High-value pharmaceuticals – a shining example, but still a way to go

Dr Graeme Blackman, Chair and Managing Director of the Institute of Drug Technology Australia Limited, described his company's progress from the consulting arm of a public educational institution to a small, yet serious and ambitious player in the high-risk business of developing the capacity for manufacturing active drug substances in the pharmaceutical industry.

Five years ago I told a meeting of the Australian Biotechnology Association that, while there were more than 100 companies involved in making and supplying pharmaceuticals for the Australian market, no more than a handful were involved in manufacturing active drug substances in Australia; most synthetic active drug substances were imported from overseas. Nothing has really changed in that time, except we have the sad history of the demise of ICI's ephedrine project, which held great promise.

Nevertheless, with a strong research reputation (unmatched as yet by a development record), efficient manufacturing plants and a high level of local consumption, it has to be concluded that the Australian pharmaceutical industry has every chance to become a significant contributor to the Australian economy. According to a recent report on the industry by the Productivity Commission, annual sales of human pharmaceuticals in Australia doubled to $3.8 billion from 1987 to 1994, now representing just over 1per cent of world consumption. Other positive signs include increases in R&D, predicted to climb from around $170 million in 1993­94 to $250 million in 1997­98, and a growing export/import ratio, up from 33 per cent in 1989­90 to 49 per cent in 1994­95.

But the question must be asked: 'Why is it that the chemical manufacture of active drug substances in Australia continues to be largely neglected by the major international companies operating here?' Four reasons come to mind:

A simpler response is that there are insufficient incentives for either Australian or international companies to get involved – for example the factor f scheme, which offers incentives to those Australian manufacturers of finished products who export, offers nothing to encourage bulk actives manufacture, which does attract considerable taxation incentives in such countries as Ireland, Singapore and Puerto Rico. The cost of building, operating and maintaining pharmaceutical raw materials plants is very high. In the absence of high-volume manufacturing, costs will be uncompetitive, except in the case of selected high-cost, low-volume products.

The price Australia pays for this policy blindspot is to miss out on a high-value-added sector of the industry, which would generate exports both in its own right and through manufacture of downstream finished products.

Despite indifference from the policymakers, the Institute of Drug Technology has managed to establish itself as a manufacturer of active drug substances. It began in 1975 as the consulting arm of the Victorian College of Pharmacy, and in the early 1980s began manufacturing actives for clients who then realised the benefits of local sourcing.

It was floated on the Australian Stock Exchange in 1988, and since then has followed a key strategic objective of becoming an international supplier of bulk actives. The first step on the way was a strategic alliance with US-based Pfizer, under which the Institute of Drug Technology has invested several million dollars in a plant to produce doxycycline, the active ingredient in Pfizer's Vibramycin antibiotic and antimalarial product. This investment has resulted in a multipurpose chemical synthesis facility, including glass-lined reactor vessels ranging from 750 to 4000 litres in capacity.

This added to a 60-litre plant that can be used for either pilot-scale processing or small-scale synthesis of parenteral-grade bulk actives. Our latest investment is in a new plant for chemical synthesis of cytotoxic bulk actives.

IDT has been particularly successful in production of niche bulk actives with modest volume requirements, which fits well with the conclusion that we are best placed to manufacture low-volume, high-cost products, especially in the area of cytotoxics. Because of the Institute of Drug Technology's cleverness in designing synthetic routes and devising novel manufacturing solutions, we have been successful in competing on price with large overseas producers.

As well as the niche approach taken by the Institute of Drug Technology, I rate as highly probable the establishment of production in Australia of an active substance containing a new chemical entity discovered and developed overseas. This is because we have a sound education system, an effective patent policy, solid industrial infrastructure, a highly demanding code of good manufacturing practice, accelerated depreciation of eligible R&D, and highly developed medical and clinical research facilities.

However, in my opinion there will need to be additional positive incentives, firstly to attract the big players here and then to help offset their substantial establishment costs. Canberra gave us the 150 per cent tax concession for R&D, but proposes now to dramatically erode this benefit; it established the factor f scheme, and now this is under serious threat. This prompts the serious question: 'Does the government simply want Australia to become a site for international pharmaceutical warehouses, without any recognition of our indigenous scientific talent, without any opportunity for local value-adding or high-value global exports?'

I look for support and encouragement from the government to enable us to realise our vision of establishing a significant and commercially viable bulk actives sector in Australia.