Economics and Management in the Biopharmaceutical Industry in the USA

Evolution and Strategic Change

Rachel Kim

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9781138500273
• eBook ISBN: 9781351012690
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

From a managerial perspective, the biopharmaceutical industry represents a competitive, fast-changing, intellectually-powered, innovation-driven sector. Many management scholars have studied this discontinuous era to make sense of strategic behavior and the cognition of firms and top managers. A past look at the biopharmaceutical industry provides answers to questions that most managers have. For example, what options do you have and what actions do you take when new firms enter your industry? In the 1970s, new biotechnology firms, funded by venture capitalists, appeared in the pharmaceutical industry with new knowledge. Successful pharmaceutical firms decided to collaborate with the new entrants and forge relationships to develop and create new, biotechnology engineered drugs. Thus, the addition of new biotechnology firms ushered in a new business model based on strategic alliances. Strategic alliances have now become an industrial norm called open innovation.

The author looks at the historical path of the biopharmaceutical industry, particularly in the United States. While the pharmaceutical industry's main contributions to society are substantial, there are pressing challenges the industry must face, such as an increase in infectious disease outbreaks or the global aging population, which require new types of care, additionally, mental health care and prescription painkiller addiction are persistent issues with economic repercussions to both federal and local governments.

This book presents a holistic view of the biopharmaceutical industry, putting it in a historical context. It will best serve those who are eager to learn about this dynamic, fast-evolving industry and who would like to tackle current biopharmaceutical industry issues in the United States and be prepared for future industry challenges.

1Introduction

In order to cure diseases, lengthen life expectancy, prevent unintentional outcomes, and improve quality of life, forecasting or prognosis, to a certain degree, is necessary for medical doctors to provide the best care to their patients. Likewise, many believe forecasting in the biopharmaceutical industry also benefits biopharmaceutical companies and their professionals. Over the next couple of decades, will the biopharmaceutical industry continue its current success or face unprecedented new challenges? To answer this question, we must first look at the historical path of the biopharmaceutical industry, particularly in the United States. In fact, the biopharmaceutical industry has had a great impact on human societies throughout the world.

Main contributions of the biopharmaceutical industry

Throughout human history, many industries have emerged and disappeared over time. Since its appearance in modern history, the biopharmaceutical industry still prospers today due to numerous contributions that have positively affected countless individuals. The most visible contributions the biopharmaceutical industry has made to human society include the improvement to longevity and the quality of life for patients with chronic diseases and mentally illness. In its early years, the traditional pharmaceutical industry was not credited with any of these improvements, although they did provide patients with herb-based sort of medicines before the 1930s and antimicrobials after the 1930s. Whether people agree or not on medicine’s impact on longevity, a recent 2004 study shows that the overall life expectancy in the United States increased by 0.5 years for Afro-Americans and 0.4 year for Caucasians (Arias, 2007).

Beginning in the 1970s, the biopharmaceutical industry began impacting the way society experienced disease and started playing an active role in patient care and human life. Since the 1970s, the industry has introduced new, effective drugs that have improved the treatment of major diseases such as cardiovascular diseases, depression, and diabetes mellitus (Drews, 2000). These drugs noticeably decreased mortality, shortened hospital stays, and improved the quality of life for large groups of patients (Getzen, 2010; Lichtenberg & Pettersson, 2014). Because of these successes, the most significant contribution the pharmaceutical industry has made to the global population is longevity. In our current political and business settings, we are witnessing debates and upcoming changes to government policy, taxation, and health-care payment systems to address concerns related to the care of the nation’s growing elderly population.

Of course, there are many other contributors to global longevity, such as wise consumers who make better dietary choices and technological advances that provide diagnostic testing to detect the early stages of diseases. However, it is undeniable that new medicines for life-threatening diseases, provided by the biopharmaceutical industry, increased the life expectancy of US cancer patients by 0.94 years from 1968 to 1994 (Lichtenberg, 2009). This represents about 8.8% of the overall increase in US life expectancy at birth. Moreover, the longitudinal studies by Lichtenberg and Pettersson on disease-level data in Sweden (2014) showed that new medicines reduced hospital stays and increased life expectancy by 2.37 years from 1991 to 2004 and by 0.6 years from 1997 to 2010. Hence, it is reasonable to say that the pharmaceutical industry helps many people overcome life-threatening diseases such as cancer and infections. Furthermore, medicines give patients who suffer from chronic diseases the ability to live a “normal” life and decrease the length of hospital stays, particularly in developed countries.

While the increase in life expectancy is rightfully valued and applauded, longevity brings with it new issues society must accept and address. The longer life expectancy, in mostly developed countries, brought an increasing number of Alzheimer’s patients and knee osteoarthritis patients in aging populations (Brookmeyer, Johnson, Ziegler-Graham, & Arrighi, 2007; Holt et al. 2011). Everything in nature has two sides, even human longevity.

Current public health issues in the United States

In the United States, treatment of knee osteoarthritis often includes knee replacement surgeries, covered by Medicare and Medicaid, which have provided cash flow for biopharmaceutical companies (e.g. DePuy, a subsidiary of Johnson & Johnson). On the other hand, as the low Food and Drug Administration (FDA) drug approval rates for Alzheimer’s treatment indicates, it has been difficult for biopharmaceutical companies to launch new medicines for Alzheimer’s disease. For instance, 244 compounds were assessed in 413 trials for Alzheimer’s disease and only one was approved for marketing from 2002 to 2014. The success rate was 0.4%, the lowest approval rate for all therapeutic areas (Cummings, Morstorf, & Zhong, 2014). For pharmacological intervention to modify or control Alzheimer’s disease, the disease mechanisms and pathway need to be more clearly understood.

Increased longevity is also attributed to the biopharmaceutical industry’s contribution to unforgettable epidemic infectious disease breakouts including AIDS, SARS, Ebola, and Zika. This is not to say the biopharmaceutical industry was the sole contributor to lessoning the impact of these infections diseases. There was also commitment from George W. Bush’s administration (White House Archives, 2008), support from regulatory bodies (FDA and Congress), and social attention from AIDS medication activists. Still, it is reasonable to say that the most critical role was played by the biopharmaceutical industry.

When the recent and epic Ebola virus broke out, there were no drugs, vaccines, or diagnostic tests available. Until its breakout, Ebola was not an attractive target for pharmaceutical research and development funds (Moon et al. 2015). However, in a surprisingly fast manner, clinical trials for vaccines and drugs were launched. Among them, Merck provided more than 9,000 volunteers with the rVSV-EBOV(Ebola) vaccine, which resulted in one vaccine candidate reported in July 2015 (Henao-Restrepo et al. 2015).

This impressively quick response to an epidemic outbreak occurred, in part, because scientists had identified the Ebola virus nearly four decades earlier. When the Ebola outbreak hit, university and pharmaceutical industry researchers already had several experimental drug and vaccine candidates. The response to the outbreak provides a reminder of the pharmaceutical industry’s mission to defeat epidemic disease for the sake of humankind.

Another pharmaceutical industry contribution is the improvement of mental health and the increased social awareness of its significance in society. Whether mental health issues are minor or significant, they keep people from functioning at normal levels and from experiencing a high quality of life. In the United States, mental health care services have been structured by the National Treatment Guidelines; however, achieving quality of care remains a challenge due to various issues in local communities (Young, Klap, Sherbourne, & Wells, 2001). Despite the challenges, mental health care has come a long way from the laissez-faire accusation of “making healthy people sick” (Moynihan, Heath, & Henry, 2002) or from the radical approach of “electroconvulsive therapy” (Shorter, 2008). While medicines for mental health patients have been controversial, mental health patients need the appropriate medicines and/or therapies to alleviate their pain, be functioning members of society, and interact with family and other caretakers. Unfortunately, achieving quality care in the United States, specifically regarding mental health care, has not been easy (McGlynn et al., 2003). Recently, mental health care issues in the United States have worsened. One reason for this is the high use and abuse of prescription painkillers. The details of this new health-care epidemic will be discussed in Chapter 10.

The biopharmaceutical industry’s main contributions to society are substantial, yet in the United States, there are pressing challenges the industry must currently face. For instance, since 1990, the overall population mortality, excluding Caucasians, has decreased. According to a 2015 study by Case and Deaton, between 1999 and 2013, the prescription painkiller crisis caused an increase in substance overdose deaths in middle-aged Caucasians. Further, mental health care and prescription painkiller addiction are pressing issues with economic repercussions to both federal and local US governments (Case & Deaton, 2015; McKay, 2015). The biopharmaceutical industry has been blamed for this epidemic, resulting in political leaders on both sides of the aisle taking measures against the industry. Now the industry has faced tightened regulations from Congress and government agencies, since this epidemic had political leaders, news outlets, and the public united to see sharper measures taken against the industry. The pharmaceutical industry faces headwind from political groups, patients’ advocate groups, and internal issues such as low productivity and higher expenses to develop innovative drugs. Now might be the time for internal and/or external industrial change.

When infectious disease broke out, the public, the lawmakers, and the biopharmaceutical industry became aware of the significance of combined devotion of academia and biopharmaceuticals to cure diseases, rather than make profits. The global aging population requires new types of care, and Medicaid and Medicare may soon not be sustainable for the growing elderly population. Biopharmaceutical companies need to refocus on their two-tiered mission: (1) to increase longevity for humankind by providing a better quality of life for chronic disease patients and by providing better long-term care options for senior citizens, and (2) to improve mental health care treatments for the mentally ill patients. The public and lawmakers need to provide better health-care systems to reduce public health-care expenses and improve patients’ care.

The following chapters discuss the achievements in drug discovery and development and current biopharmaceutical industry issues. Specific topics include advancements in chemistry, pharmacology, biology, and genetic engineering; biopharmaceutical achievements in the United States and European countries; and regulatory concerns, including drug approval time frames. Readers, particularly those wanting to tackle these issues, will obtain a holistic view of the industry and be prepared for navigating in the future industry environment.

References

Arias, E. (2007). United States life tables, 2004. National Vital Statistics Reports, 56(9), 1–40. Retrieved from http://www.cdc.gov/nchs/data/nvsr/nvsr56/nvsr56_09.pdf

Brookmeyer, R., Johnson, E., Ziegler-Graham, K., & Arrighi, H. M. (2007). Forecasting the global burden of Alzheimer’s disease. Alzheimer’s & Dementia, 3(3), 186–191.

Case, A., & Deaton, A. (2015). Rising morbidity and mortality in midlife among white non-Hispanic Americans in the 21st century. Proceedings of the National Academy of Sciences, 112(49), 15078–15083.

Cummings, J. L., Morstorf, T., & Zhong, K. (2014). Alzheimer’s disease drug-development pipeline: Few candidates, frequent failures. Alzheimer’s Research & Therapy, 6(4), 37.

Drews, J. (2000). Drug discovery: A historical perspective. Science, 287(5460), 1960–1964.

Getzen, T. E. (2010). Public health security and forecasting economic trends. Procedia – Social and Behavioral Sciences, 2(5), 7137–7144.

Henao-Restrepo, A. M., Longini, I. M., Egger, M., Dean, N. E., Edmunds, W. J., Camacho, A., … Enwere, G. (2015). Efficacy and effectiveness of an rVSV-vectored vaccine expressing Ebola surface glycoprotein: Interim results from the Guinea ring vaccination cluster-randomised trial. The Lancet, 386(9996), 857–866.

Holt, H. L., Katz, J. N., Reichmann, W. M., Gerlovin, H., Wright, E. A., Hunter, D. J., …, Losina, E. (2011). Forecasting the burden of advanced knee osteoarthritis over a 10-year period in a cohort of 60–64 year-old US adults. Osteoarthritis and Cartilage, 19(1), 44–50.

Lichtenberg, F. R. (2009). The effect of new cancer drug approvals on the life expectancy of American cancer patients, 1978–2004. Economics of Innovation and New Technology, 18(5), 407–428.

Lichtenberg, F. R., & Pettersson, B. (2014). The impact of pharmaceutical innovation on longevity and medical expenditure in Sweden, 1997–2010: Evidence from longitudinal, disease-level data. Economics of Innovation & New Technology, 23(3), 239–273. doi:10.1080/10438599.2013.828456

McGlynn, E. A., Asch, S. M., Adams, J., Keesey, J., Hicks, J., DeCristofaro, A., & Kerr, E. A. (2003). The quality of health care delivered to adults in the United States. New England Journal of Medicine, 348(26), 2635–2645.

McKay, B. (2015, November 3). The death rate is rising for middle-aged whites. The Wall Street Journal.com. Retrieved from https://www.wsj.com/articles/the-death-rate-is-rising-for-middle-aged-whites-1446499495

Moon, S., Sridhar, D., Pate, M. A., Jha, A. K., Clinton, C., Delaunay, S., … Goosby, E. (2015). Will Ebola change the game? Ten essential reforms before the next pandemic. The report of the Harvard-LSHTM Independent Panel on the Global Response to Ebola. The Lancet, 386(10009), 2204–2221.

Moynihan, R., Heath, I., & Henry, D. (2002). Selling sickness: The pharmaceutical industry and disease mongering Commentary: Medicalisation of risk factors. BMJ, 324(7342), 886–891.

Shorter, E. (2008). History of psychiatry. Current Opinion in Psychiatry, 21(6), 593.

White House Archives. (2008). President’s HIV/AIDS initiatives. Retrieved from https://georgewbush-whitehouse.archives.gov/infocus/hivaids/

Young, A. S., Klap, R., Sherbourne, C. D., & Wells, K. B. (2001). The quality of care for depressive and anxiety disorders in the United States. Archives of General Psychiatry, 58(1), 55–61.

2In the early days of the pharmaceutical industry worldwide

Aspirin in Germany and penicillin from the United Kingdom to the United States

The growth of scientific study and knowledge accumulation, specifically new findings regarding chemistry, undoubtedly created a solid foundation for modern pharmaceuticals and a platform for industry formation. The pioneering theory of the structure of aromatic organic molecules was formulated in 1865, which marked the beginning of studies related to the structure of organic chemistry. A few years later, from 1872 to 1874, postulations of chemoreceptors were discovered, which later became the basis of chemotherapy in the 20th century (Drews, 2000).

During the 1880s, Swiss and German chemical companies, such as Ciba, Sandoz, Bayer, and Hoechst, began manufacturing drugs based on organic chemistry and synthetic dies. In the later part of the 19th century, in the United States and United Kingdom, Wyeth (later American Home Products), Eli Lilly, Pfizer, Warner-Lambert, and Burroughs Wellcome emerged and began mass production of pharmaceuticals. However, until World War I, German companies dominated the industry, producing 80% of the world’s pharmaceutical products (Malerba & Orsenigo, 2002). Consequently, Germany was called the “pharmacy of the world” for many decades (Kaiser & Prange, 2004).

Aspirin discovery in Bayer, Germany

The best-selling drug in the world, aspirin, was produced in Germany. Aspirin, also known as acetylsalicylic acid, was registered at Kaiserlichen Patentamt Berlin, manufactured by Friedrich Bayer & Co., and marketed in 1899. The story behind aspirin’s discovery is that Felix Hoffmann’s father, who suffere...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• Author’s words: overview of strategic management and corporate practice in the United States
• 1 Introduction
• 2 In the early days of the pharmaceutical industry worldwide
• 3 The birth of biotechnology
• 4 Emergence of biotechnology firms in the 1970s–1990s
• 5 New biotechnology firms’ emergence from a pharmaceutical management perspective
• 6 US regulations on the biopharmaceutical industry and their impact
• 7 Law and strategies: how biopharma’s strategies adapted in response to US law changes
• 8 Opportunistic business models in the generic drug market
• 9 Low productivity of drug companies
• 10 Payers, purchasers, and promotions
• 11 Innovation capabilities
• 12 Immuno-cancer therapy
• 13 The biopharmaceutical industry in the future
• Index