Pharma Sector – Week 1
This is the opening article of the 5 article series on Pharma sector analysis by Sadhan. During this 5-weeks course series, we target to capture the following stages:
Also, watch the 6-jargons being demystified by Amitabh in this short video. It’s worth 10-minutes of your time.
Moving on, let us start with the topic of this article which is about the structure of this industry.
Pharma sector is driven by processes and 2 key processes which we should know are:
- Drug Approval Process
- Drug Manufacturing Process
Drug Approval Process in the Pharma Sector
The granular sub-stages under Drug Approval Process are below:
During the discovery phase, Target i.e. Disease is identified then a superset of possible compounds to treat the disease is selected (~500 compounds).
Then after long laboratory research, 1 leading compound is selected by the Pharma sector company.
Pre Clinical Trial
It is a 4-phase process as detailed below:
All 4 phases have been captured in the table below which also includes the phase-wise success rates of a lead compound achieving success after each trial.
This indicates that drug discovery is highly probabilistic and the overall success ratio is less than 5 %.
Role of CRO (Contract Research Organisation)
Clinical Monitoring is a tedious process with a lot of work hours required to monitor the development so most often it is outsourced to low-cost alternatives namely Contract Research Organization i.e. CRO.
The commercialization stage consists of drug production and marketing. In this stage, the pharma sector company must find commercial methods of producing a product and take an appropriate strategy for entering the market.
The commercialization stage usually starts at the end of clinical tests.
Role of CDMO (Contract Development and Manufacturing Organization)
A contract manufacturing organization (CMO), sometimes called contract development and manufacturing organization (CDMO), is a company that serves other companies in the pharma industry on a contract basis to provide comprehensive services from drug development through drug manufacturing.
Services offered by CDMOs include, but are not limited to Formulation Development, Stability Studies, Method Development, Pre-clinical and Clinical Trials Materials, Scale-up, Registration Batches, and Commercial Production.
CMOs are contract manufacturers, but they can also be more than that because of the development aspect.
Nowadays 50 to 60% of the small molecule manufacturing is outsourced to CDMO players Small Pharma/biotech they largely depend on CDMO for manufacturing (2017:80% of newly approved drugs)
Big Pharma companies generally outsource small molecules as the process is validated and low surprises expected while being outsourced (2017: 20% of newly approved drugs).
Big Pharma keeps dual sources for API so for large drugs they make API in-house and keep the second source as CDMO.
What is CRAMS?
CRAMS (Contract Research & Manufacturing Service) is defined as the process of outsourcing research services/ product manufacturing activities to organizations that can provide the service at a low cost.
CRAMS basically consists of the following two activities: contract research and contract manufacturing
Drug Manufacturing Process
Drug manufacturing is a multi-stage process as detailed below:
When Key Starting Materials (KSM) which are basically Chemicals & Chemical Intermediates are mixed inside a solvent and an Active Pharmaceuticals Ingredients (API) is formed.
API is the Active part of the drug which holds the key.
When API is mixed with some inert materials (known as excipients) then Finished Dosage Product (FDF) is formed and this process is called Formulation. Further, these drugs go for packaging.
There is one often used term called DMF used in the context of API. Let us understand.
What is DMF?
While not required by law, a Drug Master File (DMF) is submitted to the Food and Drug Administration (FDA) to provide detailed information about facilities, processes, and materials used in the manufacturing, processing, and packaging of human drugs.
It’s a prerequisite to securing approval and commercialization and ensures the confidentiality of proprietary information related to the API
Completing a DMF submission generally takes several months to develop, involving thousands of pages of documentation
Since DMF filing is tedious and voluntary still CDMOs are putting huge efforts as shown by the data for global and Indian API manufacturers below:
|Indian CDMO/API Players||DMF|
In Week-2, we will simplify the market dynamics of the Pharma sector and we will also discuss the prevalent regulatory environment today, which shall shape our investment decision in this sector. So stay tuned.
To consolidate your understanding of the sector I recommend you to watch these videos (Setting industry knowledge in motion) :
Solara Active Pharma – A Dependable Stock in Your Portfolio?
Advanced Enzymes – The Biotech Player
Syngene International – A CRAMS Player in Indian Pharma Sector
Cover Image: ET