In response to multiple tragedies related to the pharmaceutical industry during the 1950’s and 1960’s, the world saw a substantial increase in the number of regulations, guidelines, and laws regarding the "safety, quality and efficacy of new medicinal products" over the next decade. As the industry expanded production into international markets, pharmaceutical standards still remained a national responsibility and global standards did not exist. Soon, there was a need to standardize quality and safety regulations in order to provide consumers with safe products in a timely manner.
It was the EC (now the European Union) which urged for the creation of a single market for pharmaceuticals in the 1980’s. However, it was until 1989, at the WHO Conference of Drug Regulatory Authorities (ICDRA), that plans began to develop for the creation of a global pharmaceutical regulator. In April 1990, the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) was created. Now, the ICH is composed of more than six parties that represent the regulatory bodies and the research-based industries that are responsible for the decision making processes related to the pharmaceutical industry in the United States, Japan, and Europe. Included in this group are the European Union, the Ministry of Health, Labor, and Welfare (Japan), the Japan Pharmaceutical Manufacturers Association (JPMA), the Food and Drug Administration (FDA), and the Pharmaceutical Research and Manufacturers of America (PhRMA). There are also ICH Observers that act as a liaison with non-ICH countries, including the World Health Organization (WHO) and The European Free Trade Association (EFTA).
The ICH guidelines are currently divided into four main categories: Quality topics, Safety topics, Efficacy topics, and Multidisciplinary topics. Quality topics incorporate guidelines for the stability testing of new drug substances and products, the impurities in new drug products, and the specifications for test procedures and acceptance criteria for new drug substances and new drug products. Safety topics focus more on providing the guidelines for toxicity tests and carcinogenicity studies. Efficacy topics include clinical safety measures, ethnic factors, and special population situations and finally, multidisciplinary topics range from medical terminology to data and electronic standards.
In recent years, the Food and Drug Administration (FDA) has become more involved with international regulatory partners and international health associations in order to leverage its resources and achieve its public health goals. By sharing regulatory information internationally, drug product quality will continue to improve as well as technological innovation. This, in turn, will enhance public health protection. The FDA also will continue to actively work with the ICH on a new plan to develop a pharmaceutical quality system with will be "based on an integrated approach to risk management and science." In the near future, the FDA will seek membership in the Pharmaceutical Inspection Cooperation Scheme (PIC/S). This is an "arrangement between "health authorities whose purpose includes leading the international development, implementation, and maintenance of harmonized CGMP standards and quality systems of world-wide pharmaceutical inspectorates." Also, this participation will further increase harmonization and information sharing in the global pharmaceutical industry.
For more on the FDA, see the Political Determinants section.
Barriers to Entry in the Global Industry
Like many industries, any new entrant into the pharmaceutical sector will be faced with various "hurdles" that have been previously erected by already established businesses and by national and international standards and regulations. These include, but are not limited to:
:: economies of scale - manufacturing, R&D, marketing, sales
:: distribution product differentiation - established products, brands and relationships
:: capital requirements and financial resources
:: access to distribution channels: preferred arrangements
:: regulatory policy: patents, regulatory standards
:: switching costs - employee retraining, new equipment, technical assistance
The barriers to entry are extremely high in the pharmaceutical industry. Many of the top firms have "significant manufacturing capabilities that are hard to replicate". Also, they have extensive patents that guarantee the protection of their products while they defend their brands with large marketing budgets. Since any emerging pharmaceutical company can expect a sharp retaliation from the established competitors in the pharmaceutical industry, the overall threat of entry into the global marketplace is relatively low in comparison to other international industries.
The largest factors that influence the success of many pharmaceutical companies are capital requirements and financial resources, regulatory policies, and research and development. All three of these factors can influence one another and a lapse in one area can be disastrous for the future of the company.
Inevitably, many pharmaceutical firms have faced liability issues that stem from a lack of adequate regulatory policies and lead to lawsuits alleging adverse side effects from their medications. These liability cases often involve settlements that require a large amount of financial resources. Finally, after a case is settled, the firm or company must re-evaluate their research and development methods if they wish to remain a competitor in the international market.
For example, one of the most prominent pharmaceutical companies in the world, Merck, has been the target of over 22,000 liability lawsuits in the United States. A large majority of these cases involved Merck’s painkiller Vioxx, which was removed from the market in September 2004 because of adverse cardiac events resulting from its use. These lawsuits will result potential liabilities ranging from $4 billion to more than $25 billion. However, Merck is aggressively defending each suit separately, which has resulted in mixed results (5 cases won, 4 cases lost).
In recent years, product liability for potential damages has become an increasingly important issue in the pharmaceutical industry. Pharmaceutical firms are proposing to limit a manufacturer's liability once the FDA has approved a particular medication. This would allow pharmaceutical companies to avoid potentially devastating liability cases and instead, the FDA would be responsible for these faulty medications.
In the end, the high barriers to entry in the international pharmaceutical industry caused by liability issues have effectively prompted industry-monitoring mechanisms and have created voluntary corporate standards, developing the idea of "corporate social responsibility."
Corporate Social Responsibility
Along with emerging national and international pharmaceutical standards and other high barriers to entry in the global industry, top firms and companies are attempting to further define their particular company by developing appropriate business standards in a manner that insures product safety. Often, the regulations and standards developed by individual firms are more stringent than the international standards and they attempt to establish confidence among the firms’ core constituency. Many of the "responsible business standards" developed by the top firms in the pharmaceutical industry (Pfizer, Johnson and Johnson, Merck, and GlaxoSmithKline) are being created voluntarily in order to secure a niche in a global market place where product liability is a key factor in determining success. Many of the standards developed by these firms address issues like child labor, workplace conditions, and the "responsible care" of the environment.
:: Climate Change - To reduce carbon dioxide emissions by 35% per $ million of sales by 2007 from the baseline year 2000
:: Energy - To meet 35% of our global electricity needs by 2010 through "clean" energy sources (e.g., co-generation, solar or wind power)
o December 31, 2005 at Pfizer facilities owned prior to April 2003
o December 31, 2007 at Pfizer facilities acquired after April 2003
:: Ozone Depletion Potential (ODP) - To reduce our ODP from ODC releases by the end of 2007 by 80% from our 2002 baseline
:: Johnson and Johnson
Johnson and Johnson also has their own social responsibility code. Outlined in their corporate policy is information about child labor, global labor, laboratory research animal testing, ethical research guidelines, and worldwide environmental policy. As indicated by their 2005 Sustainability Report below, Johnson and Johnson will continue to lessen their impact on the environment.
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1. Our business is preserving and improving human life.
2. We are committed to the highest standards of ethics and integrity.
3. We are dedicated to the highest level of scientific excellence and commit our research to improving human and animal health and the quality of life.
4. We expect profits, but only from work that satisfies customer needs and benefits humanity.
5. We recognize that the ability to excel -- to most competitively meet society's and customers' needs -- depends on the integrity, knowledge, imagination, skill, diversity and teamwork of our employees, and we value these qualities most highly.
Merck also undertakes a wide range of philanthropy work on the national and global levels. In 2006 alone, Merck's philanthropic contributions totaled $826 million.
Environmental, health, and safety standards are also of fundamental importance to the Merck Company. Merck has continued to progress across a number of fronts in recent years and sequentially have won numerous awards for their environmental protection efforts.
:: The U.S. Environmental Protection Agency named Merck an ENERGY STAR® 2006 Partner of the year for the Company’s outstanding contribution to reducing greenhouse gas emissions through effective energy management.
:: For the second consecutive year, Merck has won the prestigious Presidential Green Chemistry Challenge Award from the U.S. Environmental Protection Agency in 2006. Merck received the "Green Synthetic Pathways Award" for the novel synthesis of the active ingredient in Merck’s innovative new medicine for type 2 diabetes. Over the lifetime of the product, Merck expects to eliminate the formation of at least 330 million pounds of waste.
:: Award for HEALTH (Helping Employees Achieve Life-Time Health)
"Corporate Citizenship." Pfizer Company Webpage. 22 Apr 2007
"Corporate Responsibility." Merck Company Webpage. 22 Apr 2007
"History and Future." About ICH. ICH. 19 Apr 2007
"Social Responsibility." Johnson and Johnson Company Webpage. 22 Apr 2007
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