Vertical Structures

The global pharmaceutical and biotechnological markets are highly diversified in their vertical structures – whether the products are New Chemical Entities (NCEs) or generic versions of existing products. As a rule of thumb NCE companies have a higher degree of integration than its generic counterpart (as illustrated below), but they are nonetheless still a tier in the vertical structure, with a number of external support functions (Clinical Research Organizations, Regulatory Agents etc.) – a tier of more integrated functions, but a tier in the overall structure.

Such structures can be illustrated by the following cases: A NCE is first developed in Hyderabad, India, by a key generic company or in Cambridge, USA, by a US startup consisting of a team of scientist setting out to explore an university based proprietary right on the active. Next step developments are dictated by whether the proprietary rights are out-licensed (which is the norm) or not. The general case will have an in-licensing company (which could be a smaller Dossier Developing company or a financially strong pharmaceutical company), which based on external intermediate suppliers will start optimizing the process for synthesizing the API and in parallel formulate the product. The following development stages will run with the support of Clinical Research Organizations (and a high number of medical institutions) and Regulatory Agents (from the various global markets targeted) and eventually end up with an Authorized product, which, dependent on the size of the company will either be launched exclusively or in partnership with a co-marketing company. As an obvious result, any route through the value chain is done in corporation with a high number of independent companies for which the development step and the interacting companies are crucial to the final timing of the product.

Vertical Structure - integrated companies

integrated companies

Generic products are in general more differentiated than their NCE counterparts. The typical story will set of in China, where companies will develop commercial intermediates, which are then used by Indian API manufacturers for cost minimizing the process of synthesis - all of these first steps in the value chain will be instigated at the latest by first approval of the NCE in the US. Jumping (in time) to the EU (the US case is different) case, a German Dossier Developer will identify the right Indian API manufacturer, set up a formulation of the product through an Italian Contract Manufacturer, initiate the necessary bioequivalence (B-E) studies through a Clinical Research Organization (could be situated in Eastern Europe or India) in order to compile a file which will then be filed by a local Regulatory Agent in Denmark. A parallel process ensures the product (file and underlying product) is to sell the dossier to as many marketing companies as possible in the EU. The differentiation in companies involved as well of geographic differentiation is very high and appreciating the details and development of this is key to understanding the future market.

Vertical Structure - non-integrated companies

non-integrated companies

All products in the market are a result of their way through the value chain (different vertical tiers as illustrated above). Understanding the timing of the vertical structure is therefore a necessary insight to validate as well as to determine the specific market timing and thereby the overall value of the future pharmaceutical and biotechnological markets.