced drugs through a mutually subsidized system will not allow pharmaceutical companies to retain or increase their revenue streams and profits. Pharmaceutical companies will have to take radical measures.

Provided that industry accepts the need to change and finally starts to walk the talk, I predict that pharma will have to move away from its “regulation-centric” approach and become “process-centric”. This change will:

• Facilitate successful implementation of Quality by Design, leading to optimum process efficiencies, high-quality products and lower costs (see table 1).

• End analysis paralysis mode within the industry. The QbA approach will eventually cease.

• Generate global revenue savings of 20 to 25 percent. • Expand pharma’s business opportunities, making drugs

more available for the majority, rather than the rich minority.

Therefore, pharma’s customer base could increase by 20 to 30 percent from its current level, generating a huge rise in revenue. Pharma will have to move away from the current model to achieve the projections. If it does not an outlier could change the landscape.

Introduction

We all want to know what the future holds for us, and we want to know now -- hence the popularity of fortune-telling and “fields” such as astrology. In our desire to predict tomorrow, however, we often forget simple cause and

effect. What we do today helps determine what happens tomorrow. For instance, every newly developed and approved drug, in efficacy and in price, directly impacts company and industry profits.

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Despite on-going, product-quality issues, drug companies have been profitable using the current business model - to the industry there is no problem as they have been passing inefficiency costs and making money. Since current or higher level of profits can be achieved with the current inefficient practices, industry leadership does not see any value in improving its product development, business, and technology practices. As a consequence, why would pharma express any desire to change if it can still make a profit? Why would you invest more time and money into something that is already turning a substantial profit? Profitability has assured a culture where inefficiencies are ignored.

Pharma has two main objectives: • To maximise profits through invention and marketing of

drugs.• To market safe drugs and comply with expected

performance and regulatory standards.

Whilst ever it is successfully achieving the above, product development inefficiencies and manufacturing processes do not play a part as the costs are absorbed.

As it currently stands, it is a struggle to think too positively when considering future predictions concerning the pharmaceutical industry- that is, at least, until pharma takes responsibility and drives such changes that, in my opinion, are necessary. Industry simply has not walked the talk. Reducing manufacturing costs is a goal we all have. Most of the industry claims to aspire to it, but, as far as big pharma is concerned, profitability over the patent life means it’s not worth the time and money spent to make the reductions. The industry, including generics, is content with current levels and has not made an effort to further improve the profits.

Another problem, especially when concerning API manufacturing, is the reliance upon “Quality by Analysis,” or the common practice of analyzing every step of a reaction process to ensure that the process is progressing as expected. This “Analysis Paralysis” approach is already inefficient. It stifles innovation and creates ripples of inefficiency in other business areas, including how we manage our supply chains, and use capital equipment and other assets. Analysis Paralysis hampers innovation in drug formulations as well. In many discussions

API manufacturing is not even considered part of pharmaceutical manufacturing.

Under “AP” mode, industry focus is on complying with regulations, rather than optimizing processes so that they exceed regulatory expectations and enable continuous improvement.

Shifting away from the Quality by Analysis model is vital for the future survival of pharma companies, although the industry is yet to begin the transition. Should changes be made, I see a bright future for both pharmaceutical companies and patients. In order to achieve this, however, it is my belief that pharma must switch its current business model and become “process-centric” rather than “regulation-centric”. Unfortunately, however, I forecast that pharma will remain “regulation-centric” for the foreseeable future.

Process-centricity, if adopted, would allow companies to exceed regulatory requirements, which could also avoid many issues that have created public relations and financial headaches. Current regulatory guidelines and requirements are contradictory and discourage change. Because changing an existing process requires approval, it is perceived to be a long and expensive step, and something to be avoided. With this in mind, I predict that industry will hedge in adopting many of the internal changes (manufacturing methods, technology, and supply-chain improvements) that could improve profitability and move from the current quality by analysis/aggravation to a more efficient approach. Again, this is due to regulatory constraints. Short patent lives for the ethical (brand) drugs will impede innovation in manufacturing technologies. Most generic manufacturers have adopted manufacturing methodologies practiced by the brand companies.

Quality by Design (QbD) is not a new concept. It is a result of process centricity, which if properly implemented delivers quality products, reduces process inefficiencies and lower costs. Process-centricity is just s good business practice. Even so, the industry still appears unwilling to take the steps required for the change, as new approaches mean new regulatory approvals- something that, at present, is deemed too time consuming and offers little incentive.

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As a consequence, it is my belief that not much will change in the current processes as the needed regulatory approval will come in the way of any improvement of existing processes. Success to exceed regulations will only come from the process inception stage along with command of the process as they become commercial. I reiterate, “process-centricity” has to overtake the current “regulation-centricity” if Pharma wants to see cost reductions in new and existing processes. With not much forthcoming from the industry to improve its manufacturing and business practices, regulatory bodies

will enact regulations that will force the industry to adopt better practices. This tug-of-war will continue, unless the industry takes the lead. Additional regulations will only increase healthcare costs.

Until branded pharma, generic, big, small and anything in-between, become “process-centric” no progress will be made in their modus operandi (business model and manufacturing technologies). Once they do, however, I predict potential global revenue savings of 20 to 25 percent. The result? Exactly what our industry is striving for- improved profits.

Reaching the masses

Overall, we are raising costs. Due to being part of the mutually subsidized healthcare system, patients do not know this and/or many might not care, as they are willing to pay more for what they perceive to be valuable. However, the industry’s inefficiency affects those, such as the uninsured or those on fixed incomes, who must often

choose between food and medicine. High cost of drugs actually discourages many patients from taking life saving drugs.

In order to truly flourish over the next 10 years or more, pharma companies will have to figure out how to reach

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the world’s masses rather than small patient populations. If they are to succeed in the long term, they must find a way to do this. Pharma has typically focused its attention of drug discovery on products for the wealthy consumers. In fact, just this year Bayer’s CEO was cited to have said their drugs are developed for those who can afford it i.e., Western patients and not the poor in e.g., India or any other developing country. I am sure this could be the same for the majority of big pharma too, limiting the customer base to less than 50 percent of the global population, by my estimates.

Over the next few years, pharma will have to acknowledge the need for Western-standard drugs at affordable prices that are not out of reach to the majority. To put it simply, if pharma wants to expand its customer base (and soon it will need to), it will have to make drugs affordable and available.

Generic drug manufacturers who are making drugs more readily available and affordable are challenging BIG Pharma. Even in developed countries, pharma are significantly losing their customer base to generics producers. To retain prominence in developed countries and expand business opportunities into markets where healthcare is drastically needed (but largely out of reach), pharma must review and improve methods and costs related to other components of its business -- manufacturing technologies and methods, supply chain, regulatory compliance, product quality, etc. All this may necessitate a model that is different from the current model.

If this were to happen, I predict that pharma companies would have custom from at least 70 percent of the global population- significantly boosting pharma’s revenue and profits and making drugs more accessible to the majority rather than minority. A win-win situation, in my opinion.

Conclusion

It is inherently clear that significant changes are needed in order for the pharma industry to remain profitable. Pharma must escape from ‘analysis paralysis’ and move away from its typically ‘regulation-centric’ approach to drug manufacturing. In order to survive and remain profitable, industry must adopt a ‘process-centric’ approach. Regulatory bodies are attempting to drive change to very little avail- it is clear that pharma must be willing and must make the changes even in its current operating model independent of regulatory bodies. By doing this, revenues will surge, process efficiency will improve, drug costs will be lowered and hence pharma could extend its custom to a much larger proportion of the globe.

Who will make the change? It is my conjecture that external forces may shape the future of pharmaceuticals.

Foundations, including those established by Bill and Melinda Gates and Bill Clinton, along with various

governments, have been helping many in developing countries secure drugs for neglected tropical diseases (NTDs) and HIV/AIDS. They have already succeeded in reducing the prices for some drugs, compared to prices in the developed countries. However, as I have already pointed out, there is room to lower drug costs (about 30 to 45 percent) through better manufacturing technologies and economies of scale. Since these foundations have already worked with pharma companies, they could be the ideal change agents. Alternate change agents could be the likes of Elon Musk, Anne Wojcicki, Anita Goel or Elizabeth Holmes.

If the postulated changes are implemented, pharma could reach an additional 20 to 30 percent of people living in any given region without the need of additional funding. As a result pharma companies would not only improve their profit levels, they would also lower healthcare costs across the board as they increase accessibility.

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About CPhICPhI drives growth and innovation at every step of the global pharmaceutical supply chain from drug discovery to finished dosage. Through exhibitions, conferences and online communities, CPhI brings together more than 100,000 pharmaceutical professionals each year to network, identify business opportunities and expand the global market. CPhI hosts events in Europe, China, India, Japan, Southeast Asia, Russia, Istanbul, Korea and South America co-located with ICSE for contract services, P-MEC for machinery, equipment & technology, InnoPack for pharmaceutical packaging and BioPh for biopharma. CPhI provides an online buyer & supplier directory at CPhI-Online.com.

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