Revolutionary change is occurring in the pharmaceutical industry. The old model of discovering and delivering pharmaceuticals is under attack. The rising cost of medicines, the reduced productivity and the increased regulatory requirements have driven companies to seek alternative means. Significant efforts to reduce operating expenses, to share in the risks/costs of failure and to provide reasonable returns to investors are leading to the destruction of the industry as we have known it. This “Pharmageddon” isn’t going to happen sometime in the future – we are currently in its midst. 

The industry must respond by developing a win-win-win approach that allows investors, pharma companies and their suppliers to collaborate to continue to deliver life-saving and life-improving medicines to patients in need and to share in fair and reasonable profits. Otherwise, a time will come when new life-saving and life-improving medicines will no longer be developed.

Destruction on the Horizon

Revolutionary changes are occurring in the pharmaceutical industry. The public perception of drug companies has reached an all-time low. And it’s not just concerns about drug pricing. Drug manufacturers, distributors and pharmacies are also under scrutiny due to the escalating opioid crisis. States are suing drug companies based on the costs associated with responding to this serious health issue.

In addition to these challenges of public perception, the industry is struggling to contend with the impact that the loss of patents, the reduction in R&D productivity, the increased regulatory oversight and the rapidly rising cost of developing a new drug are having. All of these reasons have driven the industry to revolutionary change in all sectors to overcome these market dynamics. This has caused the realization that Pharmageddon isn’t coming at an abstract date — it is here. Although it may seem dramatic, if no actions are taken to change this current landscape, the pharmaceutical industry is at risk of destruction — meaning that we will no longer have the ability to develop and produce life-saving medicines. When the next pandemic occurs, hundreds of millions of people could die because the needed new medicines and innovations will not be available to treat them.

The Need for Responsibility

If the pharmaceutical industry is to survive this impending Pharmageddon, the industry must step up to be positive, be productive and solve these significant challenges. Our traditional operational model, which in the past was all too comfortable, is being challenged from every direction. The answer is revolutionary change; we need a new model that will drive the industry towards the necessary outcomes. We must take the initiative, rather than sit back and wait for someone else to do it.

As professionals, it is our responsibility to stand up and face these current pressures. We must address the concerns of the public — and eliminate financial and economic waste so that we can deliver medicines at fair prices. As an industry, we need to conduct business in a fair and transparent manner so that we can charge reasonable prices and still make fair returns for investors and everyone in the industry.
The first step is to take control of our processes to increase productivity and efficiency. We need to optimize all of our activities to provide the best value. Second, the industry needs to address the overcapacity situation. The branded pharmaceutical industry is running at approximately 30% capacity utilization, with the generics sector around 50%. The consumer goods industry operates at 85%-90% capacity utilization due to lower profit margins. The pharmaceutical industry must adopt this same mentality and deal with the excess capacity.

Though it may be difficult to accept, that means that some manufacturing and R&D facilities must be closed. The industry has not really tackled this problem previously because it is very difficult to do. Closing facilities creates job losses and infrastructure rationalization, which are strongly opposed by governments that often push hard for implementation delays. Moving drug production is also costly, and risky for the supply chain. Change requires a review of regulatory dossiers, which once opened up can be reevaluated entirely. There is a potential risk that additional work will need to be done, potentially threatening a product’s survival in the marketplace.
It is, however, no longer an option for companies to sidestep and ignore overcapacity issues, inefficiencies and lack of productivity. Both branded and generic drug manufacturers and their contract manufacturing partners must dramatically increase efficiencies and better utilize capacity. Rationalization of facilities and firms is essential. The number of contract manufacturers must be reduced from the approximately 500 that exist today to 50 or 100. It will take 10-15 years for these changes to occur, but they must. And they will have a major effect on everyone. Those who understand the dynamics of today’s market and adjust will end up winners.

A Win-Win-Win Solution

Winners post-reformation of the industry will be winners a different context; they will be winners in an industry where everyone wins. If the industry is to survive Pharmageddon, we need to create a mindset of generating value across the entire supply chain — we can no longer think that winning must occur at the cost of others losing. We must seek new ways to fund innovation, continue to seek productivity and efficiency improvements, and price the drugs of the future fairly so that society can afford them. Pharmaceutical companies will continue to challenge what their core competencies are and will increase their reliance on partnerships with valued suppliers. Rather than look to pressure suppliers to achieve cost savings, drug companies must work with their suppliers to create a system in which everyone — patients, pharma companies, suppliers and investors — benefits.

Partnerships amongst all of the players must be created, in which everyone invests together to deliver valuable life-saving and life-improving medicines to patients at fair and reasonable prices. In spite of pricing concessions, pharma companies and suppliers will still be able to make a reasonable profit and investors will be able to make a reasonable return. We must all work together to get the current system — which is a system out of control — into control to establish a long-term win-win-win approach, in which everyone has a vested interest and from which all parties can assure a sustainable, profitable growth business.

If the industry is to survive Pharmageddon, we need to create a mindset of generating value across the entire supply chain — we can no longer think that winning must occur at another’s expense.

Need for Greater Efficiency

Creating these win-win-win relationships will require dramatic improvements in efficiency and productivity. The time to discover, develop and deliver medicines in the future must be reduced. There is also a need to continue to assure product quality. There are many opportunities to improve efficiency, reduce costs and enhance supply chain security, as well as regulatory compliance, across all phases of the drug lifecycle for branded, generic and over-the-counter medicines.

What CDMOs Can Do

Simplification of the supply chain is occurring as both outsourcing and consolidation occur at an accelerated pace. These market forces are creating a positive environment and more opportunities for contract development and manufacturing organizations (CDMOs) supporting both APIs and drug products to contribute positively to these market changes.

The greatest opportunities exist for CDMOs who seek to become true partners with their customers. CDMOs must understand the cost pressures facing the industry and recognize what they can do to play a role in improving customers’ cost structures by finding new ways to drive efficiencies, providing security of supply, enhancing regulatory compliance and building long-term confidence by delivering on commitments to customers.

The consolidation occurring in the industry is not only fundamental to its success but will lead to an entirely new industry structure where CDMOs, as a part of a strategic partnership, deliver technical expertise and support to their customers to assist in drug development, offer new technologies and deliver more efficient and cost-effective manufacturing support.

Taking Action at Avara

Avara’s strategy, first and foremost, is to deliver on our commitments to our customers. We do that by focusing on, and caring for, our people. They really are our greatest asset. Each and every one of them realizes that what we do will impact the lives of people we may never know. Our people have passion and always focus on meeting or exceeding customer expectations and regulatory requirements — they understand the consequences are extreme if they do not. They also recognize the need for an operational approach that maximizes efficiency, productivity and quality.

Forming long-term strategic partnerships with our customers is an equally important component of our strategy. We want to help our customers succeed by providing security of supply and meeting regulatory compliance requirements at a fair price. We commit to certain guaranteed long-term benefits to our customers as a means of sharing the leverage that we realize from increased volumes or improved efficiencies.

As an integrated supplier of API and drug product services, Avara also helps simplify the supply chain. We reduce the number of handoffs needed to get a drug from development to commercialization and into the hands of patients. Avara brings a wealth of process and industry knowledge and expertise in supply chain management, process and formulation development, commercialization, product launch and technical transfer to bear on customer projects, facilitating the rapid, cost-effective development of advanced medicines. As a result, our customers receive significant benefits.

The foundation of Avara is accelerating the delivery of drugs to the marketplace while facilitating the changes that must happen in the industry. Those changes can only happen if there is a mutual understanding and participation by all in the market, including contract service providers and their customers.