Life's lessons

01 April 2002 00:00 [Source: ICB]

Rachel Carson (pictured) published Silent Spring in 1962 - the same year as ECN first went to press. Although the book was attacked at first by the chemical industry, it became instrumental in the development of safer farming methods

As ECN burst upon the scene in 1962, along with the Rolling Stones and the Cuban missile crisis, the pharmaceutical and agrochemical sectors were suffering epoch-making experiences.

The tragedy of thalidomide - finally banned from use in 1962 by the World Health Organisation - and publication of Silent Spring by environmentalist Rachel Carson were to have major, long-term impacts. These impacts, manifested in terms of government regulation and environmental activism, have grown inexorably down the years.

The launch year of ECN also saw African doctors witness the first cases of 'slim disease', later to be known as Aids. This disease would cause much controversy in the early 1990s in the US over the ethics of treatment with untested drugs. And then again in the late 1990s in Africa, as developing nations demanded that such drugs should be available at reduced cost, as the disease reached plague proportions.

Sexual liberation

On the positive side, the early 1960s also saw the introduction by the pharma industry of the Pill, the birth control technique that paved the way for the Swinging Sixties and sexual liberation in the western world. The first contraceptive drug, Enovid from GD Searle, was approved in the US on 23 June 1960 and by 1962 1.2m women were using such drugs to prevent ovulation.

The rest, as they say, is history. As an example of sexual symmetry, it is interesting and perhaps amusing that four decades later, the pharma industry has produced yet another sexual blockbuster, this time for men in the shape of Viagra.

Thalidomide, synthesised by Chemie Gruenthal in 1953, was introduced in Germany in 1957 as a sedative, but was soon being prescribed for morning sickness during pregnancy. By the time it was taken off the market in 1961 or 1962, depending on the country, 8000 or more severely malformed babies had been born, of which 5000 people still survive.

No one had realised the drug would cross the placental wall, doing untold damage to the foetus, including phocomelia - the characteristic short limbs - deafness, blindness, cleft palate and other disfigurement. It was thought so safe it was marketed in 46 countries, often over the counter.

The thalidomide tragedy led to innumerable drawn out court cases, both individual and class actions. But it also prompted a complete review of the system of licensing drugs. In the UK, for instance, it led to the 1968 Medicines Act which established legally binding protocols on how to investigate drug safety.

In the US, which had never allowed thalidomide on the market, 1962 saw the Kefauver-Harris Drug Amendments passed, to ensure 'drug efficacy and greater drug safety'. For the first time, says the Food and Drug Administration (FDA), 'drug makers were required to prove the effectiveness of their products before marketing them'.

They had had to prove they were safe since the Federal Food, Drug, and Cosmetic Act (FDC) of 1938. But, it was only in 1966 that the FDA asked for the re-evaluation of 4000 drugs that had been put on the market between 1938 and 1962 on the basis of safety alone.

It is hard to believe today, but in the 1950s, there were no legally established guidelines on drug trials. The US FDA has, over the years, toughened its drugs approval regulations, and Europe has seen the creation of a harmonised system in the European Union member states. But even today, as the Bayer recall of Lipobay demonstrates, the system is nowhere near foolproof. Some 100 deaths are believed to have resulted from the use of this drug, albeit in conjunction with another.

Pesticide warning

As thalidomide has cast a long, but ultimately beneficial shadow over the pharma sector, so Rachel Carson's seminal book Silent Spring, warning of the long term effects of misuse of synthetic pesticides, has had a huge impact on the agchem industry.

In Silent Spring, Carson warned: 'We have put poisons and biologically potent chemicals indiscriminately into the hands of persons largely or wholly ignorant of their potentials for harm. We have subjected enormous numbers of people to contact with these poisons, without their consent and often without their knowledge.

'The public must decide whether it wishes to continue on the present road, and it can only do so when in possession of all the facts... The choice, after all, is ours to make. If we have concluded we are being asked to take senseless and frightening risks, then we should no longer accept the counsel of those who tell us we must fill our world with poisonous chemicals; we should look about and see what other course is open to us.'

Carson, a writer and environmentalist born in 1907, was attacked by the chemical industry and some in government as alarmist. But testifying before Congress in 1963, a year before her death from breast cancer, she called for new policies to protect human health and the environment.

Many trace the later establishment of the US Environment Protection Agency in 1970 to her book and the subsequent support for its ideas by JF Kennedy's Science Advisory Committee.

###10954###

It has certainly supported the creation of today's organic farming movement, and has caused agchems producers to look for safer and more environmentally friendly products and better education programmes for those using its products.

Partially stemming from these two epoch-making events, the rising cost of R&D and length of time to obtain product approval has been a persistent theme in the pharma and agchem sectors over the past 40 years. The investment needed has been the major factor driving the consolidation of the two sectors over the years.

Development time

Figures may serve to illustrate the problem. Take, for example, the time to develop a new drug from synthesis to approval. A recent study shows that in the 1960s, a new drug could be brought to the market in just over eight years, with preclinical work taking up 3.2 years and the clinical and approval phases each taking around 2.5 years. By the 1990s, the time had risen to over 14 years, with the clinical phase now the longest at 6.3 years.

Twenty years of consolidation in agrochemicals has produced six major players

Company	Constituent businesses
Syngenta	Zeneca (ICI, Stauffer, ISK Americas), Ciba (Geigy, Dr Maas, Shell Canada), Sandoz, Merck & Co, Oriental Chemicals
Monsanto	De Kalb, Sensako, Calgene, Jacob Hartz, Agracetus, Cargil, PBI
BASF	Cyanamid (Shell International, Celamerck), Sandoz*, Microflow, Svalof Weibull (40%)
Dow Chemical	Eli Lilly, Sanachem, Rohm and Haas, Cargill Hybrid Seeds, Mycogen...
Bayer	Aventis CropScience (AgrEvo - Schering, Boots, Fisons, Upjohn, Hercules US; Hoechst - Roussel-Uclaf), Rhone-Poulenc (Union Carbide, Mobil, Chunjin)
DuPont	Shell US, Griffin, Seppic, Pioneer, Protein Technologies....

* US maize herbicidesSOURCE: PHILLIPSMACDOUGALL

The implications on cost are significant. The estimated R&D costs for getting a new chemical entity to market have risen inexorably, from $54m in 1976 to $230m in 1987, and $360m in 1990. Today the figure is put closer to $550m. As a result the industry has found it needs to spend more overall.

In the US for instance, R&D spend has risen from $1.5bn in 1980 to $6.8bn in 1990 and an estimated $20bn in 2000. A similar pattern is evident in Europe, with expenditure going from E2.3bn ($2bn) in 1980 to E17bn in 2000. Global R&D spend has increased at double digit rates since the mid-1980s.

With such spend, the industry has to bank increasingly on getting blockbuster drugs to market. Fortunately, this appears to be the case. The number of drugs with sales of over $1bn/year has risen from four in 1995 to 22 in 2000. But this has been at the risk of skewing company earnings to depend on fewer, larger selling drugs, a situation that is inherently unsatisfactory as the loss of a potential big earner at late stage development or early in its introduction can prove calamitous, as Bayer has found to its cost this year.

Nevertheless, the pharmaceutical sector continues to wow the stockmarket, which gives leading companies high ratings. And, for the medium-term future at least, the outlook is rosy for the sector, with earnings seemingly advancing strongly year by year, despite years of governments trying to restrict healthcare spending.

Recent predictions from IMS Health Consulting suggest the US market for ethical drugs will advance by 12-14%/year to 2006, to be worth $269bn, and that the leading global markets will see 9%/year growth.

The situation in agrochemicals is far less positive and players and analysts are questioning whether the high spend on R&D and product maintenance can be justified in a low growth environment. Growth largely faltered in the mid-to-late-1980s, the time when many companies began to exit the market.

Between 1980 and 2000, real annual growth has been 1%/year, according to PhillipsMcDougall consultancy, even though 12-13 new products have come on the market each year. Sales of conventional crop protection chemicals peaked in 1996 at around $29.1bn, and have since fallen to $25.6bn, with 2001 seeing a sharp 7% real decline.

The lower margins to be earned have also forced many producers to consider whether older products are worth keeping on the market, as regulatory registration burdens and hence costs increase. Many of the older products have thus been withdrawn, superseded or simply commoditised.

Those leading producers committed to the sector now rely on M&A and high R&D spend to maintain their position. The mid-sized companies are having to adopt a strategy of marketing alliances to boost geographic distribution for their product ranges.

But there is no clear evidence of a resurgence in pesticide usage, despite longer term warnings that much higher crop yields will be needed to feed the world's still increasing population. Perhaps it is here that the uptake of biotechnology will be most beneficial, as hardier varieties of crops with increased nutritional content are developed.

Differing futures

Thus, although the pharmaceutical and agrochemical sectors of the chemical industry have much in common, going forward they have very differing futures. In terms of commonality, as discussed above, they share:

close regulation by national and international authorities of the safety and efficacy of their products, and
huge expenditure on R&D to maintain a pipeline of innovative new products and bring them to market.

They also have in common:

a significant impact, over the last two decades, from the so-called biotechnology revolution, and
an increasing trend to consolidation and globalisation.

Indeed, at times over the past four decades, companies in both sectors have tried to align these two businesses, seeking to eke out synergies in terms of chemistry between the two branches of the so-called life sciences. Both, after all, seek to find or produce chemicals that have a biological effect on living organisms.

But today, the two disciplines are well and truly travelling along their separate paths. The very disparate growth rates in the two sectors and the financial returns that can be earned from each necessitate a very different approach in today's climate of shareholder value, a concept largely unheard of ten years ago, let alone 40.

Alone among the majors, Bayer soldiers on with a foot in both camps. Over the past ten years, and at an accelerating rate, companies such as ICI, Dow Chemical, DuPont, BASF and others have quit pharmaceuticals. This ended a period when chemical companies were still interested in buying into pharma, as evidenced by Monsanto's 1985 buy of GD Searle, Dow's purchase of Marion and Rhone-Poulenc's purchase of Rorer.

Meanwhile, the likes of Shell, Ciba and Geigy, Zeneca, Hoechst and Rhone-Poulenc (Aventis), Pharmacia, Sandoz, Eli Lilly, Stauffer, Union Carbide, Cyanamid, Rohm and Haas, Schering, Mobil and Chevron have disappeared from the ranks of agchem producers in the last 20 years.

Indeed, consolidation in the agchem sector has led to just six major international players - Syngenta, DuPont, Dow Chemical, BASF, Bayer and Monsanto. Of these, Syngenta and Bayer have a greater than 15% global market share, while the others have over 7% market share, using 2000 figures.

In the pharma sector, the field is still much more open, with the top ten players commanding just 46% of the global market in 2000. Consolidation began around the late 1980s, when Bristol-Myers and Squibb merged (1989), followed by SmithKline and Beecham (1991), Pharmacia and Upjohn and Glaxo and Wellcome (1995), Ciba-Geigy and Sandoz (1996), Zeneca and Astra (1998), Hoechst and Rhone-Poulenc Rorer (1998), Monsanto and Pharmacia & Upjohn (1999), and SmithKline Beecham and Glaxo Wellcome and Warner-Lambert and Pfizer (2000).

###10955###

Consolidation continues

Recent reports suggest the process is still ongoing, with Novartis a possible candidate to snap up Bristol-Myers Squibb (BMS). BMS's big problem has been the failure to bring new drugs to the market - its last was in mid-2000. Despite its purchase of DuPont's pharma activities last year, it has seen its stock valuation fall on problems with a joint venture with ImClone and late stage failure of a leading drug candidate.

In business terms then, the future holds much of the same for the pharma and agchem sectors as experienced in the 1980s and 1990s - consolidation and emphasis on innovation. Events like thalidomide are today unlikely - dare we say it even impossible - and the agchem major's adoption of Responsible Care and product stewardship are helping address environmental pressures. In a second echo of symmetry at the end of 40 years, thalidomide is being prescribed again, for use against skin lesions in leprosy and in bone marrow cancer. Here's to the next 40 years.

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly