drug manufacturing business plan

Sample Pharmaceutical Manufacturing Business Plan

Pharmaceutical manufacturing business plan sample.

Since time immemorial, man has always placed a premium on his health and well being.

From our forefathers who devised means, methods and materials, however crude, to help cure diseases and ward off illnesses; to the present day, where modern technological advances in medicine and health practices are ensuring high standard of living and age longevity .

At the center of these strides, has been the discovery and synthesis of drugs to combat a variety of ailments and diseases. The case is no different in Africa. Especially when one considers the recent outbreaks of the Ebola and Lassa fevers, which galvanized the government and international health organizations into marshaling men and resources in combating the epidemics.

With a growing population domiciled by a large youth base, an expanding economy as well as the need to provide affordable and quality healthcare, establishing a generic pharmaceutical manufacturing company and in other nations of the world commands favorable business indices. ARCpoint Labs is a popular drug testing and screening franchise you can also look into.

Tremendous progress has been made in the pharmaceutical industry. This has seen the production of a variety of drugs that has enhanced human life expectancy.

We are not going into details on that, but seek to provide you with a pharmaceutical manufacturing business plan sample. But why do you need this?

Do you know start your own pharmaceutical company?

You will find this useful if you need a guide on how to handle the planning of your business.

HOW TO SET UP A PHARMACEUTICAL COMPANY

• Observe all the rules and obtain relevant certification. 

Licenses required to open a pharmaceutical company

To start a pharmaceutical manufacturing company, one must first and foremost be a registered pharmacist with the Pharmaceutical Certifying Board of your country. In lieu of this, the would-be investor must procure the services of a registered pharmacist, whose license can be employed for the purpose.

In-depth knowledge of the workings, composition and effects/efficacy of drugs is critical, not only for the survival of the small scale pharmaceutical manufacturing business but more importantly to safeguard the lives of end-users.

• Gain Relevant Exposure and Experience.

To successfully start a pharmaceutical manufacturing company, the investor should intern at an existing pharmaceutical distribution company outfit that runs a drug manufacturing plant.

If possible, such an internship can be done at no cost to the outfit. The period will serve as a guide to witnessing standard operating procedures, sales and marketing strategies, business accounting and other critical aspects of the business. Also the would -be investor can fully be subsumed in the day-to-day running of the generic pharmaceutical company business, observe how decisions are made and the routes employed in making them.

In effect, the investor is exposed to the rigors of administering an existing pharmaceutical manufacturing plant, without having to commit funds to the venture.

• Have lofty dreams but start small. 

Dilip Shanghvi, founder of the largest pharmaceutical manufacturing company in India,  Sun Pharma, began business in 1983, with staff strength of 2 marketers and a small manufacturing facility.

A number of options can be picked; a mini factory that focuses on one product line like pain relievers or entering into partnership with a contract manufacturer to produce a line for one product. This step is necessary to test the waters (market) and to gradually gain market acceptability and share. Develop a business plan for a pharmaceutical manufacturing business that focuses on niche generic drugs offering potential for growth.

How much does it cost to start a pharmaceutical company? Starting a pharma company and going immediately into competition with older industry players, in more popular patent drugs, could spell doom for the new startup. This is because the markets for these type of drugs are usually saturated, hence it would require enormous resources and extensive marketing to establish a foothold in such markets.

So instead off with the production of anti-infectives (drugs administered for the treatment of communicable diseases), a drug manufacturing company could decide to focus on drugs that help in the treatment and containment of lifestyle diseases, especially as most African nations begin to grow a large middle class.

Drugs in this class include those for psychiatry, neurology and cardiovascular uses. The reasoning behind this strategy is that consumers, who desire to live longer, will more often than not, take such generic drugs, in order to boost their health and achieve longevity.

• Develop a Robust Marketing and Sales Plan

A newly established pharmaceutical manufacturing company must devise ways and means, by which end users can be exposed to its drug offerings. This will often involve taking unconventional paths in finding  markets, obtaining agreement with hospitals and medical facilities, promotional trades and any other activity that will engender the sales of its products. All these must be taken into due consideration when calculating the minimum investment to start a pharma company.

At this early stage, the pharmaceutical manufacturing company must also draw up a robust distribution network, which will ensure that its drugs are available at all times. Necessary pharma company registration procedure and licensing must also be done.

• Plan for Location and Equipment

As the pharmaceutical manufacturing company gathers steam, as you evolve effective marketing and distribution networks, it becomes imperative that one keeps his focus on the big picture: transitioning into a large, profitable drug manufacturing outfit.

This will not happen by the wave of a magic wand. Rather the investor must save and plow back profits, into acquiring suitable and strategically located factory space, machinery and equipment. The cost of starting a pharmaceutical company must consider how raw materials will be sourced and be readily available in order to support full time production.

In all, the success setting up a pharmaceutical manufacturing plant, and indeed any other business, will depend on factors such as the drive and willingness to take calculated risks, having an eye on the future trends that will shape the industry, cultivating excellent customer service and support and placing a premium on research and development.

Here is a sample business plan for starting a pharma production company.

All too often, lots of pharmaceutical manufacturing businesses have closed shop. On close examination, the problems that led to this situation has been due to inadequate planning. This happens through a rushed or shabbily written plan or as a result of lack of its implementation. No matter how good a plan is, none or partial implementation renders it useless. Let’s get to details;

Executive Summary

EV Pharmaceuticals is a new and registered pharmaceutical manufacturing business to be located in Salt Lake City, Utah. We bring expertise as well as experience into the field of drug making. These drugs range from anti-malarial drugs to mood stabilizers as well as hormone replacements. Further reference to this will be made shortly. We have obtained all and fulfilled all regulatory guidelines which are relevant to our smooth operations.

• Products and Services

At EV Pharmaceuticals, we produce a wide range of pharmaceutical products. These consist of antipyretics, stimulants, antibiotics, stimulants, anti-malarial drugs, tranquilizers, oral contraceptives, analgesics as well as mood stabilizers. All of these have their functions and will be produced while abiding to all regulatory and minimum requirements.

In addition to the production of these pharmaceutical products, we will also offer advisory services to professionals who may require such.

• Vision Statement

At EV Pharmaceuticals, our vision is to be a major name in the pharmaceutical business. We are not only seeking to break into the league of major players but to be known for quality. To achieve this brand recognition, a lot of work needs to be done which we are capable of.

• Mission Statement

Our mission is to make quality drugs accessible to users across the United States. We will be using cutting edge technology to achieve our aims. Our operations are also research focused. This enables us to develop or improve on available medications for different conditions.

Running a successful pharmaceutical manufacturing business requires significant funding. In other words, the pharmaceutical manufacturing industry is capital intensive. Our immediate financial need amounts to $3,000,000.00. This will be obtained through loans from 2 major banks. This loan comes with a quarterly interest rate of 2%.

Funds raised will be used in the purchase of equipment a factory space as well as storage and distribution vehicles. Our running costs will also come from this amount and will take 20% of the amount.

• SWOT Analysis

We have decided to gauge our performance by taking a SWOT analysis. This process has been revealing and has shown areas that need to be improved on. This analysis was carried out by a reliable independent business consulting firm. The findings are summarized as follows;

Our strength as a business lies in our capacity to anticipate problems and proffer far-reaching solutions before they arise. This is made possible through our pool of highly qualified manpower who have been carefully selected. Their quality reflects in our ability to run a thriving business that is able to withstand the odds.

In spite of our strength in identifying and creating solutions to problems before they arise, we still have a weakness.

This comes in the form of our size. This limits our reach in the short-term. We view this weakness as only temporary as we embark on expanding our operations once the conditions are right.

• Opportunities

Where others see problems, we see opportunities. We have assembled a highly motivated workforce. These are fully dedicated to exploring better ways of providing solutions/products to a market in need. Therefore we are constantly researching using the best scientific procedures as well as state-of-the-art equipment.

There are threats that may affect our operations. These include unfavorable government policies that may be made and implemented. Another area that can affect our business is when there is an economic meltdown. Any of these could pose a serious challenge to our business operations.

• Financial Projection

Based on available information on the performance of the pharmaceutical manufacturing industry in the past 5 years, there is great potential for profitability. We have done our research and have created a three-year financial projection. The results have been encouraging and show the following;

• First Financial Year $590,000.00
• Second Financial Year $900,000.00
• Third Financial Year $1,700,000.00
• Competitive Advantage

Our competitive advantage exists in the form of our common passion as a team of professionals. These consist of people with varied expertise in the field of pharmacy, branding, marketing, administration and product design and distribution. We are all bonded by the common passion to provide only the best pharmaceutical products.

• Target Market

Nobody wants to be plagued by ailments. However these can come at any time due to a variety of reasons. It is a fact that most people take different medications for different reasons. This presents us with a huge market to cater for.

By filling the need for quality medication, our pharmaceutical manufacturing business caters for the needs of a wide market.

If you have read to this point, you should have gained a better understanding of how this works. Our pharmaceutical manufacturing business plan sample stands as a guide to help you write one without much difficulty. We always state that implementation is equally important too.

Therefore, your plan should be such that can be easily read, comprehended and implemented.

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Pharmaceutical Business Plan Template

Written by Dave Lavinsky

Pharmaceutical Business Plan

Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their pharmaceutical companies.

If you’re unfamiliar with creating a pharmaceutical business plan, you may think creating one will be a time-consuming and frustrating process. For most entrepreneurs it is, but for you, it won’t be since we’re here to help. We have the experience, resources, and knowledge to help you create a great business plan.

In this article, you will learn some background information on why business planning is important. Then, you will learn how to write a pharmaceutical business plan step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What Is a Business Plan?

A business plan provides a snapshot of your pharmaceutical business as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan

If you’re looking to start a pharmaceutical business or grow your existing company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your pharmaceutical company to improve your chances of success. Your business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Pharmaceutical Businesses

With regards to funding, the main sources of funding for a pharmaceutical business are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for pharmaceutical businesses.

Finish Your Business Plan Today!

How to write a business plan for a pharmaceutical company.

If you want to start a pharmaceutical company or expand your current one, you need a business plan. The guide below details the necessary information for how to write each essential component of your pharmaceutical business plan.

Executive Summary

Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your executive summary is to quickly engage the reader. Explain to them the kind of pharmaceutical business you are running and the status. For example, are you a startup, do you have a company that you would like to grow, or are you operating pharmaceutical companies in multiple markets?

Next, provide an overview of each of the subsequent sections of your plan.

• Give a brief overview of the pharmaceutical industry.
• Discuss the type of pharmaceutical business you are operating.
• Detail your direct competitors. Give an overview of your target customers.
• Provide a snapshot of your marketing strategy. Identify the key members of your team.
• Offer an overview of your financial plan.

Company Overview

In your company overview, you will detail the type of pharmaceutical company you are operating.

For example, you might specialize in one of the following types of pharmaceutical businesses:

• Generic Pharmaceutical Manufacturing : this type of pharmaceutical business develops prescription or over-the-counter drugs products that do not have patent protection.
• Vitamin & Supplement Manufacturing: this type of pharmaceutical company primarily develops products that contain ingredients intended to supplement the diet.
• Brand Name Pharmaceutical Manufacturing: this type of pharmaceutical business engages in significant research and development of patent-protected prescription and over-the-counter medications.

In addition to explaining the type of pharmaceutical business you will operate, the company overview needs to provide background on the business.

Include answers to questions such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include the number of patents awarded, the extent of your product portfolio, reaching X number of distributors under contract, etc.
• Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry or market analysis, you need to provide an overview of the pharmaceutical industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the pharmaceutical industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.

The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section:

• How big is the pharmaceutical industry (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential target market for your pharmaceutical company? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section of your business plan must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: healthcare providers, chain pharmacies, independent retailers, and consumers.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of pharmaceutical business you operate. Clearly, individuals would respond to different marketing promotions than hospitals, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the potential customers you seek to serve.

Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.

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Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other pharmaceutical businesses.

Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes imported alternatives, herbal remedies, or customers’ nutritional self-care. You need to mention such competition as well.

For each such competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as

• What types of products do they manufacture?
• What are their research and development capabilities?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you provide product development?
• Will you offer products or services that your competition doesn’t?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.  

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a pharmaceutical company, your marketing strategy should include the following:

Product : In the product section, you should reiterate the type of pharmaceutical business that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you manufacture patent-protected prescription medications, or a range of vitamins?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.

Place : Place refers to the site of your pharmaceutical business. Document where your company is situated and mention how the site will impact your success. For example, is your pharmaceutical company located in an industrial district, near a major medical and/or scientific hub, or near input markets? Discuss how your site might be the ideal location for your customers.

Promotions : The final part of your pharmaceutical marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:

• Advertise in local papers, radio stations and/or magazines
• Advertise in trade publications
• Reach out to websites
• Distribute flyers
• Engage in email marketing
• Advertise on social media platforms
• Improve the SEO (search engine optimization) on your website for targeted keywords

Operations Plan

While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your pharmaceutical company, including meeting with potential customers, creating and distributing product information, developing and manufacturing products, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to produce your Xth product, or when you hope to reach $X in revenue. It could also be when you expect to expand your pharmaceutical business to a new city.  

Management Team

To demonstrate your pharmaceutical company’s potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally, you and/or your team members have direct experience in managing pharmaceutical businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a pharmaceutical business or successfully running a R&D company.  

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.

Income Statement

An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions including your sales projections. For example, will you manufacture a line of general sales products, or will you specialize in manufacturing controlled drugs? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your pharmaceutical company, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.

Cash Flow Statement

Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and business owners don’t realize is that you can turn a profit but run out of money and go bankrupt.

When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a pharmaceutical company:

• Cost of equipment and supplies
• Payroll or salaries paid to staff
• Business insurance
• Other start-up expenses (if you’re a new business) like legal expenses, permits, computer software, and equipment

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your facility blueprint or a list of products you manufacture.  

Writing a business plan for your pharmaceutical business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will understand the pharmaceutical company industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful pharmaceutical company.  

Pharmaceutical Business Plan Template FAQs

What is the easiest way to complete my pharmaceutical business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily write your pharmaceutical business plan.

How Do You Start a Pharmaceutical Business?

Starting a pharmaceutical business is easy with these 14 steps:

• Choose the Name for Your Pharmaceutical Business
• Create Your Pharmaceutical Business Plan
• Choose the Legal Structure for Your Pharmaceutical Business
• Secure Startup Funding for Your Pharmaceutical Business (If Needed)
• Secure a Location for Your Business
• Register Your Pharmaceutical Business with the IRS
• Open a Business Bank Account
• Get a Business Credit Card
• Get the Required Business Licenses and Permits
• Get Business Insurance for Your Pharmaceutical Business
• Buy or Lease the Right Pharmaceutical Business Equipment
• Develop Your Pharmaceutical Business Marketing Materials
• Purchase and Setup the Software Needed to Run Your Pharmaceutical Business
• Open for Business

Don’t you wish there was a faster, easier way to finish your Pharmaceutical business plan?

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Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.   Click here to see how Growthink’s business plan writers can create your business plan for you.

Other Helpful Business Plan Articles & Templates

How to Start a Pharma Company in 10 Easy Steps

David Blok | Posted on September 19, 2023 | Updated on March 26, 2024

Introduction

Step 1: market research and pharmaceutical business ideas.

• Step 2: Creating a Business Plan

Step 3: Regulatory Compliance and Legalities

• Step 4: Team Building and Talent Acquisition
• Step 5: Location and Infrastructure

Step 6: Product Development

Step 7: clinical trials and approval process.

• Step 8: Manufacturing and Supply Chain Management

Step 9: Marketing and Sales

• Step 10: Scaling Your Business
• Frequently Asked Questions (FAQs)

Let’s face it: if you are reading this, you are one of two people: the entrepreneurial mind that dreams of building a business in an impactful industry, or you’re passionate about science and research and want to contribute to the better health of humanity.

Whether you envision yourself as a Pharma tycoon or simply long to casually drop ‘I make drugs for a living’ at dinner parties, the time has come for you to admit it – you want to build a Pharma company.

Why is a Pharmaceutical company a good investment?

Starting any company takes time, energy and money, but a Pharma business has even more to consider: it requires a combination of scientific expertise, business acumen, and regulatory knowledge. Whether you’re considering how to start a pharmaceutical business or exploring pharmaceutical business ideas you’re not just selling any products here, you’re impacting the health of people. I know what you are thinking: if it’s so difficult, why do people keep investing in Pharma?

Pharmaceutical manufacturing companies can be extremely profitable:

• These companies show resilience during market downturns, rising in R&D investments to stay competitive & flexible (Grand View Research Report, 2023).
• The industry has experienced significant growth during the past two decades, with Pharma revenues worldwide totaling 1.48 trillion dollars in 2022 (statista, 2024). Still don’t believe it? Check out this blog and discover India’s top Pharma Companies to find out h ow profitable pharma companies are in India.

Being such a lucrative market, it’s a natural good investment, especially if you have a good idea – which I’ll get to in the next chapter.

This brings us to our topic at hand, welcome to your comprehensive guide on how to make your venture a reality. In the upcoming sections, we’ll delve into the why’s and how’s of building a successful Pharma empire. Get ready for insights, anecdotes, and much more.

Let’s dive in!

The first step is always the hardest because there is nothing before it. On the flip side it’s a great opportunity to set the direction of your company. Your business is a blank canvas at this point, and you get to bring your vision to life, so the best way to set the wheel in motion is by understanding everything about the industry gap you are trying to fill, in practical terms, whether your idea is viable or not.

Before you dismiss market research as a formality, ask yourself: “Is there a chance my solution is old news compared to what’s already out there?”.

Unless you have the cure for cancer in your pocket, someone’s advancements in your field are worth taking a look at. At this stage, you should focus on two things:

• Understanding market trends and directions.
• Realizing if your big idea is profitable.

Market research will identify unmet needs within the healthcare system, such as patient preferences. By looking at emerging technologies, you can direct your research and development strategy.

Your company’s direction is in your hands at this point, and isn’t that exciting?

Where to start your research?

Start looking at insightful industry reports, academic journals, and the latest industry news, but remember to use credible and reputable sources.

The most important thing is to stay updated, especially on everything that concerns your big idea; market research will back it up. Staying on top of trends also ensures your product is aligned with market demand, and that you have a competitive edge, also called your unique selling proposition.

Step 2: Business Plan and Funding your Pharmaceutical Company

Once you’ve settled on an idea, it’s time to start shaping it into an actual enterprise. Welcome to a pivotal chapter: creating the blueprint of your operations, aka your business plan. Don’t have the faintest idea of what a business plan consists of? Pharmaoffer has got you covered.

Fundamentals of a bulletproof Business Plan:

• A market analysis – which you already did in Step 1.
• Outline of management and the company organization.
• All your products/services – which you probably already know.
• Customer segmentation.
• Marketing plan.

Pitch Perfect

Why is a detailed business plan crucial, you may ask? This plan isn’t just a formality; it’s your golden ticket. This single document is meant to convince stakeholders and investors that you’re not a risk; you’re a calculated and promising investment, which will increase trust and the chances of getting the funds you need.

So don’t be scared to dive deep into the big questions like who will benefit from your pharmaceutical innovations, and what makes it profitable. Paint the financial portrait of your venture with clarity—how will the funds be utilized, and what’s the return on investment? Venture capitalists, government grant applications, and loans are great routes to explore. Your business plan will prepare you to pitch your idea to the right people.

Okay, this is where it gets tricky, but it’s why pharmaceutical business entrepreneurship isn’t for everybody. You are too far along in this journey to stop now, so it’s better to keep going.

Regulating to triumph

We know that acronyms like FDA, GMP, and CEP may be scary, but like we said from the start of this journey: when it comes to the health of the population, you can’t risk it. Regulations ensure your company is ethical and safe. Dismissing them puts your entire operation at risk of getting a bad reputation, not to mention facing penalties later on. Oh, and besides, no funding without compliance is just not going to happen!

What is your business structure?

Now, let’s talk about how to set up and open a Pharma business. Should you go for an LLC (more partnership-oriented) or a corporation, and why does it matter?

The selection of a business structure is a crucial decision for a company because it impacts various aspects, including:

• Legal responsibilities.
• Liability protection.
• Ability to raise capital – we know this sounds like a broken record on this one, but money it doesn’t grow on trees, right?

Remember, it’s not just about paperwork; your business structure shapes the core of your company. Speaking of structure and shape, it’s time to shape your physical company.

Step 4: Building your A-team

You’re the mastermind behind this venture, but you don’t have to do everything yourself. Like a formula, it takes plenty of ingredients to make one solution. In this section, you’ll select the best people to represent and help grow your business.

The trick to knowing whom to hire is simple: point out the necessary fields for your business to run that you need to hire for, and find people who can excel at them. Think R&D, supply chain management, sales, and, of course, medical professionals. ´

Extra tip: remember that sometimes you don’t want to hire the best technical person, but someone who can complement your team’s attributes, like, for example, someone with a proven track record of adaptability and communication.

Step 5: Location, Location, Location

The perfect location is a no-brainer: it is the one closest to your potential partners. Places like research centers for experiments, hospitals for data, or universities for talent scouting are where you wanna be. Just think of how your idea can improve with these extra resources.

A place to call…office

Ideally, if you picture a creative and productive atmosphere, it won’t be a cramped space, poorly lit with bad chairs, that won’t cut it. Your facilities are the day-to-day of your operation, where some say, the real magic happens, so make sure your spaces are up-to code and optimized for the tasks at hand. Remember, a positive environment boosts morale and increases efficiency.

Admit it, you’ve been thinking of this since the very beginning of this adventure. After all, this is what you came here for. Whether it’s a new drug or medical device, the development phase is the fun, and most important part. Let your R&D work shine to bring your vision to life.

Trials and tribulations

Having a finished product means one thing, and one thing only in the Pharma world: clinical trials. Clinical trials aim to provide a scientific basis for advising and treating patients.

But don’t be discouraged if it doesn’t work out. Even when researchers don’t obtain the outcomes they predicted, the trials results can help point scientists in the correct direction of their research. Trials present their challenges, but as cliché as it is, every challenge is an opportunity in disguise and a testament to your team’s innovation capacities.

Think you heard enough about clinical trials? These are the final stages before your product enters the market, and needless to say, it won’t enter without the green light. How do you make sure it’s approved then?

• Rigorous protocol adherence.
• Collaboration with regulatory bodies.
• Scientifically proven efficacy and safety.
• Real-world testing for validation.

Extra tip: real-world testing is a good option to further validate and solidify product claims that may give you an interesting competitive edge.

Passing this frantic stage is a monumental milestone, and it’s one foot in the door of your Pharmaceutical business success. If you are in this stage, or just looking to dive deeper into the complexities of API’s clinical trials, check out our blog, API Clinical Trials: From Preclinical Trials to Post-Marketing Surveillance.

Step 8: Pharmaceutical Manufacturing and Supply Chain Management

Quality control isn’t just between your lab and office walls most of the time unless you manufacture everything in-house, but is that cost-effective?

We are not going to go into this question but leave it for a promising blog about the pros and cons of API in-house manufacturing or out-sourcing. This time we’re going to talk about the Pharmaceutical company’s supply chain.

As you need to make sure every substance you use is under the same quality control as your business, how can you be positive you are purchasing APIs from a qualified supplier?

We’re not gonna lie, unfortunately this step can be a dead end as many API manufactures aren’t registered in a public contact base.

You really need to know the business and ask around, a total nightmare. This is our mission statement: at Pharmaoffer we want to match the best certified API manufacturers with businesses like yours, so to provide resources for both and enrich Pharmaceutical business supply chain with qualified options.

Your supply ally

When choosing the right suppliers, the biggest worry is compliance standards, so make sure your supplier:

• Meets all compliance standards.
• Is up to speed with industry best practices.
• Has the means to make deliveries on schedule.

You have a finished product, your team is working and the place up and running, so it’s time to find some clients. We do this with a marketing and sales strategy.

What do people think of when they hear your company’s name? Do you have a logo? These are some of the questions you need to clear with the proper professionals.

Branding is understandably the last thing on your mind, but don’t make the mistake to overlook it indefinitely. Nowadays, if your business doesn’t look good it won’t be credible. Branding is how you present your company to the world. It’s your mission statement, your corporate culture, and your values. It will help you find your market and secure a strong position in it.

Getting the word out

Marketing is about business survival, there is no denying it. In this increasingly visual world it’s not enough to have a great product, you need to present it well to elevate it. The way you do so is with marketing tools.

Now don’t fall into cheap marketing tactics: in Pharma you can’t make any false claims, exaggerate benefits, or show dubious testimonials. This will kill your entire operation. Marketing in the Pharma sector demands a careful balance of awareness-raising and ethical considerations. Credibility is central, so keep it real, and let your amazing product and integrity attract customers.

Because we understand how complex marketing strategies can be, at Pharmaoffer we wrote you a startup guide to navigate online marketing in the pharmaceutical sector called Online marketing in pharma; where to start?   Feel free to take a look.

Step 10: Scaling Your Pharmaceutical Business

You finally have a Pharma company, congratulations and we take no credit for it. Now that you have a growing business, the question is: How big do you wanna get? We’ve seen how much does it cost to start a pharmaceutical company and remember that scaling and it isn’t just about growth, it’s about smart growth. Scaling is about expanding your operation, and it should be a calculated decision.

To make the right move you need to be on top of market demand, KPIs tracking, and consult your team to know when it’s the right time to do it.Bigger the business, bigger the challenge.

Bigger the business, bigger the challenge

A bigger business is a complex one. From staffing to resource allocation, be prepared to adapt your business strategies as you expand.

Extra tip: keep your staff informed and let them be a part of the change. It will make them more involved in your business success.

You made it to the end yay!

We saw how to start a Pharmaceutical company investment which is no small endeavor, but it’s a rewarding one for sure! You are building something of your own, following your heart and creative dreams and the best of all, you’re saving lives while you do it, how great is that?

Okay, it’s time to get to work, so roll up those sleeves, and get started if you haven’t already. We have no doubts that if you pay attention to these 10 steps, you have what it takes to build your successful Pharmaceutical company.

Needing further assistance to find the right API suppliers for your business? Fill in the form to contact Pharmao ff er and schedule a free meeting to take your business to the next level.

Is it hard to start a pharmaceutical company?

Yes, but it's also rewarding. Be prepared for regulatory hurdles and significant initial investment.

How long does it take to launch pharma company?

On average, it could take 1–3 years, depending on the business model, licensing, and other factors.

Can I start a pharma company without a medical background?

Yes, although you'll need a team of experts in medical and scientific fields. Your role may be more focused on business strategy and growth.

What are the biggest challenges in starting a pharma company?

Regulatory compliance, securing funding, and market competition are some of the biggest hurdles you'll face.

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/ Article

Building effective business development in pharma.

By  Mark Lubkeman ,  André Kronimus , and  Filip Hansen

At a time of rapidly evolving scientific breakthroughs and, coincidentally, of the expiration of many blockbuster drug patents, the key to innovation and revenue growth is pharmaceutical business development. While some innovation and new revenue can come from internal pipelines and assets, business development teams are under intense pressure at most companies to supplement internal efforts with external licensing agreements and M&A. Unfortunately, those teams are frequently unable to deliver the transactions needed for innovation and growth.

Often a major reason for this shortfall is that executive team members are not fully aligned on the role of business development in achieving the company’s strategic priorities. They may agree in theory that business development should pursue partnerships, ecosystems, and collaborations, but that consensus falls apart when it comes to making decisions about specific deals.

We have identified six success factors that enable more rapid and effective decision making, which, in turn, will lead to substantially enhanced business development performance.

Subscribe to our Biopharma E-Alert.

Biopharma m&a and licensing remain strong.

Biopharma M&A deal value more than doubled between 2017 and 2019, from $138 billion to $336 billion, and valuations reached all-time highs. Most of those deals involved midsized biotech companies, for which the average premium paid was close to 70%, with an average EV/sales multiple of nearly 8x. All in all, close to 60% of new therapeutic drugs in the last five years have been externally sourced.

The COVID-19 pandemic slowed biopharma M&A activity in 2020, especially in the first half of the year. But since the core drivers of deals remain intact—scientific breakthroughs, expiring patents, and an increasing focus on key therapeutic areas or on modalities such as cell and gene therapy—deal activity will continue to rebound. A recent example is AstraZeneca’s acquisition in late December of Alexion for $39 billion.

Moreover, biopharma companies can finance transactions cheaply with today’s very low interest rates. They also have significant financial resources to pursue business development. BCG’s ValueScience team estimates that the top 20 biopharma companies have more than $700 billion in cash, short-term investments, and additional debt capacity. But as a result, many companies are pursuing the same assets, driving up valuations and the risk of overpaying.

Six Success Factors for Pharma Business Development While we focus here on M&A, the six success factors we have identified will enable business development teams to create value through both M&A and licensing. (See Exhibit 1.)

1. Prioritize what business development needs to accomplish for the company. Executive team members often have differing views about how to prioritize business units, technology areas, and technology platforms and what types of deals to pursue (early- versus late-stage R&D deals, for example, or transformative versus tuck-in acquisitions). To ensure alignment, it’s critical that team members agree on how and where they want to create value. Will they use business development to generate near-term revenues or to build the pipeline for future innovation? Will they seek to maximize the core, expand into adjacent markets, or explore new frontiers? (See Exhibit 2.)

As part of this prioritization process, the executive team needs to regularly review and agree on how much revenue growth the current internal portfolio or pipeline will deliver. Only then can it determine the revenue gaps that business development needs to address in which specific therapeutic areas or modalities—and with what urgency. It’s astonishing how often management teams are misaligned on this simple setting of objectives, which often results in business development teams wasting time assessing opportunities that are fundamentally unattractive to the executive team and will never get approved. To avoid such situations, the team should ask itself two key questions about every transaction early on: What revenue gap will the transaction fill? And who on the executive committee will champion the transaction from start to finish? By forcing these decisions early, the team can avoid a lot of wasted time.

2. Build relationships with prospective targets. Executive teams should commit to building relationships with potential partners or acquisition targets for two or three years. Proactive sourcing, screening, and relationship building are far better for deal execution than simply showing up at the target’s headquarters with a banker and an offer. An established relationship will give a prospective buyer an edge over other bidders, perhaps even preempting the bidding process altogether. Such relationships can also accelerate due diligence.

Active engagement with potential targets over several years also gives companies a better grasp of the range of potential deals available. It might, for example, make a pharmaceutical company more likely to take small equity stakes in a number of promising biotechs, perhaps supporting Phase 1 trials with its own clinical and regulatory expertise.

3. Agree on how to assess value. Depending on one’s assumptions when valuing a target, the same transaction may seem spectacularly attractive or exceptionally unattractive. So teams need to agree about how they will value all aspects of each deal and then apply that valuation with discipline. Too often, companies end up redoing their analysis and engaging in repetitive decision making because they haven’t agreed on valuation approaches or metrics from the start.

One common valuation pitfall is to focus only on core asset value, that is, the value of the cash flow generated by current and future products in the market. Valuation models need a wider lens, encompassing multiple dimensions of value, including the following:

• Synergies. What is the value of cost, revenue, and capability synergies across the value chain—for example, in R&D, manufacturing, and sales?
• Platform Value. What is the value of the future products a technology platform might make possible?
• Strategic Value. What is the value of preempting a competitor from acquiring an asset, gaining access to a large proprietary data set, or being recognized as a leader in an emerging field?

Because these advantages are less tangible than core assets, large swings in valuation are possible depending on the underlying assumptions. We have found that companies with a clearly defined and endorsed valuation approach are able to use a common “language” in their deliberations, leading to better, faster decision making. These advantages are amplified when the company is highly transparent about the underlying assumptions and entertains a range of scenarios and associated probabilities.

4. Define integration issues early. Executive and business development teams are frequently so focused on due diligence and valuation that they don’t consider the integration process until after a term sheet has been signed. Integration issues should be considered at the outset, when assessing the deal’s attractiveness and viability, and in parallel with due diligence. Teams should ask such questions as: Will the acquired company be a distinct entity or be integrated into the acquiring company? What governance will be applied to the acquired assets? How will cost synergies factor into the valuation?

Knowing the answers to these questions early on is critical to realizing the full potential of the transaction. Our research shows that successful integration can drive 8% to 10% more value compared with the average transaction. Planning for that success right from the start is essential.

5. Enable agile business development teaming and governance. Even when a company has a clear vision for the transaction, it still needs an agile process and governance to execute the deal quickly and effectively. But because the business development process is highly cross-functional (and often involves many junior-level people), it can be unclear who has the authority to make decisions and who will provide the necessary analytical resources. In addition, preexisting governance committees (such as executive committees) often meet too infrequently to keep up with the fast pace of business development decision making.

To address these challenges, we recommend three best practices:

• Designate resources. Within each function, several senior staff members with business development experience and authority should be on call. This will help build continuity and organizational learning.
• Establish clear processes and responsibilities. All members of a business development project team should be aligned on processes, deliverables, and timelines. That should include who is responsible for what and who has what decision rights. For example, who in R&D will calculate the probability of success of a specific asset under review?
• Create nimble governance. A few members of key governance committees should meet more frequently than the entire group (perhaps even on a weekly basis, depending on deal volume) and have the authority to mobilize the entire committee within 24 or 48 hours if there’s an urgent issue to be addressed.

6. Design an organizational structure suited to strategic priorities. Because companies have different revenue gaps and objectives and use business development in different ways, there is no single “right” organizational structure. One company might focus on early-stage and another on late-stage acquisitions. One company might be looking for deals to strengthen the core business, another to build up new therapeutic areas. A company’s business development organization must be suited to its strategic purpose, whatever that may be. There are three main approaches (with various permutations) to consider:

• Centralize business development in one group. A central function maximizes scale, alignment of activities, and resource prioritization. This setup works well for companies looking to make relatively few late-stage or transformative acquisitions.
• Separate R&D and commercial transactions. Assessing an early-stage R&D acquisition requires a different mix of expertise than assessing a late-stage, commercial acquisition. When a company intends to pursue both types of transactions, it’s best to keep at least some of these due diligence activities separate. But such companies can still centralize certain functions—valuation modeling, for example—in order to maximize scale.
• Separate by business lines or therapeutic areas. It can be sensible to separate business development activities by business lines or therapeutic areas at different levels of maturity. This arrangement works well if a company has a mature business area looking for transformative deals and a smaller business unit looking for technology platform acquisitions. Here again, certain aspects of the business development process, such as valuation modeling, can be centralized for scale and efficiency.

Current market conditions present unique opportunities to tap into external innovation and drive revenue growth, but the inherently complex and cross-functional nature of business development makes it difficult for many pharmaceutical companies to execute effectively. As a result, these companies are not winning the transactions necessary for future success. We believe that the six success factors described above can significantly improve business development capabilities and are worth serious consideration by management teams.

Managing Director & Senior Partner

ABOUT BOSTON CONSULTING GROUP

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.

Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.

© Boston Consulting Group 2024. All rights reserved.

For information or permission to reprint, please contact BCG at [email protected] . To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcg.com . Follow Boston Consulting Group on Facebook and X (formerly Twitter) .

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Ready for launch: Reshaping pharma’s strategy in the next normal

As COVID-19 cases continue to spread across the globe, the repercussions in healthcare extend across the value chain from patients and families to clinicians and pharmaceutical companies.

The industry faces a dual challenge. As well as helping to tackle COVID-19 spread by developing and distributing new vaccines and tests, it must continue to deliver innovative therapies and diagnos­tics to clinicians, patients, and healthcare systems—even as R&D, manufacturing, and supply chains are struggling to maintain business as usual.

An earlier McKinsey article considered how pharma companies can reorient their commercial model to respond to the new environment. Below, we focus on launch activities and identify five success factors to consider for commercial launches in the next normal.

Familiar challenges and new complications

Even before the COVID-19 outbreak, launching a new drug was far from straightforward. Forty percent of worldwide drug launches between 2009 and 2017 failed to meet their two-year sales forecasts. 1 McKinsey analysis of pharmaceutical-industry data from Evaluate, August 2020. A successful launch must overcome a series of barriers, including intensifying competition, increasing pricing pressure, growing access challenges, and rising expectations among caregivers and patients. The pandemic and its economic consequences have added further complications to what was already a risky launch environment.

We analyzed 86 launches scheduled for 2018 onward with expected sales in excess of $300 million. We found that between February and August 2020, all of these launches were disrupted through delays, lost revenues, or both. Companies chose to delay launches in 45 percent of cases, regulatory delays affected another 40 percent, and other external factors such as supply-chain problems accounted for the remaining 15 percent of delays. 2 This article draws on insights from a global survey conducted by McKinsey in June 2020 among 101 managers with recently launched drugs that had not reached their peak sales or drugs scheduled for launch between January and June 2020 that had been delayed. In the United States, for instance, the median interval between approval and first scripts had increased more than threefold by May 2020, from 17 to 58 days, although it shrunk back to 21 days by September. 3 McKinsey analyzed products launched from March 2020 or awaiting launch, using data from PHAST (Pharmaceutical Audit Suite) and Evaluate. For products not yet launched, the interval between the FDA-approval date and September 2020 was used as a proxy for the interval between approval and launch.

The pandemic also had a marked impact on the financial performance of the launches we analyzed. In 50 out of the 86 disrupted launches, companies lowered their expectations by more than 25 percent. Overall, we estimate that the changes in analyst consensus expectations between March and August 2020 represent a 9 percent decline in the net present value of the 86 drugs—the equivalent of a total loss of some $10 billion globally. 4 McKinsey used August 2020 data from Evaluate and estimates from March 2020 or earlier to calculate how the net present value of the 86 drugs changed in the months following the outbreak of COVID-19.

Why the traditional launch model is losing effectiveness

It is too soon to evaluate the full impact of the COVID-19 pandemic on drug launches. However, it is clear that major shifts in the way that healthcare professionals (HCPs) interact with pharma companies will present a challenge for the traditional launch model, with its reliance on face-to-face meetings with physicians and its “one size fits all” approach to engagement.

One immediate consequence of the pandemic has been a drastic reduction in pharma companies’ visits to HCPs. A survey conducted by McKinsey in Europe shows that the average number of in-person contacts between HCPs and pharma sales reps was 70 percent lower in September 2020 than before the pandemic. 5 McKinsey COVID-19 Survey: EU Physician Experiences, Expectations, and Perspectives on Pharma Engagement; survey in the field in May and September 2020. In parallel, HCPs’ adoption of digital channels and telemedicine has accelerated for interactions with patients and pharma reps alike. In the same survey, the HCPs who are highly open to remote engagement with sales reps report conducting almost half of their patient consultations remotely as well.

However, this broad overview masks considerable differences in HCPs’ preferences and expectations. A McKinsey survey conducted in May and September 2020 to assess sentiment among more than 900 physicians in five European countries yielded a patchwork of responses (Exhibit 1).

Only 18 percent of the physicians surveyed in May were willing to accept reps’ visits, but by September, that percentage had risen to 31 percent, suggesting that preferences shift over time as infection rates change and HCPs adjust to new circumstances. 6 McKinsey COVID-19 Survey: EU Physician Experiences, Expectations, and Perspectives on Pharma Engagement; survey in the field in May and September 2020. Preferences also vary by country. In the September survey, more than 50 percent of HCPs in France, Germany, and Italy expressed a willingness to accept regular face-to-face visits from reps, but only 11 percent of their UK peers felt the same way.

These findings suggest that the traditional pharma commercial model will likely struggle to adapt to a different world. When reps venture back into the field, they will need to address the plurality and access challenges of the new interaction landscape. To do that, they will need to consider a new approach to launches: one that is digital, local, and personalized.

What next? Five success factors to consider for a launch strategy

For a pharma company looking to reinvent its commercial model, the launch of new products is a golden opportunity to try out new techniques and gauge their impact before rolling them out more widely. Given the uncertainties triggered by the pandemic and the radical changes in physicians’ preferences and behaviors, replicating successful launch strategies from the past is no longer a safe option. Our work with pharma companies indicates that leaders designing a new strategy should consider paying close attention to five success factors: rapidly personalized content, analytics-enabled engagement, innovative patient channels and services, nimble frontline operations, and closed-loop execution (Exhibit 2). We outline each of these five factors in greater detail below.

Rapidly personalized content

With HCPs’ preferences so variable and changeable, pharma companies need clear, up-to-date per­spectives on each physician’s interests and wishes so they can gear messages to individual needs and concerns. Basing communications on an undifferentiated aggregate view of physicians or segments will no longer suffice. For each new product launch, best-practice companies compile a set of marketing and medical modules to cover the full spectrum of HCP needs and then ask reps to use their insight into individual physicians to select the modules that best meet their needs.

While this approach has been true for many years, the difference is that today those new modules need to be created quickly to be relevant. A better way to stay relevant is to engage HCPs on the current hot topics in their field—for example, what best practices are emerging in telemedicine? How are HCPs managing COVID-19 infection risk for patients? What do key opinion leaders think about the potential for drug-to-drug interactions with COVID-19 vaccines?

Familiar product-oriented and company-centered approaches to content may also need rethinking. To reduce development cycles, content creation and review processes need to be streamlined and simplified. With agile approaches, companies can book a meeting with an HCP, gather feedback, and capture it immediately in the next iteration of content development. In that way, content can be approved and refined within approval cycles of no more than two to four weeks.

For a pharma company looking to reinvent its commercial model, the launch of new products is a golden opportunity to try out new techniques and gauge their impact before rolling them out more widely.

Analytics-enabled engagement

If a universal approach is no longer an option for content, the same is true of engagement. The days of casual appointments and conversations in hallways are over. Whether an interaction is face to face or remote, it needs to be scheduled and an agenda shared in advance. A rep needs to have something new and compelling to discuss or risks that the meeting might never happen.

To understand individual physicians’ preferences for interaction frequency and channels, innovative companies are creating data lakes, building predic­tive models, and drawing on unfamiliar data sources—not only customer-relationship-management (CRM) systems, sales records, and quantitative surveys, say, but also claims data for providers at a physician’s office. Innovative approaches can yield surprising results. In the United States, for instance, some pharma com­panies found they can predict physicians’ willingness to engage with reps more accurately from foot traffic and credit-card spend in a given zip code than from local state restrictions or COVID-19 infection rates.

Since relevant historical data on physician prefer­ences on interactions with sales reps is seldom available at launch, the process of generating insights typically begins with field reps reporting on the impressions they gained of HCPs’ preferences during prelaunch interactions with them. As the product launch progresses, important factors such as physi­cian feedback, field insights, and prescription volume are used to flesh out and update this prelimi­nary picture. Through a continual process of refinement, the predictive model on launch success becomes more powerful and its output better aligned with the realities of the market. As a physician’s preferences evolve—both in response to the new product as well as in engagement channels—the model adjusts its recommendations, enabling reps to fine-tune content and channel choices for an audience of one to provide an optimal personalized experience at launch.

To implement an analytics-based approach to engagement, pharma leaders also need to ensure that two critical enablers are in place: a tech and data backbone to enable seamless integration across channels and data sources, and a platform for run­ning advanced-analytics models to enable leaders to distinguish signals from noise, improve deci­sion making in real time, and optimize messages, channels, and timing in individual HCP interactions.

Innovative patient channels and services

In a McKinsey survey of 300 physicians in September 2020, 74 percent of respondents reported noticing their patients delaying necessary care, with conse­quences including an increase in complications from injury or disease, a loss of income from missing work, and a rise in the costs of care. For new product launches, this finding is significant, since patients who have yet to be treated for a new medical condition are often the ones most interested in a new product for treat­ment. However, as patients delay care due to the COVID-19 pandemic, the pool of new patients that may have benefited from being treated with a new product is declining as well. The new hurdles created by the COVID-19 pandemic call for innovative services from pharma companies, as well as from healthcare systems and professionals, to stay connected with patients.

As the survey indicates, the perceived risk of engag­ing with health systems has made many patients wary of face-to-face interactions in all but the most serious cases. Those suffering from nonurgent conditions, such as migraines, insomnia, and depres­sion, are less likely to request appointments with primary-care physicians. Responsive companies have been stepping in to facilitate inter­actions with HCPs by offering telemedicine diagnostic platforms in app form or through the integration of web, text, and voice.

Maintaining or adjusting treatment can also be dif­ficult in today’s circumstances, especially for infusions, injections, and other therapies that require attendance at a hospital or clinic. Innovative companies are developing alternative infusion sites, enabling “at home” infusion, and offering guidance on how to minimize risk when visiting health facilities.

Nimble frontline operations

As pharma companies gear up for remote launch activities, they can help their sales reps build new capabilities that can enhance their impact on launch success. As virtual calls replace in-person visits, reps can foster a sense of proximity with HCPs by learning to make the most of cameras, screen sharing, and other interaction tools. Soft skills such as deep listening will help sales reps gather insights on physicians’ unmet needs and sources of dissatisfaction. Feeding these insights back into CRM systems will enhance their predictive power and enable the organization to rapidly correct course where needed.

As the use of video, interactive content, and multi­person interactions increases, companies will also need to rethink marketing materials so that they are effective in remote settings. Meanwhile, marketing staff will need to further develop their ability to optimize marketing campaigns based on HCP engagement, as well as using CRM data and dashboards to assess the effectiveness of past and future actions. Capability-building programs will equip staff with the soft and hard skills— from empathy to proficiency with advanced digital tools—required for success in a rapidly changing launch environment.

Capabilities aside, launch programs give companies an opportunity to reassess the setup of their field force. With less time spent traveling and waiting to see HCPs, reps have more capacity to pursue value-added opportunities. One example might be expanding physician engagement beyond the treatment network—through referral networks, for instance—especially now that location is no longer a constraint. Building a fuller view of customer-facing roles and interactions should allow launch leaders to allocate frontline capacity in a more effective and granular manner.

Closed-loop execution

Today’s environment makes agile ways of working a necessity. With launches no longer following a common regional or national strategy but tailored to suit local contexts, each initiative must be tracked and redirected in real time as early feedback and results on sales tactics are gathered. This kind of closed-loop execution requires changes in governance and in how decisions are made.

For instance, regional leads should be empowered to fine-tune targeting philosophy and product positioning in response to the feedback they gather locally. Meanwhile, central launch teams can share best practices or make suggestions by aggregating the success rate of different approaches across various target segments and regions. Campaigns that prove effective can be scaled up across broader geographies, while ineffective campaigns can be replaced with new campaigns that are tested and, in turn, refined or replaced as needed based on their results. Consequently, launch plans are updated in rapid iterations at national and regional levels to ensure that insights and opportunities are fully captured. To manage this process and experiment with new methods and ways of working, some companies set up launch situation rooms  that pull together data on sales, volume uptake, and other standard metrics with field insights garnered through rep apps to analyze launch performance in real time. Adopting an agile operating model with processes that support cross-functional collaboration enables launch teams to rapidly create campaigns to address shifting customer needs.

The turbulence of the past few months has made pharma companies keenly aware of the need to rethink their medical education, engagement channels, and platforms—but it has also left some of them paralyzed by uncertainty. Should they invest now in transforming their commercial model or wait to see how things play out? As com­mercial leaders consider their go-to-market plans for new drugs, they have a unique opportunity to experiment with new approaches without disrupting their entire business model. Innovations developed for new drugs that prove valuable for commercial success will reshape the commercial strategy of the whole company.

Arafat Mlika is an associate partner in McKinsey’s Geneva office, Jennifer Mong is a consultant in the Silicon Valley office, Nils Peters  is a partner in the Zurich office, and Pablo Salazar is a partner in the Stamford office.

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• Business Plans Handbook
• Business Plans - Volume 03
• Pharmaceutical Company Business Plan

Pharmaceutical Company

BUSINESS PLAN

PAIN AWAY LTD.

1117 High St. Poughkeepsie, NY 13495

The company described in this plan has moved beyond the initial start-up phase and is now seeking investors to finance its growth. Much of the plan, therefore, is geared toward persuading, explaining, and reassuring potential investors that the company (which produces a therapeutic, topical pain cream), is well-managed and stable. The in-depth analysis of the company's competitors is an outstanding feature of this plan, as is its market research.

EXECUTIVE SUMMARY/OVERVIEW

Competition.

• PROPERTY & FACILITIES
• PATENTS & TRADEMARKS
• RESEARCH & DEVELOPMENT

GOVERNMENT REGULATIONS

Insurance and taxes, corporate structure, risk factors.

• RETURN ON INVESTMENT AND EXIT
• ANALYSIS OF OPERATIONS & PROJECTIONS

FINANCIAL STATEMENTS

Type of business.

Non-prescription drug wholesalers; US SIC Code - 2834 Pharmaceutical Preparations.

Company Summary

Pain Away Ltd. is a going concern, a Delaware corporation formed in January 1995 to manufacture and sell its premier launch product Pain Away, a topical pain remedy using FDA-approved homeopathic ingredients developed for the simple purpose of relieving pain. The company was formed by its parent S-corporation, Peale, Inc. in order to market products nationally and internationally. Peale, Inc. was formed in February 1994 to complete the development of the launch product. The formation of the company was a significant step in a 9-year process of refining and testing a homeopathic formula first used by company founder and CEO Robert Peale to alleviate his pain from carpal tunnel syndrome. The R&D phase of this product began when Mr. Peale purchased the original formula, did a thorough study of homeopathy, and refined the formula to its present marketable state. From the beginning of R&D, Mr. Peale worked within FDA guidelines in order to secure FDA registration. Then, in February 1994, the company was formed to finally manufacture and sell the product. Starting with only a handful of customers, including some professionals, chiropractors, physical therapists, etc., only 19 months of operation have yielded 12,000 individual customers with an 80% reorder rate. The current customer base now includes medical doctors from different specialties, sports trainers, and athletes, both professional and amateur. The company expects to show a profit in 1996 and estimates that it will be very profitable in 3 years.

Mr. Peale is 49 years old and has a 25-year history in sales, sales management, and marketing for a tool distribution company. His deep study of homeopathic medicines started in 1985 and included studies in nutritional supplements. Mr. Peale has been invited to sit on a newly-formed FDA committee addressing the growing national interest in natural medicines.

Curtis Company president, Ms. Alana has 25 years of experience in retail and direct sales. She has been a senior sales director and sales trainer for Beautiful You Cosmetics, has owned and operated a retail sporting goods store, and has managed a 15 person, $1 million department for a major chain retailer. She also has some banking experience.

Vice-president of marketing, Ryan Lemon has 32 years of experience as production manager, buyer, sales manager, and marketing manager. He was director of marketing for Pilgrim Health and was responsible for their first launch into New Jersey which led to their first $18MM in sales (in 3 years). He has a BS degree in textile engineering and has also done independent marketing consulting.

Product and Competition

The R&D mission was to develop a greaseless, odorless, topical cream which was measurably more effective at relieving pain than any other OTC (over the counter) topical product. This mission has been accomplished. The company has collected anecdotal, testimonial, and uncontrolled medical study evidence that Pain Away is more effective than the leading topical analgesics such as Arthritin and others. The product's effectiveness in relieving pain is its most powerful benefit, besides the added benefits of it being greaseless and odorless. What distinguishes Pain Away from any other topical analgesic in this still-growing $402.1MM market is its advanced homeopathic formula - a refined blend of 11 FDA approved pure and natural ingredients. The typical OTC topical analgesic works to either block the sensation of pain or distract perception of deep pain by "counterirritating" another localized area near the pain. Pain Away's formula is different. Pain Away treats pain at its source. It stimulates improved circulation in the micro-capillary system in the ligaments and tendons, where most pain is felt. Pain-relief from Pain Away is the result of the body's own self-healing. It also can be applied several times a day because it is odorless and greaseless. The US pain management market ($15.2 billion by 1997) is a mature market with intense, established competition ("The Market for Pain Management Products in the US - Introduction, Drugs, Devices, Trends, and Market Structure," in FIND-SVP). With future pharmaceutical market growth dependent upon new and innovative product additions, Pain Away is entering the field at the right time. The company will distinguish itself and its market position by dedication to the development of only natural-ingredient products. Since its unique formula of ingredients already has FDA approval, the company aims to penetrate the OTC pharmaceutical market, where new products traditionally find success. Here Pain Away will compete with topical as well as internal analgesics, including aspirin, acetaminophin and ibuprofen. An estimated 4,000 people a year die from aspirin overdose. A condition known as "analgesic neuropathy" can result from extended or inappropriate use of analgesics. Medical studies linking heavy usage to health problems have affected aspirin, acetaminophin, and ibuprofen. Pain Away can be marketed as a substitute for (reducing overdose risk with internal analgesics), or as a supplement to (using Pain Away can reduce needed dosage of internal analgesics) internal analgesics when used for certain pain relief. Furthermore, Pain Away is not contraindicated for use with any other medication. This broad-based appeal is built upon the reliability of Pain Away's effectiveness in relieving pain, inflammation, and spasm associated with arthritis, bursitis, sciatic spasm, neck/back pain, tendonitis, tennis elbow, tension headache, achilles tendonitis, and carpal tunnel syndrome.

A second product, a natural anti-inflammatory nutritional support system formula known as "Pain Away Plus," will soon be marketed as a companion product to Pain Away. This multistaged formula is a combination of trace minerals, herbs, and a natural cartilage-derived substance. The company has long-term plans to develop more health-related products.

Funds Requested

Company principals have invested all available personal assets into the product development and operations to date. The need for capital is in the context of the readiness of the product for mass marketing. Management is seeking a $1,500,000 equity investment in exchange for a suggested 30% ownership of the company. All terms of financing are negotiable in order to meet the financial requirements of the investor.

Use of Proceeds

Advertising & promotion campaign - $1,200,000 (see below); Market research - $300,000. The company anticipates the need for follow-on financing after 24 months of business.

Financial History

Sales were first made in 5/94 under Peale Inc. ($143,881). As sales expanded nationally, Pain Away Ltd was formed in January 1995. All sales since then have been under Pain Away Ltd.

Financial Projections

With capital request accomodated, the company believes that Pain Away will jump in sales starting in 1996.

The company will attempt a public offering based on year 2000 earnings. If there is no public market and no prospect for a public market in the near future, then the company will offer to buy back the stock owned by the venture capitalist. A predetermined price could be set ahead of time, if desired by the venture capitalist.

The product effectiveness, evidenced largely through anecdotal evidence, personal testimonials, and repeat sales, has formed the basis for the future growth of the company. Together with a second, complementary product (nearly ready for market), the launch product will be aggressively mass marketed as a pain management system for the next five to ten years. Past and current sales have been to end-users, health professionals, and to some retail chains. The company and product are now poised for first stage expansion. Over 30 target wholesale markets have been identified. While the company uses its marketing strategy to enter these wholesale markets, simultaneous efforts will be made to develop research protocols. Management is confident that the anecdotal evidence and personal testimonials will be strengthened by controlled studies, designed to test the effectiveness of the product and demonstrate the physiological healing activity stimulated by the formula. With scientific credibility, the product will not only build its position in the $150 million homeopathic product category but will also strengthen its transition into the formidable mainstream topical analgesic category.

Future research is planned, based upon inquiry, in order to adapt the formula for animal use (Pain Away currently being tested on thoroughbred horses).

At the end of five years, the company intends to have at least one additional health product and should be able to go public off its revenues. The long-term goal for the company is to become an entrepreneurial leader in the development of natural products for various segments of the health care market. The company plans to capture enough share of the topical analgesic market to become either a viable joint venture partner or an acquisition candidate.

The product formula and delivery system are proprietary. The formula is uniquely advanced and is nearly immediately effective in relieving pain. Homeopathy and immunization have much in common, namely the principle of similars, which states that whatever a substance causes in a large dose, it can stimulate an immune response to defend against it in a small dose. It works by the principles of stimulation to the body's own self-healing mechanism and by the scientific balancing of its natural active ingredients through a dilution process called micro-dosing. Micro-dosing has given homeopathy its 200-year history of safety with no known side effects or toxicity. This self-healing process is in contrast to the majority of commercially successful topical analgesics, which contain counter-irritants, including the newer capsaicin-based products. These ingredients cause a superficial inflammation on the skin which masks pain by deadening the sensation of pain in the epidermal nerve endings only, or by distracting from the perception of pain by irritating an area near the pain source. The Pain Away formula has been developed with precision and balance and is a product that is effective and safe for use on all skin types. Pain Away's eleven active ingredients stimulate improved circulation in the micro-capillary system to ligaments and tendons, where most pain is felt. Pain relief is the result of the body's self-healing.

The manufacturing is sub-contracted out to a highly respected FDA-licensed manufacturer of homeopathic products.

An important unique feature of Pain Away which distinguishes it from other homeopathic remedies is that Pain Away is a topical treatment and is not a systemic treatment. As such, it requires little knowledge to use and is conducive to cross-merchandising in the mainstream analgesic category. Furthermore, since Pain Away is a formula of ingredients, it provides a broad spectrum of effects as compared to single remedies.

The personal commitment of the founder to relieve his own pain also adds a unique value to the story of this product - a story which can enhance marketability - to anyone who is in pain or anyone who knows someone in pain.

Although Pain Away is an homeopathic product, the company will position itself as a natural ingredients company - not necessarily homeopathic. All the company principals plan to engage both septics and advocates of complementary medicine by applying rigorous scientific standards equally across the board, for both conventional and unconventional treatments. Contacts have already been made with the National Institute of Health regarding future research.

Product Description

The product is a specialty consumer good carrying a suggested retail price of $19.95 for a 3.7 oz. jar (1.9 oz. jar also available at $12.95). The jar is designed with a medical appearance. The jar is easy to ship in multiples, is easy to stack on a shelf, is aesthetically pleasing, and has an easy-to-handle screw cap. The actual cream is greaseless, easy and pleasant to apply, and is odorless. Pain Away has, to date, largely been sold directly to end-users, and wholesale to retailers, distributors, and catalogues. The markets have supported the suggested retail price, which was arrived at by surveying market research supporting the $19.95 price along with the perceived value of the product compared to similar products at about the same price. This price also yielded a gross profit of $3.75 per jar and allowed for 100% markup from wholesale.

The eleven ingredients are readily available through top-quality labs which control for purity and authenticity. The cream is compatible with any medication being taken. The product carries a money-back 30-day guarantee.

Purchasers of the Product

Preliminary studies done by independent treatment professionals (no control group used) have shown that Pain Away has been effective for relieving the pain, inflammation, and spasm associated with arthritis, bursitis, sciatic spasm, neck and back pain, tendonitis, tennis elbow, tension headache, achilles tendonitis, and carpal tunnel syndrome. Anyone suffering these ailments, treating these ailments, or caring about anyone suffering these ailments is a potential purchaser of the product. A New Jersey hockey team uses Pain Away prior to workouts, competition, and for pain relief. The head trainer for the team says, "There's no product better for contusion of the quadriceps." He has reported shorter recovery times as a result of using Pain Away. Reports from athletes are that using Pain Away before and after workouts yields less cramping, fatigue, and soreness.

Top purchasers of TPR to date:

The total market for OTC internal and topical analgesics is estimated at $3.6 billion for 1995 and is projected to be $4 billion by 1997. With over 400 brands saturating this mature market, growth is still occurring through new products and product innovations. Driving this growth are:

• increasing use of pain management products for the over-50 population segment, whose numbers are increasing
• increasing awareness that pain does not have to be tolerated and can be treated
• price increases

Body/Muscle Pain Market

The market is dominated by internal analgesics:

Pain Away is a new product to this sizable OTC pain-relief market. It will enter this large arena riding on its effectiveness and coming from the new and growing alternative health care market segment. As a new OTC product, Pain Away has such a broad-based appeal that it will be sold to a large portion of the total OTC pain-relief market (both internal & topical), estimated to be 84% of all US adults and growing as the baby boom population ages and concerns regarding age-related ailments, such as arthritis, increase. Of this 84%, about 25% alone use pain-relief products for body/muscle pain for which Pain Away is especially suited. Just this one type of ailment offers a substantial market potential:

If only 40.3 million Americans (25% of 84% of adults) use an OTC pain-relief product three times a week for body/muscle pain alone, then the market potential is 6.3 billion uses of a pain-relieving product per year. Past use of Pain Away has indicated that a minimum of 3 applications per week would use about one 3.7 oz. jar per month. A conservative yearly estimate would be 10 jars per year, with consistent use. In order to reach a five-year sales goal of $50 million (6.7 MM jars), 667 MM consistent purchasers (10 jars/yr.) are needed. Product history has indicated a consistent 80% reorder rate, so at this rate, 833,000 original purchasers are required. This figure is 2.07% of just this one market segment. The company is very confident that it can capture 2.07% of this market segment within five years, especially considering that the roughly 40 million Americans who exercise on a regular basis, and who are aging, are included in this segment. Anecdotal reports from athletes who use Pain Away are that it can prevent injuries by "warming up" vulnerable muscles and joints prior to a workout. The product has wide applicability within this segment. The table below shows the percentage of the body/muscle pain market segment required to meet the next 5 years of sales projections.

These numbers are based upon a wholesale price of $7.50 per jar and a usage rate of 10 jars/year with a segment population of 40.3 million potential purchasers.

The prescription pain relief market is a distinct market which Pain Away will not attempt to penetrate. Pain Away can, however, compete directly with nearly all pain-relief products because of its unique identity of being both a substitute and a supplement to ail competing products. This uniqueness fits a projected market shift from internal to topical analgesic use as the population ages, and derives from 2 factors: 1) Use of Pain Away can reduce the needed dosage of any pain-relieving medication and 2) Pain Away is already part of a rapidly growing segment (25%-30%/year) of consumers who use alternative health care because of a disenchantment with OTC drugs and a concern about side effects with adverse reactions. Use of Pain Away can reduce needed dosage of other pain-relieving medications. As stated earlier, Pain Away's effectiveness is based upon the homeopathic principle of microdosing. While it promotes self-healing by stimulating blood flow to micro-capillaries, it remains safe for all skin types and with use of any other medication. Anecdotal evidence (from hospitals, some doctors, and occupational rehab center) has indicated that use of Pain Away alone has yielded positive results and use of Pain Away, along with other treatments, has seemed to accelerate recovery. As always, this kind of evidence will be scientifically studied. The salient point is that Pain Away can be a substitute and/or a supplement in pain management, and thereby reduce needed dosages of other medications.

Alternative Health Care Segment

Homeopathy, being an established (officially recognized by UK National Health Service) and significant alternative mode of treatment, is gaining increasing acceptance in mainstream American health care. The National Institute of Health has even awarded grant money for research in alternative treatments, including homeopathy. Drug retailers report that homeopathy may be the fastest-growing category in the trade class of drug chains. Since homeopathy is gaining acceptance as an alternative treatment, the market segments which are already embracing these alternatives will continue to be targeted in the company's initial expansion. These segments include people ages 25-elderly, who seek improved quality in life, and whose lifestyle values involve "newness." This segment includes most of the "baby-boomer" population, estimated at over 75 million. The market of alternative health care seekers is characterized by patients who can and will pay for their own care. As much as 70% of alternative medical treatments are still paid for by patients themselves rather than insurers. This kind of purchasing indicates a willingness to try an alternative product and continue purchasing based upon perceived value of the product's effectiveness. Company management has been encouraged by the consistent 80% reorder rate and knows sales will be sustained once initial purchases are made. The alternative health care market is of respectable proportion. According to the New England Journal of Medicine (1/28/93), 34% of Americans spend $13 billion/year on alternative treatments such as chiropractic, acupuncture, massage, and homeopathy. Pain Away is already marketed to all of these treatment specialties so it will reach the spectrum of alternative treatment. This 34% of Americans are familiar with the term "homeopathic," so there's a consumer predisposition to being further educated about homeopathy as a value-added natural ingredient alternative.

The company will build an early market position on the alternative health-care market and will join the growth of the homeopathic segment as it moves from the fringes to the mainstream of the OTC pharmaceutical market.

Alternative Market Potential:

If only about one third of Americans use an an alternative pain-reliever just twice per month, then the market potential is 2 trillion uses of an alternative pain-relieving product per year. Market indicators are that both the number of users and the frequency of use will increase as the population ages. The use rate of 2 times per month converts to 2 jars of Pain Away per year with consistent use. Again, in order to reach the 6.7 million jar sales goal ($50 MM), at the re-order rate of 80%, Pain Away would have to make 4.2 million initial sales in order to sustain 3.3 million consistent purchasers. This size customer base comprises 4.71% of the growing alternative health care market. The company believes that this sales goal is attainable within the next five years. The table below shows the percentage of the alternative health care market segment required to meet projected sales.

These numbers are based upon a wholesale price of $7.50 per jar and a usage rate of 2 jars/year with a segment population of 89.1 million potential purchasers.

Narrowing the Market Focus 2X

The market potential for pain relief products is huge. By narrowing the focus to product category sales, the potential becomes more exact. Pain Away's product category is within the topical analgesic market, estimated at $402.1 MM annually with a projected $522.7 MM market in 1996 (30% growth) and $692.6 in 1997 (32.5% growth). Starting with $522.7 as the base market volume, and with 30% growth per year for the next 5 years, Pain Away would have to capture 3.33% of the year 2000 market volume to make its sales goal of $50MM. Management believes that these goals are attainable.

The table below shows what percentage of the topical analgesic market will meet Pain Away's sales projections.

The focus can be narrowed further to the homeopathic product category, which is growing at a rapid rate at this time. The dollar volume of this segment is estimated at present to be between $150 million and $215 million and expected to grow at a rate of 25% to 30% a year. Some market-trackers say that retail sales haven't grown enough to support the existing number of homeopathic manufacturers and that a shakeout will consolidate sales in the hands of fewer manufacturers. The forseeable trend, however, is progressive growth from the fringes to mainstream markets, and at a rapid rate. The table below again shows percentages of this dollar volume required to meet sales projections.

These numbers are based upon a 1996 volume mid-point between the projected volume range of $150 MM and $215 MM. Growth rate is 25% a year. At first glance these percentages may seem daunting. However, the manufacturers supplying this niche are relatively few in number and therefore hold significant market shares A new player can get a reasonable market share with the right product and marketing plan. The mainstream merchandising of homeopathic products started in the early '90's and has been tested as a lucrative direction. Company management is very confident that Pain Away will gain enough share points to capitalize on the rapid growth of this product category. Pain Away will not remain in the homeopathic niche. Its effectiveness will make it competitive with mainstream topical angalgesics.

International Markets

The company will also develop an international market. A 10,000-unit order has already been received from a distribution company in Hungary and is awaiting final approval from the Hungarian State Department of Pharmacy. A small order was also sent to well-known sports figure in Spain. Discussions are underway for this individual to start large-scale distribution. The homeopathy market in the UK is estimated at 18M pounds and in Germany at 120M pounds, so European marketing could be strengthened by the homeopathic identity alone. In Germany, an independent division of the German Federal Health Agency publishes monographs on the safety and efficacy of herbal medicines. The company believes that Pain Away would fare excellently under such review and will carefully research and plan when and how to reach such markets.

There are many companies competing for shares of the 3.6 billion dollar OTC analgesic market. The major players are the internal analgesic manufacturers:

The balance of the OTC internal analgesic market is held by private label companies and "others." The major strengths of this level of competition are obvious in comparison to Pain Away's present market position. The major players have:

• a manufacturing cost advantage,
• sophisticated market knowledge and access,
• established sales capability,
• strong R&D capacity,
• and of course, brand name loyalty.

An important competitive strength of Pain Away is that it is topical - pain relief is accomplished without risk of overdose and consequent risk of serious side effects. This competitive strength derives from a previously noted shift in the market from internal to topical analgesic use. This shift in consumer preference, along with Pain Away's effectiveness, can position the product as a substitute/supplement among these large competitors. Management is ever mindful that mainstream pharmaceutical companies are watchful of the homeopathic market and will act accordingly should market share be lost to homeopathic remedies. Becoming a viable acquisition candidate to any one of its major competitors is a realistic goal. Pain Away management is committed to quality product development and is also open to strategic alliances which would enhance its market capability.

The competition in the topical analgesic market is head-to-head. The top competitors are:

The basis for the competitive analysis is Pain Away's most competitive feature:

• It doesn't have any of the aforementioned advantages held by the major, well-known players in this market - yet.
• It doesn't have widespread brand name recognition - yet.
• It doesn't have appreciable market share in topical analgesics, alternative health, or homeopathy - yet.
• It does have a unique formula of safe and effective ingredients which none of the above products have.

All topical analgesics contain counter-irritants, including camphor, menthol, methyl salicylate, eucalyptus, wintergreen, and even the popular capsaicin. These ingredients, even when blended, act primarily to cause a superficial inflammation on the skin. This inflammation serves to hide the pain by deadening pain receptors in the skin.

What distinguishes Pain Away from all of the above products is that the eleven active homeopathic ingredients stimulate the blood flow in the body's micro-capillaries and act synergistically with the body tissue. This stimulates the body's own self-healing. Pain is treated at its source. Company management believes that the unique effectiveness of Pain Away will give it competitive clout. The issue then becomes how to compete.

Although Pepperub (Pepper) and Vapol (Athens) enjoy the largest market share, they are vulnerable to new product introductions. Menthol Plus (Lucia) held the top position in this category last year until Pepperub was re-packaged and relaunched with line extensions. That relaunch along with a relaunch of Zanprin boosted sales of both brands and put Pepperub back on top. Pepperub, Vapol, and Mentholplus are all menthol-based products. Zanprin is a capsaicin-based product and has boosted usage of its relatively new ingredient. Other relatively new capsaicin products are Capcreme (Bioderm) and Capthol (Men-Thol Co.).

Company management believes that Pain Away is generally more effective than Pepperub and Vapol. However, these venerated brand names, large advertising budgets, and consumer loyalty are formidable competitive advantages. Pain Away will focus on other competitors in order to gain a market position.

The key competitors are Menthol Plus, made by Lucia and Zanprin, made by Skin Care Corp.. Menthol Plus is a menthol-based product which Pain Away has encountered head to head in the sports market. Menthol Plus has a retail price advantage in the mass market, selling for $4 for a 2 oz. tube. This price difference is of little concern because Pain Away will promote itself as a high value product. The topical analgesic, alternative health, and homeopathic markets all support pricing based on perceived product value. Menthol Plus' manufacturer has reduced the advertising budget for this product (about $2 million) recognizing from a 21% decrease in 1994 sales that the product has matured. The company plans to acquire other brands (no topical analgesics) and extend its other lines in order to generate sales growth. The company sells another topical analgesic which is doing well in sales but has not reached the same position as Menthol Plus. Pain Away will monitor the life cycle of Menthol Plus and move to gain any market share it might lose.

Zanprin, made by Skin Care Corp., is gaining market share because Zanprin (.025%) and Zanprin- X (.075%) are capsaicin-based products. Capsaicin, derived from cayenne peppers, has created a new segment in the market and is very popular. Other companies are making capsaic in products but Skin Care Corp. attracted market attention by relaunching Zanprin as an OTC consumer product. It had been marketed for seven years to physicians and kept behind the counter, carrying the credibility of a prescription product. In early 1995, the product was re-packaged for shelf space and supported by TV ads. Despite commanding premium prices ($19.95/2oz of Zanprin-X), the product has done dramatically well.

Skin Care Corp. claims that Zanprin is the "only brand with physician endorsement and specific clinical support." This is a credible claim, cultivated for seven years, and obviously contributing to sales of the product.

Skin Care claims to be the first in the industry to develop their highly purified version of capsaicin for a pharmaceutical base. Zanprin distinguishes itself by promoting controlled clinical studies which have supported its effectiveness. Skin Care claims that such clinical trials don't apply to other, less pure, capsaicin formulas. This scientific feature enhances product credibility among physicians and pharmacists.

The management of Pain Away Ltd. recognizes the effective marketing strategy used by Skin Care because it is similar to their own strategy. Advertising and promotion expense is critical. With proper capitalization, Pain Away can compete because the Pain Away homeopathic formula is unique and effective. Many capsaicin users, including Zanprin users, have complained about the burning sensation caused by capsaicin. Pain Away will stand up to any topical analgesic on the market and do very well with comfort, safety, and effectiveness. The company needs to get this message out. The seven-year product life of Zanprin, supported by unique and heavy TV advertising, gives Zanprin quite an edge. Zanprin is now a "new" growth product and Pain Away can grow behind it, by comparing ingredients and effectiveness at every turn. Pain Away is also in the same price range as Zanprin, doing slightly better with $19.95 for a 3.7 oz. jar or $12.95 for a 1.9 oz. jar.

Zanprin is not the "only brand with physician endorsement and specific clinical support." Pain Away has been cultivating health professional support since the R&D phase. The product is heavily endorsed, and more medical support is developing. Many of Pain Away's sales to date have been to health professionals. Regarding clinical support, Skin Care's success with this strategy underscores the strategic importance of Pain Away's plans for controlled clinical studies.

Speaking of "highly purified" formulas, Pain Away can compete strongly with any formula on the market, especially capsaicin-based. The company wants to discuss purity of ingredients and formula and will do so in all promotional efforts.

The remainder of the products listed in the top competitor list have of course the same advantages that any established company with significant market share has. Beyond these immediate competitive advantages, Pain Away can compete, again, on the ingredient effectiveness basis.

Aspratin, an odorless rub which contains Salycin, sold well when it was introduced in 1992. It held third place among topical analgesics at the end of 1993. It has since been surpassed by capsaicin-based Zanprin. Bioderm developed Capcreme and lowered its price when Zanprin was relaunched.

Capthol was recently developed by the long-established Men-Thol Co. and is a capsaicin-menthol blend designed to compensate for the sometimes delayed pain relief when using capsaicin alone.

Salicreme is a methylsalicylate product which has shown flat growth and has lost market share.

Lyptum was a rapid-growth product in 1990-1991 but has since lost market share. Besides the well-established brands like Pepperub, the products which are gaining in this market are the capsaicin-based. This product category is known to be affected by product innovation and development. With proper support, Pain Away will take a respectable market share.

Homeopathic Competition

The competition takes place in the drug chain arena. Homeopathy may well be the fastest-growing category in the trade class of drug chains (20% of all homeopathic product sales). Among the growing number of drug chains which are giving shelf space to homeopathic products are: Walgreens, Medicine Shoppes International, Thrifty Payless, Eckerd Corp., Edgehill Drugs, Genovese and FEDCO, a California supermarket chain. Research published in the Journal of Clinical Pharmacy and Therapeutics states that 27% of US pharmacists consider homeopathic medicines helpful while only 18% consider them useless. The crossover of homeopathy from health food stores, where sales are still strong, to mass markets is gaining momentum.

As mentioned earlier, there are relatively few companies supplying homeopathic products to the mass market. There are five major producers/distributors of homeopathic products.

Health System, Homeopathic Co., and Life-Right pioneered the distribution of homeopathic products to chain drug stores in the early 1990's and are now market leaders, although more companies are entering this lucrative market. Health System Products now has about 40% market share. Homeopathic Co. and Del Sol are aggressively developing the crossover into mass marketing with line development and heavy TV advertising.

All the topical analgesics listed above are arnica-based, with few other ingredients. Arnica Montana is the premier homeopathic medicine for the treatment of shock and trauma to the muscle. These formulas come the closest to Pain Away's because they contain some of the essential homeopathic pain-reducing ingredients. Pain Away's formula, however, blends more ingredients than any other homeopathic topical analgesic on the market. This more inclusive formula gives the product wider applicability. Price-wise, Pain Away is more expensive than most of the competing homeopathic products, where prices are in the $5-$10 range for 2oz.-4oz. sizes. But, this is a value-priced market, so price is not a critical variable. Since Pain Away is very competitive on an ingredient/effectiveness basis, the critical factor is having the resources to promote the product.

Future Competition

As has been noted, the topical analgesic category, including natural ingredient, is rapidly influenced by new clinical studies and product innovations. There are three main sources of new competition:

• New ingredients and/or new innovations of existing ingredients. Examples are new products which employ the medicinal benefits of ammonium compounds. These products are designed to provide pain relief without the objectionable training room smells, burning sensations and stinging of abraded skin that are often caused by the majority of topical analgesics that contain menthol, methyl salicylate or capsaicin as active ingredients. Pain Away's formula has solved this sensation problem and is a less "high-tech" product, for which consumers are showing a preference.
• Companies currently in this market who could increase market share and become major players. Pain Away Ltd. is in this category.
• Chain drug companies may produce their own private label homeopathic products and corral a significant share of this growing market - much as they did in the non-homeopathic analgesic market. This scenario is more likely to happen as homeopathic companies expand the sales volume in this market and there are share points to be taken away by private labeling.

Pain Away Ltd. can be very competitive with the right promotional support.

Marketing Strategies

Increase market share by reducing market share of competitors. This strategy will capitalize on the market development to date and capture a share of markets held by existing pain-relieving topical applications. The key benefit is that conventional pain-relievers mask pain while Pain Away stimulates the body's own healing ability to directly battle an ailment. Another benefit is that homeopathic remedies have no known side effects while many pain-relievers, especially those ingested, have side effects. Neither will Pain Away interfere with any medication. This strategy requires extensive advertising in mainstream media, including infomercial, QVC (Pain Away already under review), 60 second commercial, cable TV, interactive TV, direct mail, independent sales reps, POP displays, and educational inserts/newsletters. One objective of planned controlled studies on the effectiveness of Pain Away is to use scientific evidence to help bridge the narrowing gap between natural and conventional medicine. Product studies will support this marketing strategy. In this context, the company will pursue preliminary inquiries from a favored vendor to use Pain Away in the workplace to study any reduction of lost work time and/or medical costs precipitated by repetitive stress injuries.

Expand a growing new market for alternative health care by positioning to lead this growing market. This strategy involves specialty catalogues (placed in 5 currently), placement on retail shelves of health food stores, educational product inserts/newsletters, media appearances discussing product, and independent sales reps. This strategy addresses the 89.1 million users of alternative health care.

The company has already been approached by two large Multi-Level Marketing companies. This strategy would involve creating private labels for a large customer. Of utmost consideration with this strategy is product identity and how this channel of distribution would affect it. This channel of distribution usually requires more price mark-up than the product would tolerate.

The company will create its own "competition" by developing private labels and/or separate companies to market to different niches.

Keep capital outlay to a minimum by licensing/franchising Pain Away to a brand-name company. This strategy would add value to the product in the form of brand name loyalty, manufacturing strength, and a strong sales/service force already in place. The company envisions its role in this type of strategic alliance as conducting scientific studies to increase the credibility of TPR and in developing new products. This strategy remains an option which could preclude other strategies under mutually acceptable terms.

Building on an initial order from a health product distribution company in Hungary, Pain Away Ltd. will penetrate the European market by targeting England and Germany, where homeopathy is an accepted form of treatment. This strategy would be developed only after a US market position was established.

Marketing Plan

The company is moving from start-up stage into its first growth stage. Market strategy to date can be succinctly described as selling "one jar at a time." Direct personal selling has been the mainstay in sales growth. This strategy has targeted any end-user willing to try the product. These early customers were reached through health care professionals and direct selling through state/county fairs, shopping mall space, health food store chains, and most recently lifestyle catalogues. As the company moves away from direct selling, a strategy which proved to be an excellent market test, into mass-marketing, identified market segments are being matched with appropriate distribution channels. The plan now is to expand and concentrate more on helping the consumer develop product preference by heavy advertising of the brand name, the benefits of the product, the ease of use, and the guarantee. Company expectations are that all advertising will be enhanced by results of controlled studies of product effectiveness.

The company intends to expand regionally, based on existing markets and consumer profiles (e.g., households from the South are likely heavy users of analgesics). The national market will only be tested by placement in catalogues with a distribution of 200 million. As regional sales grow and as the product gains recognition, then a national marketing strategy will take shape. Company management have begun discussions with a major marketing communications agency (Fortune 500 client list) who themselves approached Pain Away. The marketing and sales outline is as follows.

Marketing Function

• A complete review and analysis of the topical analgesic market.
• Utilization of Triad Groups conducted with the professional community and general consumers. Purpose is to identify professional and consumer preferences.
• Based on research, create a product identity.
• From product identity, establish professional and consumer strategic directions, which would affect product design, packaging, advertising, consumer promotion, and product publicity.
• Test both professional and consumer strategic direction via two more Triad Groups.
• Develop launch marketing plan with all elements and budget for both professional and consumer.
• Actual implementation of the plan to include product design changes, packaging, advertising, consumer promotion, display, and product publicity.

Sales Function

Utilize a sales organization enabling direct-call coverage on the top 25 customers, which generally account for 80% of retail sales, and broker-managed coverage for the remainder. Launch plan would include a national sales meeting and all necessary materials.

Professional

Concentrate on the pharmacist community via co-op direct mail. Pharmacist recommendation at the purchase counter does affect sales.

The production process takes place in a standard homeopathic laboratory where raw materials are blended. There are no significant health or safety risks involved. Production orders are processed by purchase order for finished product. Some raw materials are usually on hand but more are ordered against purchase order requirements. Jars are ordered from a separate manufacturer and sent to the homeopathic laboratory to be filled, packaged, and shipped to Pain Away Ltd., where fulfillment is done.

The homeopathic laboratory has the capacity to fill all projected orders. As orders increase, Pain Away management will consider using a fulfillment service and more drop-shipping to wholesale customers. Cost of goods is estimated at 18% of gross sales. This figure has been consistent throughout production to date and is based on the complete production cycle.

There is no backlog.

Production Characteristics

The production process does not require any specialized or proprietary machinery. The critical factors in the production process are the highest quality of raw materials and the incubation process, which assures a stable finished product. Water is added to a base of vegetable/plant emollients. The eleven active ingredients are then mixed into the emulsion, which incubates for about 48 hours in large vats, while monitored for any fungal invasion. The finished product is then lab-tested for potency, which is done by lot number (the company gets lot samples). Filling is currently done by gravity-feed. The manufacturer might advance to computerized filling. One batch is 500 gallons. Lead time from order to packaged product is 4 weeks. Only a skilled and experienced manufacturer can produce the formula. Even other homeopathic manufacturers not familiar with a cream-based product would have difficulty with the production process. General topical analgesic manufacturers would need to become familiar with the raw materials and the production process in order to blend Pain Away's eleven active and ten inert ingredients. The company currently has one back-up manufacturer, which has never been used.

Labor Force and Employees

The company administrative staff consists of 5 people (recently reduced by 3) including the 3 officers. The two employees are paid an hourly wage. The staff are not unionized and there is no expectation of such. The labor supply in the region is more than sufficient to meet all future staffing needs. The sales force is comprised of independent agents who are paid on commission.

Currently, the laboratory procures all production materials. There are no shortages of key components, and multiple sources are available.

Subcontractors

All production is sub contracted out. Only fulfillment and shipping are done in-house. The company has formed a strong working relationship with Herbal Laboratories, which is the key subcontractor. Although management has selected a back-up manufacturer, the existing relationship with Herbal Labs has been more than satisfactory, so no change is foreseen. Other subcontractors supplying jars, labels, and boxes are used based upon price and service and can be replaced.

Standard office equipment is used for administrative functions. All production equipment at Herbal Laboratories is new and there is nothing that would cause production to be stopped for any appreciable time.

PROPERTY AND FACILITIES

The company facility is a single-story 1,950 square foot, cement block structure on about a two-acre cleared lot that is leased in one-year increments. The facility is located in northern Dutchess County, NY. All necessary commercial and industrial infrastructure is in place. The facility is easily accessible from major thoroughfares. The general area has been and is recovering from the closing of 2 large industrial facilities, so there's been anoticeable decline in property values. There is, however, a regional effort to re-direct the area to rely more upon small and entrepreneurial business. Management plans to purchase the building in order to add an appreciable fixed asset and to reduce expenses. The structure is easily expandable, so the company will not have to move during its critical growth stage.

PATENTS AND TRADEMARKS

Active homeopathics are not patentable. Management is exploring establishing a trademark and a formula patent.

RESEARCH AND DEVELOPMENT

The three principals have invested collectively $100,000, which has been capitalized. Plans for the immediate future include forming a research alliance with a university, hospital, or research group in order to develop a protocol for applying the "rigorous scientific standards" against which the effectiveness of Pain Away can be proven. Management has projected R&D expenses at $ 30,000 for the next 12-month period. These expenditures are intended for controlled studies proving effectiveness, and for continuation of developing applications for animals. Management is sales-marketing oriented and does not want to develop only a research lab. Any R&D will be designed to enhance sales and profits. Company management is currently investigating an SBIR grant.

There are no particular federal, state or local laws/regulations that affect the conduct of business. The manufacturer meets OSHA requirements, as does the Pain Away administrative facility. The FDA regulates homeopathy as an OTC non-prescription medicine. Pain Away's ingredients are in total compliance with FDA standards. Mr. Peale cultivated a working relationship with FDA representatives during the initial research and wisely intends to sustain such.

Product liability insurance is underwritten. A buy-sell agreement among officers exists but is not yet backed by insurance. Key employee insurance is also yet to be written.

All taxes are current. The company pays standard payroll, Social Security, and corporate taxes. The product is sales tax exempt in many states.

Company principals first formed an S-corporation under the name Peale Inc. The realization of the likelihood of international sales prompted management to form Pain Away Ltd. as the operational company. Peale Inc. serves a limited partnership which was formed to attract investors. Both companies are run by the same management team. All R&D is done through Peale Inc. There is comingling of funds. This proposal seeks financing for Pain Away Ltd. Return on the investment will derive from the sale of the product Pain Away itself and any other products which the company sells.

Pain Away Ltd. is a member of the Homeopathic Manufacturers Association. The officers were invited to participate in an annual meeting of the newly formed FDA committee on natural medicines. This committee works on the bases for regulations, compliance, and claims for the natural ingredient industry, covering vitamins, herbs, and homeopathy.

Management subscribes to the following publications:

• Homeopathy Today
• Natural Foods Merchandiser
• American Health
• Prevention Magazine
• Let's Live
• New England Journal of Medicine letter

Directors and Officers

A board of directors will be developed in the near future. There is interest from the medical, nutritional, and professional sports communities, as well as from a local bank. Officers are:

Robert Peale - CEO Alana Curtis - President Ryan Lemon - Vice-President, Marketing

Profit and loss responsibilities are shared by the officers.

The officers are primary key employees (backgrounds in executive summary). Other key employees include:

Key Employees

Leslie Ottaviani - bookkeeper and office manager - known by management for 5 years and described as "a dedicated innovator with a true grasp for details." She has experience supervising 20 employees in the accounting department of Worldwide Airlines and has worked as an independent bookkeeper for several companies in Hudson Valley, NY.

Julia Allen - administrative assistant - known by management for 6 years and described as "having people and problem-solving skills and works incredibly well under pressure." Her background includes sales in a successful business which included business consulting.

Remuneration

Accountant and Banker

All other fees paid on an ad hoc basis. Different attorneys have been used on an ad hoc basis (finance closing fees will be paid by the company).

Principal Shareholders

Proposed Financing

Management is willing to negotiate any structure which suits the investor. The company is seeking an equity investor. Management will provide a seat on the company's board of directors. Ongoing reports of key ratios, profit-loss statements, balance sheets, and annual audits would be provided to the investor. It is management's intent that the investor will enjoy returns on investment in excess of that of alternative investments, as a privately held company, while providing investor liquidity of his investment by taking the company public at its earliest opportunity.

Capital Structure

The existing capital structure includes a $50,000 unsecured line of credit with Poughkeepsie National Savings Bank. This line of credit was just brought to maturity in 1/96 for a 30-day period, at which time the line was renewed. If the current financing proposal is accomodated, then the line of credit can be increased.

Additional financing to date has derived from the sale of limited partnerships offering $.01 per 3.7 oz. jar royalty for every $1,000 invested. Each limited partner has been given the right to convert his/her capital investment into common stock when the company goes public, or, to receive back his/her original capital investment when the company goes public. Total amount of financing raised through the limited partnership is $100,000.

As mentioned earlier, officers have collectively invested about $100,000 in the company, mostly through the R&D phase. Officers' "sweat equity" is immeasurable.

As stated in the executive summary: Advertising & promotion campaign - $1,200,000 (see below); Market research - $300,000. The company anticipates the need for follow-on financing after 24 months of business.

Management intends to preserve cash flow by factoring much of the receivables. With the current lead time of 4 weeks, however, some capital may be used to increase merchandising inventory in order to fulfill initial large orders. It is hoped that any follow-on financing can and will be debt financing, serviced by cash flow.

The following table sets forth the capitalization of Pain Away Ltd. as of 12/31/95 and as adjusted to reflect the proposed sale of common stock.

Dilution: The net tangible book value of the company as of 12/31/95 was minus $1,673 per share. Without taking into account any other changes in such net tangible book value after 12/31/96, other than to give effect to the sale of 60 shares (proposed 30% equity share) hereby, the pro forma net tangible book value of the company on 12/31/95 will be $5,827 per share, representing an immediate dilution of $13,597 per share to new investors.

Management recognizes that this proposed financing implies a large premium value on the existing equity and so will negotiate any other conditions which would induce the investor to make the investment.

At the time of the company's IPO, limited partners who opt for common stock will receive their shares from the officers' share of owned stock. The negotiated ownership held by the investor will not be further diluted.

Investor Involvement

Management seeks a close working relationship with the investor. The investor will be given one seat on the board of directors. Management would solicit consultations (for a fee) on financial matters, or any other area of investor expertise (e.g., planning, management development), but voting power is not an option. Fees will also be paid for any future financing and/or profitable business connections arranged by the investor.

Limited Operating History

Even though management feels that the company is at first-stage expansion, it is definitely still an early-stage company. Two obvious risks inherent in early-stage companies are undercapitalization and poor liquidity. Management has capitalized the business operations to date well enough to have developed the product and identified penetrable market segments. The current proposed financing will provide enough capital to handle the anticipated growth.

Limited Resources

Management believes that it has the resources to continue at the present pace of business. An anticipated increase in sales through advertising media such as QVC , regional/national catalogues, retail outlets, and some European distribution can be financed by factoring. These "bootstrapping" approaches have sustained the company to date and will accommodate slow growth. Management believes, however, that more rapid expansion is desirable in order to penetrate its identified market segments. More rapid expansion requires more resources.

Limited Management Experience

All officers have successful backgrounds in marketing. Additional experience in manufacturing/distribution has been gained in the past nine years of product development. Management has consistently shown a willingness to leverage themselves with accomplished professional consulting relationships. The company culture is one which reinforces sharing of expertise with mutual benefit to all concerned.

Market Uncertainties

Any consumer product business is subject to the changing preferences of the marketplace. As presented in the marketing section of this proposal, the target markets are showing substantial growth, which limits uncertainty. There is currently a growing consumer preference for homeopathic topical remedies. More uncertainty is evident when considering competition, but can be made tolerable by on-going research and analysis.

Production Uncertainties

The only uncertainty at present is whether or not the lead time (4 weeks) from purchase order to finished product can consistently be reduced. This uncertainty is of material concern as sales increase. Herbal Laboratories is a sound company with a promising long-term future and has always been customer-friendly, so no more serious uncertainties exist at present. Management believes that vertical integration of manufacturing is feasible in the long-term but is not practical in the near-term.

Liquidation

In the event that liquidation becomes necessary, management believes that the most value could be realized from the sale of the product formula itself. The formula is not patented, so valuation remains uncertain. However, the sales history, along with the testimonials attesting to the effectiveness of this "ready-made" product, should determine value. Office equipment would yield limited value, and unless the company building was purchased prior to liquidation, no value would be realized. Management believes that the company can and will generate increasing value in the near future, evidenced by increasing sales.

Dependence on Key Management

At present, CEO Robert Peale is considered the primary key manager/officer. His knowledge of the product ingredients, his history of public appearances promoting the product, his increasing recognition by the health community as an expert in natural medicine, and his charisma as a business professional highlight his key role. Managerially, the other officers are thoroughly competent and could manage the company and market its products without Mr. Peale. At this critical early stage, however, the product needs an identity and a market position before the loss of any key managers could be overcome. Once the premier product is securely launched and the product line is expanded, the loss of any officer could be absorbed by continued proper management of the company. Management believes that such a development is not far off, once the company is properly capitalized. Until such time, key person life insurance will be purchased.

What Could Go Wrong?

Upgraded advertising campaigns could not lead to any substantial increase in sales. This problem can be avoided by using experienced advertising/marketing consultants who have familiarity with the targeted markets. Furthermore, properly designed test runs on any advertising campaign would provide objective indicators of expected returns. Capital investment in advertising should be gradual and progressively based upon certain expected levels of return.

Stronger competition could capitalize on and stall Pain Away's early success by replicating the product and its marketing strategy. This problem can be solved in two ways: First, with proper capitalization, Pain Away can make an entry into targeted markets rapidly and with enough strength to grab market share. Keeping market share can be easier than getting it. This market requires extensive advertising. Increasing market share could mean an increasing advertising budget. An increasing advertising budget can easily reduce profit margin, so strategic planning is required. The second way to solve the competition problem is in the formula itself. Management will seek to patent the formula. The nature of the homeopathic ingredients is likely to inhibit any mainstream non-homeopathic company from replicating the product. Acquisition of a homeopathic company would make more sense. Narrowing the competition, then, to other homeopathic companies gives Pain Away more of a fighting chance, since its formula is more sophisticated and user-friendly than any homeopathic topical analgesic on the market.

Governmental controls could conceivably impede sales. This problem is unlikely because the ingredients are already FDA-approved. Furthermore, management's participation in the FDA committee to develop regulatory standards for the natural medicine field would provide early warnings of any such prohibitory controls.

The company could be controlled by non-investor stockholders. This problem is not likely to develop because the management team would hold a majority. Management is dedicated to the principles of increasing value and profits and is confident that its efforts will be in concert with those of the investor.

RETURN ON INVESTMENT ANDEXIT

Public offering.

Management plans for an IPO in 5-7 years. The investor's shares would be sold to provide the targeted return on investment. Should there be no public market, then a buy back would occur.

Management will negotiate a buy back formula with the investor and will target milestones in planning for this possibility. Management aims for returning 6 times the original investment in five years.

ANALYSIS OF OPERATIONS AND PROJECTIONS

The business has not shown a profit since sales activity began in May 1994. This lack of profit is not unusual for an early-stage company. Losses were incurred in the start-up phase, where the objective was to get consumers to try the product. Gross profit margins have remained stable, however. Management focus was targeted on getting professionals and consumers to try the product in order to collect anecdotal evidence and testimonials of its effectiveness. Not enough focus was on asset management, as evidenced by a low return on assets ratio (p.32). Now that the product has gotten some recognition, especially in professional circles, the focus will shift toward mass marketing. Management intends to improve inventory management by using factoring of receivables in conjunction with JIT inventory control. As sales volume increases, drop-shipping from plant to wholesale customer, will also be arranged.

Balance Sheet

Monthly Income Statements 1995

Income Statement - 12/31/95

Key Ratio Analysis

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Projected Cash Flow

Projected Annual Financial Statements

Assumptions

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Pharmacy Business Plan

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The Discount Pharmacy

Executive summary executive summary is a brief introduction to your business plan. it describes your business, the problem that it solves, your target market, and financial highlights.">, opportunity.

People need to be able to buy prescriptions at reduced prices. We make that possible by carefully maintaining efficiencies in our operations. So we can target a specific segment of the market – those customers who pay for their prescription medications themselves. They are poor, they are sick, they deserve the same care as those who can afford healthcare and full price prescriptions. 

The Discount Pharmacy’s mission is to provide our customers with the best prices for their prescription medications. Our convenience and services will exceed the expectations of our customers.

The Discount Pharmacy’s target market consists of two different groups, local customers or walk-ins, and mail order customers.

Competition

Competition takes many different forms in the pharmacy industry. They are: chain pharmacies, local pharmacies, mail in pharmacies, canadian pharmacies. 

The Discount Pharmacy’s we have superior pricing. To do that we must maintain our position as the low cost provider by painstakingly ensuring that costs are kept low through operating efficiencies.

Expectations

Costs will be minimized by maintaining only one pharmacist and filling the void with pharmaceutical techs. We expect to reach profitability by our third year and will generate substantial sales by year three

Financial Highlights by Year

Financing needed.

We will need $115,000 to start, we will be able to pay the investment back at the end of year 4

Problem & Solution

Problem worth solving.

People need to be able to buy prescriptions at accessible prices. We make that possible by carefully maintaining efficiencies in our operations. So we can target a specific segment of the market – those customers who pay for their prescription medications themselves. They are poor, they are sick, they deserve the same care as those who can afford healthcare and full price prescriptions. 

Our Solution

The Discount Pharmacy’s main goal is to provide prescription medications for our customers at the lowest prices on the market. We will be able to sell prescriptions at reduced prices by carefully maintaining efficiencies in our operations and by targeting a specific segment of the market – those customers who pay for their prescription medications themselves. By focusing on this segment it gives us additional efficiencies – we avoid disruptions in cash flow often associated with insurance payments and we can eliminate unnecessary services for the type of knowledgeable, repeat customer taking maintenance-type medication.

The Discount Pharmacy will operate from one store that will serve both mail order customers and those who visit in person. We will thrive by employing friendly and knowledgeable personnel, which, along with our great prices, will drive the repeat business that we will rely upon. We only expect that as the price of medication continues to skyrocket, The Discount Pharmacy will appeal more and more to the customer’s sense of value and convenience.

Target Market

Market size & segments.

The Discount Pharmacy will seek to attract two different groups of customers and will thus have two strategies to attract them.

We anticipate that by far our largest group of customers will be those who order through the mail. These customers will be targeted through an advertising campaign in magazines and newsletters that have an older (>55) audience who regularly need medication and are aware in advance of their needs. For example, one of the main advertising vehicles will be the A.A.R.P monthly newsletter.

Walk-in customers will be targeted through advertisements in the local paper, "The Oregonian."  Ads will raise awareness for the The Discount Pharmacy and our low prices.

Current Alternatives

Competition takes many different forms in the pharmacy industry.

• Chain pharmacies.  These are state or national chains such as Rite-Aid.  The advantage to these chains are better prices through economies of scale, as well as personalized service.  The personalized service takes the form of the chain having a record of your medication purchases as well as any allergies that you have disclosed to them.
• Local pharmacies.   These are the pharmacies where you typically know the pharmacist and they know your medical history.  This option is high in personalized service and convenience, and high in price.
• Mail order and Internet pharmacies.  These are similar to The Discount Pharmacy.
• Canadian pharmacies.  These pharmacies are located in Canada where the cost of drugs is lower than in the U.S.  These pharmacies can be accessed through mail order, the Internet, or via travel.  Recently there has been the trend for trips arranged for senior citizens in Northern States to travel up to Canada for the day to pick up their medicines.

Our Advantages

The Discount Pharmacy’s competitive edge is superior pricing. To do that we must maintain our position as the low cost provider by painstakingly ensuring that costs are kept low through operating efficiencies.

We will be able to do that by eliminating some of the services traditionally offered by pharmacies. For example, we will employ only one pharmacist and use pharmaceutical technicians to fill the void. As long as a pharmacist is on site during the hours of operation, we can use the pharmaceutical techs for all other capacities where other pharmacies use pharmacists. Other efficiencies are created by having only a small store front and conducting most of our business through mail order.

Finally, The Discount Pharmacy is not designed to hold the patient’s hand during their purchase. We expect that the vast majority of our customers will already be informed of how to take the medication, and any side effects or drug interactions that should be avoided. We will simply provide each patient with a print out of all the relevant information for consumption of the medication.

Keys to Success

The keys to success are:

• Satisfy our customers so they will return again and again
• Maintain low overhead and operating costs
• Provide better prices than all our competitors

Marketing & Sales

Marketing plan.

The marketing strategy will be based on social media, mainly Facebook and Twitter, offering useful information and opinion while quietly appealing to the customer’s sense of value. The marketing campaign’s goal will to be increase awareness of The Discount Pharmacy with their target market.

The sales strategy will be based on generating long-term relationships with customers. To facilitate that, we will provide medications at superior prices, have medicines in stock for both quick shipment and store front pick up, and provide superior customer service. All sales agents will be trained to provide friendly, knowledgeable customer service. By keeping to these simple, yet effective, business practices, we expect that our customers will make The Discount Pharmacy their exclusive source for medications. For some, medications are an integral part of their lives, so establishing long-term relationships will ensure a large, loyal customer base

Milestones & Metrics

Milestones table, key metrics.

Our key metrics are: 

• The # of customers that walk in to the pharmacy 
• The # of customers that choose to mail in 
• The # of reviews saying that people could go to our pharmacy 
• Facebook page views, Twitter retweets  and website shares 
• Total customer traffic on the website 
• Total customer traffic in and out of the store 

Ownership & Structure

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Management Team

John Reeleaf has experience working with a major drug manufacturer, Eli Lilly, as a drug representative. He was able to see first hand the profitability associated with the prescription drug industry, as well as the inefficiencies with which most companies are plagued.

John graduated with an MBA from the University of Oregon’s innovative entrepreneurship program. While there he was awarded a $50,000 no interest loan through a business plan competition. That seed money will be parlayed, along with some other investments, into start up expenses for The Discount Pharmacy. John received an undergraduate degree in chemistry from the University of Oregon.

Personnel Table

Financial plan investor-ready personnel plan .">, key assumptions.

Key assumptions: 

Of course our main assumption is legality. Regulations affecting our business can change very fast. 

People appreciate:

• The mail in order option for their convenience 
• Prescription at affordable prices 

Revenue by Month

Expenses by month, net profit (or loss) by year, use of funds.

The Discount Pharmacy will incur the following start-up equipment costs:

• Office equipment including chairs, file cabinets, and desks.
• Front counter, storage bins, cash register.
• Three computer terminals.
• Main computer server with a laser printer, and back-up system.
• Software: Microsoft Office, QuickBooks Pro, drug interaction software, Physician Desk Reference software detailing side effects and other information pertinent to the customer.
• Assorted bottles, boxes, envelopes, etc. for dispensing and shipment.
• Scales for shipping.
• Telecom system.
• Storefront build-out.
• Start-up inventory.
• Rent, utilities, insurance.

Please note that these items will be used for more than one year and will therefore be labeled long-term assets, depreciated using G.A.A.P. approved straight-line depreciation.

Startup expenses – $24,100 listed as net earnings in dec 2017 

Start-up Expenses

Legal $1,000

Rent $2,000

Utilities  $400

Telecom System $400

Insurance $300

Storefront Build-out $15,000

Expensed Equipment $4,000

Website development $1,000

TOTAL START-UP EXPENSES $24,100

Sources of Funds

Planned Investment

Seed Funding $50,000

John $51,000

Friends and Family $82,100 

Projected Profit & Loss

Projected balance sheet, projected cash flow statement.

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Business Continuity Planning to Prevent Drug Shortages

As noted in the ISPE Drug Shortages Prevention Plan, 1 business continuity planning is a powerful, methodology, essential for enabling an uninterrupted supply of critical medicines for patients in challenging manufacturing circumstances. This “30,000-foot view” article shares an executive summary of principles and best practices of business continuity planning to ensure continued pharmaceutical supply.

• 1 International Society for Pharmaceutical Engineering. “ISPE Drug Shortages Prevention Plan: A Holistic View for Root Cause to Prevention.” October 2014. https://ispe.org/DrugShortagesPreventionPlan

While powerful, business continuity planning is not always leveraged optimally for preventing drug shortages because it can be difficult to initiate and maintain, particularly when future supply challenges may be unknown or unpredictable, and because it can require a significant investment of money, personnel, training, and other resources. However, over the lifespan of any company, unexpected challenges will inevitably surface. The COVID-19 pandemic is the most illustrative example of our times regarding how significant business continuity planning may be to ensuring uninterrupted supply of critical medicines, as the entire pharmaceutical industry has been challenged by both unprecedented demand and supply constraints globally.

It is understandable how immediate operations necessary to maintain routine supply to the market may be prioritized over proactive measures, which may never be needed or needed in the way that was originally anticipated. Yet it remains essential that pharmaceutical industry leaders pursue strategic approaches for business continuity planning because drug shortages may devastatingly impact patients and their families, as shown in the recent ISPE Drug Shortages Webinar, which described one pediatric cancer patient’s challenges from multiple drug shortages. 2

In recent years, large-scale events have motivated governments, health authorities, and patients to focus on the reasons behind supply disruptions. While many root causes are being explored, some markets are prioritizing business continuity planning for the prevention of drug shortages and making these plans a requirement in certain cases. 3 , 4  Any procedures established to meet these new requirements should be developed with sufficient flexibility to accommodate appropriate evolution of business continuity planning because the risks of today may not be the risks of tomorrow.

Approaches to Business Continuity Planning

The guidance presented in this article is intended to assist pharmaceutical leaders in striking the right balance between critical patient needs and the business investment for drug shortage prevention measures. In general, the concepts described herein apply to all types of pharmaceutical products, including active pharmaceutical ingredients (APIs), finished drugs, biologics, vaccines, medical devices, and combination products.

There are a number of excellent resources for business continuity planning. Notably, the ICH Guideline for Quality Risk Management Q9 5 serves as an important resource document for existing practices, standards, and guidelines within the pharmaceutical industry. As such, ICH Q9 concepts and terminology will be used throughout this overview.

At the outset of pursuing robust business continuity planning for preventing drug shortages, it is important to recognize this is not a one-time event. Rather, the four primary activities in business continuity planning—establishing product priority, evaluating risk to supply, developing mitigation options and agility strategy, and implementing response plans—will need to be revisited and adjusted as the product portfolio and business dynamics change over time (Figure 1). Therefore, companies should develop programs to support an ongoing refresh of their business continuity plans.

• 2 International Society for Pharmaceutical Engineering. “Resolving and Avoiding Drug Shortages and the Health Crises They Create” (webinar). 1 September 2020. https://ispe.org/webinars/video/resolving-avoiding-drug-shortages-health-crises-they-create-webinar>
• 3 Garnier, Y. “The French System for Preventing and Managing Shortages.” BlueReg Pharma Consulting. 28 May 2020. https://blue-reg.com/the-french-system-for-preventing-and-managing-shortages
• 4 Covington & Burling LLP. “CARES Act Reforms Aim to Prevent Shortages of Critical Medical Products.” 5 April 2020. https://www.cov.com/-/media/files/corporate/publications/2020/04/cares-act-reforms-aim-to-prevent-shortages-of-critical-medical-products.pdf
• 5 International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use. “ICH Harmonised Tripartite Guideline: Quality Risk Management Q9, Current Step 4 Version.” November 2005. https://database.ich.org/sites/default/files/Q9%20Guideline.pdf

Generally, the four stages of business continuity planning will proceed in the order shown in Figure 1; however, as patient needs develop or business or regulatory landscapes change, it may be appropriate to make targeted adjustments within any one of the four stages to ensure the best outcomes.

In each of the four stages, a strong partnership between functional areas within a company will be required for success. The functional areas typically involved in these activities are as follows:

• Customer relations
• External business partnerships
• Manufacturing
• Medical affairs
• Procurement
• Regulatory affairs
• Sales and marketing
• Supply chain
• Technical/manufacturing operations

Because many issues and decisions related to business continuity planning will be best addressed after input is considered from multiple functional areas, it is equally important to formally designate a business continuity planning team leader who will have the authority to exercise decisions on behalf of all. Figure 2 illustrates the key stages and decision points for business planning discussed in this article.

Establishing Product Priority

A foundational activity for business continuity planning is determining the priority of products. Not all products merit the same level of business continuity planning because the impact of supply disruptions is not equal for all products. Considering product priority becomes even more important when the resources required to develop business continuity plans may be constrained. The relative priority of each product will be more reliable if it has been determined by evaluating products individually, as well as across the portfolio of products for which the company is the marketing authorization holder (MAH). This is because there may be important connections between products, often business related, which can influence the priority of an individual product.

Three perspectives primarily drive prioritization of products: therapeutic importance, regulatory requirements, and business significance. Because of the numerous perspectives that must be considered within these three areas when establishing the product priority, the evaluation of priority is best completed as a cross-functional activity and experts in the business areas listed previously should be consulted.

Therapeutic Importance

The medical significance of a product for patients is the most significant consideration when determining that product’s overall priority. There are several ways to differentiate the therapeutic importance of a product (Figure 3). Applying one therapeutic assessment globally is usually not sufficient because a product may have different therapeutic value across various markets. Additionally, within or across markets, each dosage form and strength within a product family may not always have the same medical priority. Sometimes, a specific dosage form and strength is developed to provide convenience to the health provider or patient and, as a result, its unavailability may not be as impactful as shortages of other dosage forms and strengths.

Regulatory Requirements

Health authorities (also known as national competent authorities) and health organizations, such as the World Health Organization (WHO), can influence product priority significantly through their definitions of what products may be critical, essential, or life-saving for patients in certain markets. They may also designate medically significant products through a set of criteria or through a list of products. For example, the WHO has long maintained an Essential Medicines List. 6 Additionally, governments may establish incentives to prioritize products manufactured in a certain market. Typically, health authorities have higher expectations for risk management and business continuity planning for products deemed to be more significant in their market(s).

Currently, there is no harmonized definition across markets regarding what products are significant to the patients. 7 , 8 As a result, it is imperative that pharmaceutical companies have insight into the definitions or lists applicable for the markets where their products are sold, and which products may be assigned to a national stockpile. Notably, the priority may be dynamic in a market. For example, in a large-scale event, a product that is valuable for emergency use could rapidly become essential and in high demand.

In addition to considering all regulations and governmental expectations when assessing the priority of a product in each market, it is important for companies to maintain constructive interactions with health authorities. 9  This will ensure that a company is able to develop a strategic approach to meet requirements across all markets and be poised to engage with the health authorities prior to or at the outset of any significant supply disruption or emergency. Early communication on drug supply challenges, preferably before supply disruptions occur, will maximize the assistance the health authorities may be able to provide to mitigate or prevent a drug shortage.

Business Significance

Business significance of a product should be assessed both from the perspective of the overall revenue position for the company as well as the market share of the product. If a product is essential for a company’s revenues, there may be no financial tolerance to have product supply unavailable for even a day. On the other end of the spectrum, a product might be sold in very low volume and manufactured only once or twice per year. Beyond failure-to-supply costs, which may be written into supply agreements, a supply gap for a low-volume product may have minimal patient impact or business significance. However, even an absence of a small-volume product can create significant challenges for patients who may rely on it, which could then generate business challenge for a company if the health care provider or patient reaction to the absence of product generates unfavorable publicity and impacts the overall reputation of the company.

A market share analysis is an important activity to complete when determining business significance. It should include an analysis of how much market share the company holds for the product, as well as how interconnected the competing suppliers may be to the manufacturing nodes. Generally, if the market for a specific product is divided across at least three manufacturers, 10 a supply disruption from one manufacturer may not make a significant difference to the overall market. However, if the market share is divided unevenly and the manufacturer experiencing the supply disruption contributes significantly to the overall industry-wide inventory, the disruption may drive an industry-wide shortage and competitors may have insufficient capacity to increase manufacturing to address the supply gap. Additionally, a product may be a higher priority if any risks to supply would likely impact multiple suppliers (e.g., all companies use the same raw material supplier), and very quickly create an industry-wide gap.

Lastly, connections between products, either within the portfolio of one company (i.e., one MAH holder) or connections with a partner company, may need to be considered when establishing the business significance for each product. One product may be interdependent with other products due to marketing, regulatory quality, or manufacturing supply requirements or strategies. Depending on the nature of the connection, a product that may otherwise be of lower priority may become more significant because interruption in its supply may impact other products the company markets or the company’s partnerships with other companies.

Setting Business Continuity Planning Target Levels

As noted earlier, the appropriate level of business continuity planning will vary by product. For the purposes of establishing a target level of business continuity planning, all of the perspectives described previously will contribute to the final priority categorization. Low-priority products do not typically merit rigorous business continuity planning activities, but the activities may be completed on a discretionary basis based on the company’s goals or preferences. For products that have priority from any of the three perspectives of therapeutic importance, regulatory requirements, or business significance, companies will need to apply an appropriate level of rigor to the business continuity planning activities, based on the perspectives driving the priority (Figure 4).

• 6 World Health Organization. “WHO Model Lists of Essential Medicines.” 2020. https://www.who.int/medicines/publications/essentialmedicines/en
• 7 ISPE Drug Shortages Initiative Core Team. “ISPE Offers Platforms to Progress Continuity of Supply of ‘Essential’ Medicines.” 11 September 2020. https://ispe.org/pharmaceutical-engineering/ispeak/ispe-offers-platforms-progress-continuity-supply-essential
• 8 Persaud, N., M. Jiang, R. Shaikh, et al. “Comparison of Essential Medicines Lists in 137 Countries.” Bulletin of the World Health Organization 97 (2019):394––404C. doi:10.2471/BLT.18.222448
• 9 Tomeo, D., K. Hirshfield, and D. L. Hustead. “Engage with Health Authorities to Mitigate & Prevent Drug Shortages.” Pharmaceutical Engineering 40, no. 4 (2020): 36–41. https://ispe.org/pharmaceutical-engineering/july-august-2020/engage-health-authorities-mitigate-prevent-drug
• 10 World Health Organization. “Medicines Shortages.” WHO Drug Information 20, no. 2 (2016): 180–185. https://www.who.int/medicines/publications/druginformation/WHO_DI_30-2_Medicines.pdf?ua=1

Assessing Risk to Supply

Once the product priority is established for a product, the company can assess the risks to supply with a better gauge for the potential level of impact of any identified risks. The key learnings from establishing product priority should be considered during the risk assessment process.

Table 1 shows typical areas to consider during a risk assessment for the purposes of preventing shortages. The areas listed are not exhaustive and may not be applicable to every product or company. Each company will need to determine what may best be included in their assessment and should address any company-specific issues or perspectives. Risk assessment activities may not need to be as comprehensive for low-priority products, particularly when any correlating supply disruption may have minimal patient impact.

The assessment of areas of potential risk should address the fundamental questions posed in ICH Q9: 5

• What might go wrong?
• What is the probability it will go wrong?
• What are the consequences?

An informal survey of ISPE membership has indicated that companies use a wide range of off-the-shelf and custom-designed risk assessment procedures, tools, and technology. ICH Q9 Annex I provides an overview of common tools for identifying what might go wrong and what is the probability it will go wrong. Table 2 1 , 5 , 9 – 17 lists other valuable guidance resources available to assist with the assessment of risk in pharmaceutical manufacturing.

*At the time of publication of this article, a new guidance from the FDA regarding risk management plans to mitigate potential for drug shortages was anticipated, but not yet available.

Risk assessments generally evaluate risks to (a) the product, (b) business systems, and (c) operations, and assessments of these three areas may be completed either individually or as a combination activity. When business continuity planning is done for only one area (products, business systems, or operations), the preventive measures may fall woefully short because product supply, business systems, and operations can all be disrupted simultaneously, such as in large-scale events (e.g., hurricanes, earthquakes, pandemics).

Beyond evaluating manufacturing reliability and quality maturity, business continuity planning to avoid drug shortages may benefit from integration with any governance, risk management, and compliance (GRC) or enterprise risk management (ERM) activities already in place for the company. For example, regarding risk to operations, the transformative nature of the COVID-19 pandemic may increase the importance of completing financial viability assessments of business partners, with consideration paid to not only primary business partners but also secondary and tertiary business partners. If a company does not have a formal GRC or ERM program, industry experts and software are available provide guidance suited to the needs of the organization. 18 , 19 , 20

Mitigation Options

The outcome of assessing risk to supply should be a road map of the key risks for the products, business systems, and operations to drive the selection of an appropriate business continuity approach.

A robust response plan should include both traditional mitigation options, such as redundancy of operations or increased inventory for safety stock, and agility strategy. Agility, as defined herein, is applied in the absence of an immediate back-up facility or inventory stockpile and should enable quick operational reactions to ensure resiliency for continued supply. It requires advanced, forward thinking and preparation to be successful. A well-designed agility strategy can be equally successful as redundancy; however, because agility strategy is by nature infrequently practiced, if it all, there may be some unexpected variation in the outcomes when activated. An appropriate blend of redundancy and agility will typically provide the best resiliency for continued supply. Figure 5 provides insight into the key considerations when selecting the best target on the business continuity planning options spectrum.

• 17 a b International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use. “ICH Harmonised Tripartite Guideline: Pharmaceutical Quality System Q10, Current Step 4 Version.” 4 June 2008. https://database.ich.org/sites/default/files/Q10%20Guideline.pdf
• 11 US Food and Drug Administration. “Drug Shortages: Root Causes and Potential Solutions.” Updated 21 February 2020. https://www.fda.gov/media/131130/download
• 12 European Medicines Agency. “Guidance on Detection and Notification of Shortages of Medicinal Products for Marketing Authorisation Holders (MAHs) in the Union (EEA).” July 2019. https://www.ema.europa.eu/en/documents/regulatory-procedural-guideline/guidance-detection-notification-shortages-medicinal-products-marketing-authorisation-holders-mahs_en.pdf
• 13 International Organization for Standardization. “ISO 14971:2019 Medical Devices—Application of Risk Management To Medical Devices.” December 2019. https://www.iso.org/standard/72704.html
• 14 World Health Organization. “Technical Consultation on Preventing and Managing Global Stock Outs of Medicines.” 8–9 December 2015. https://www.who.int/medicines/areas/access/Medicines_Shortages.pdf?ua=1
• 15 International Society for Pharmaceutical Engineering. “ISPE Drug Shortage Assessment and Prevention Tool.” 2015. https://ispe.org/sites/default/files/initiatives/drug-shortages/drug-shortage-assessment-tool-watermarked-307240.pdf
• 16 Parenteral Drug Association. Risk-Based Approach for Prevention and Management of Drug Shortages. PDA Technical Report no. 68. Bethesda, MD: Parenteral Drug Association, 2014.
• 18 Consultancy.org. “Global Risk Consulting Market Nears $70 Billion, Top 30 Consultancy Firms.” 13 December 2018. https://www.consultancy.org/news/101/global-risk-consulting-market-nears-70-billion-top-30-consultancy-firms
• 19 Gartner Peer Insights. “Integrated Risk Management (IRM) Solutions.” Accessed 26 December 2020. https://www.gartner.com/reviews/market/integrated-risk-management
• 20 G2. “Best GRC Platforms.” 12 August 2020. https://www.g2.com/categories/grc-platforms

Securing backup facilities or materials for pharmaceutical production or stockpiling inventory are longstanding redundancy options to ensure product supply. Although redundancy is well defined and generates expected results, it is costly due to necessary operational overhead. Unexpected complexity may also develop when a company maintains additional facilities, sources of supply, or inventory. Additionally, an adequate number of trained staff and practice runs for back-up operations are necessary to ensure a successful and timely transition to the redundant option, when needed. In some cases, limitations on the number of suppliers or raw material sources mean that redundant facilities or sources of supply are very difficult or impossible to achieve.

Given the implementation challenges or significant investment required to achieve redundancy or stockpiling, they are not always the best options for the manufacturing of every product or every step of manufacture of an individual product. For example, redundancy or stockpiling may not be appropriate for products that are deemed low priority for business continuity planning or products that involve few supply chain risks. Quite often, the decision for the best approach will require input from the various business areas listed earlier (customer relations, external business partnerships, legal, manufacturing, and so on). Because options analysis can quickly become complex, tools such as a decision-matrix method (e.g., Pugh matrix) 21 , 22 may help to guide selection of the best business continuity planning approach.

An important financial perspective to consider for business continuity plan decisions is that, as a general rule, it is better to decrease the level of bound capital along the supply chain from raw materials to API to bulk to the finished goods level because this may decrease the financial impact of the business continuity plan. Increasing inventory of raw materials, API, etc., at the earlier nodes of the supply chain will typically ensure lower, more efficient levels of finished product inventory. It is usually most cost-effective to have a second source for raw materials, excipients, and APIs and only stockpile the finished goods to the level required to meet the marketed forecast. Idle capacity cost should also be considered in the overall investment calculation during the establishment of a contingency plan.

Once redundancy and stockpiling decisions are made, operational agility will need to be developed to offset remaining risk for holistic business continuity planning. Agility requires a company to establish practices and processes to ensure they can address issues when they have occurred. Excelling in agility will allow a manufacturer to quickly pivot operations to maintain supply, such as increasing production or using alternative operations or materials to maintain product supply. Six Sigma 23 methodology may be helpful in evaluating and establishing appropriate agility approaches.

Key areas for agility strategy are supply chain, quality, strategic processes, business relationships, technology, regulatory, and metrics. The following are examples of how agility may be achieved in these areas.

• Advance thinking about potentially appropriate alternate suppliers (e.g., for raw materials, API, or finished product) can give a company a head start when faced with how to rapidly work with an alternate supplier that is not registered. Robust due diligence activities and well-maintained vendor qualification programs and supplier arrangements are recommended, as they may provide invaluable insights about timely and viable options amid an unexpected supply interruption.
• Companies that can quickly and completely understand the interconnectedness of a product and operations with other products and end markets have superior strategic options to redirect inventory to address market-specific supply disruptions.
• Diversification of suppliers may ensure continuous supply. There are signs that a shifting manufacturing footprint may be on the horizon, particularly due to the impact of COVID-19 on the pharma industry. 24 , 25
• Quality failures are the root cause for a significant number of drug shortages; 11 , 26  therefore, it is particularly important to ensure a robust pharmaceutical quality system (PQS) 17  across the life cycle of a product.
• A mature PQS—particularly in the areas of change management, monitoring, nonconformance investigations, corrective and preventive actions, complaint handling, and knowledge management—should identify early any issues that may impact continuous pharmaceutical supply, and this allows companies to implement appropriate and timely corrective actions to either mitigate or prevent a drug shortage.
• Lessons learned from regulatory inspections should provide opportunities for continual quality improvement.
• When developing manufacturing operations, it may be advantageous to group products with similar excipients to facilitate quick manufacturing switch outs. Having the ability to quickly ramp up one set of products and ramp down others could help companies mitigate a potential shortage situation.
• Challenging the system or operational practices periodically, based on lessons learned or other company experiences, can proactively identify new risks.
• Developing strong relationships with suppliers and contract manufacturing organizations (CMOs) to understand issues early is invaluable in ensuring the best outcomes for potential or actual supply disruptions.
• Having the ability to quickly start manufacture of a product at a CMO through contracts, foundational qualification work, and training (often referred to as a warm start 26 ) is an agile version of redundancy.
• Companies may want to establish relationships with competitors, so they may partner during significant supply disruptions to temporarily provide patients with an alternate source of supply.
• It can be challenging to use new technologies (e.g., continuous manufacturing) or an alternate type of existing technology (as described in scale-up and post-approval changes [SUPAC] guidance 27 , 28 , 29 , 30 , 31 for existing products. However, completing foundational development work for new or alternate technology before shortage event occurs may give a company a shorter runway for restart and may help the company adjust to increased demand.
• A well-planned regulatory strategy for registration dossiers may be a powerful way to mitigate or prevent drug shortages. As an example, ICH Q12 (Technical and Regulatory Considerations for Pharmaceutical Product Lifecycle Management) 32  describes post-approval change management protocols (PACMPs) for registrations that may potentially alleviate post-approval change requirements. With the appropriate level of process and product understanding, PACMPs may be instrumental in ensuring continuous supply. Therefore, investing in upfront development and regulatory work for agility purposes can be foundational to success.
• Well-developed practices and procedures for engaging health authorities in advance of supply disruptions may help companies mitigate or prevent drug shortages because with early enough insight into an event that may disrupt drug supply, regulators may be able to provide pivotal assistance to help the company address the issue.
• Metrics to assess agility may or may not be needed and should be established as appropriate on a case--by-case basis. That said, traditional metrics are very valuable and will often help companies know when agility strategy may need to be employed. Traditional metrics closely linked to drug shortage identification and prevention are quality measures and demand forecasting. See the ISPE Drug Shortage Prevention Plan 1 for a more in-depth discussion of important metrics.
• Companies may want to establish a target timeline for transitioning to alternate supply options defined in business continuity plans. This may help companies better understand the overall impact of such transitions and whether predefined mitigation will be sufficient to address a supply disruption event.

Implementing, Monitoring, and Refreshing Response Plans

After the mitigation options and agility strategy are determined, the business continuity plan should be summarized and communicated across the company. Communication tools should include risk control documentation. Additionally, there may be a need to prioritize the implementation of the business continuity plans if multiple plans are established simultaneously.

The completion of the business continuity plan and communication of it are certainly noteworthy milestones to celebrate, but they are not the last steps. As noted earlier, circumstances for product supply may change over time, and these changes may impact the outcome of any of the business continuity activities described in the plans. As a result, planning is not a one-time project. However, companies with larger portfolios of products or limited staff may find it unsustainable to routinely reevaluate product priority, supply risks, and the resulting product response plan for each product. Therefore, it is essential to establish a process for a periodic review of changes in circumstances that may impact the risk outlook for supply of one or more products and merit a change to the established response plan. Though this process may vary by company, it is important to develop an event-based trigger to prompt interim reviews. Some key triggers are presented in Figure 6.

• 21 American Society of Quality. “Quality Resources: Decision Matrix.” Accessed 26 December 2020. https://asq.org/quality-resources/decision-matrix
• 22 Bouza-Rodríguez, J. B., A. Comesaña-Campos, and A. Menéndez-Díaz. “A Graphical Method to Assist Quality Decisions Throughout the Product Development Process.” Quality Engineering 26, no. 4 (2014): 467–478. https://asq.org/quality-resources/articles/a-graphical-method-to-assist-quality-decisions-throughout-the-product-development-process?id=8a0f57c336cb484b9784d9b948e4f412
• 23 Shanley, A. “Reinventing Lean Six Sigma for the Pharmaceutical Industry.” Pharmaceutical Technology 41, no. 10 (2017). https://www.pharmtech.com/view/reinventing-lean-six-sigma-pharmaceutical-industry
• 24 PwC. “Beyond China: US Manufacturers Are Sizing Up New and Cost-Efficient Global Footprints.” July 2020. https://www.pwc.com/us/en/library/fit-for-growth/assets/ffg-industrial-supply-chain-footprint.pdf
• 25 Steinberg, G. “COVID-19: How to Forge a Supply Chain that Withstands Severe Shocks.” Ernst & Young Global Limited. 27 November 2020. https://www.ey.com/en_us/consulting/how-to-forge-a-supply-chain-that-withstands-severe-shocks
• 26 a b Pew Charitable Trusts and the International Society for Pharmaceutical Engineering. “Drug Shortages An Exploration of the Relationship between U.S. Market Forces and Sterile Injectable Pharmaceutical Products: Interviews with 10 Pharmaceutical Companies.” January 2017. https://www.pewtrusts.org/-/media/assets/2017/01/drug_shortages.pdf
• 27 U.S. Food and Drug Administration. “Guidance for Industry: Immediate Release Solid Oral Dosage Forms; Scale-Up and Postapproval Changes: Chemistry, Manufacturing, and Controls, In Vitro Dissolution Testing, and In Vivo Bioequivalence Documentation.” November 1995. https://www.fda.gov/media/70949/download
• 28 U.S. Food and Drug Administration. “Guidance Document: SUPAC-IR: Questions and Answers about SUPAC-IR Guidance.” February 1997. https://www.fda.gov/regulatory-information/search-fda-guidance-documents/supac-ir-questions-and-answers-about-supac-ir-guidance
• 29 U.S. Food and Drug Administration. “Guidance for Industry: Nonsterile Semisolid Dosage Forms; Scale-Up and Postapproval Changes: Chemistry, Manufacturing, and Controls; In Vitro Release Testing and In Vivo Bioequivalence Documentation.” May 1997. https://www.fda.gov/media/71141/download
• 30 U.S. Food and Drug Administration. “Guidance for Industry: SUPAC-MR: Modified Release Solid Oral Dosage Forms; Scale-Up and Postapproval Changes: Chemistry, Manufacturing, and Controls; In Vitro Dissolution Testing and In Vivo Bioequivalence Documentation.” September 1997. https://www.fda.gov/media/70956/download
• 31 U.S. Food and Drug Administration. “SUPAC: Manufacturing Equipment Addendum: Guidance for Industry.” December 2014. https://www.fda.gov/media/85681/download
• 32 International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use. “ICH Harmonised Tripartite Guideline: Technical and Regulatory Considerations for Pharmaceutical Product Lifecycle Management Q12: Final Version.” 20 November 2019. https://database.ich.org/sites/default/files/Q12_Guideline_Step4_2019_1119.pdf

Because changes in circumstances may occur in many areas of the business, convening a multifunctional business continuity task force for periodic reviews of potential changes may provide the best opportunity to identify where modifications to a response plan may be warranted. The functional areas listed earlier in the article should be considered when assigning team members to a business continuity task force.

It is important to select key metrics such as demand forecast, supply metrics, capacity, and inspection results that can provide early warnings of potential issues, and develop a plan for how the business continuity task force will monitor these metrics. Additionally, insight into key changes for each area will be needed. Processes should be established in each of the functional areas for how to escalate changes that may have significance to the business continuity plans and are therefore important for the task force to review. The processes should leverage existing systems, such as the quality change control process, for maximum efficiency and effectiveness.

After the periodic analysis is complete, a plan for refreshing impacted response plans should be developed. Additionally, the status of implementation of all business continuity plans and related updates should be monitored by the business continuity task force.

Lastly, and very importantly, any use of established business continuity plans to address an unexpected supply disruption will present an opportunity for evaluating how well the plans worked and if any adjustments should be made. In the absence of actual events, the business continuity plans may also be challenged with announced or unannounced practice runs. The business continuity task force should lead efforts to execute or challenge the business continuity plans and to evaluate the resulting lessons learned.

Health Authority Communications

Health authority interactions and communications are an identified component in the quality risk management process in ICH Q9 and may occur at any point during the different stages of business continuity planning or execution. With respect to ensuring continuity of drug supply, it is important to recognize that regulations are in place to ensure the safety, efficacy, and quality of pharmaceutical products. However, it may be riskier for patients to go without a drug, due to supply disruptions, than to use a drug that does not meet all regulatory provisions. Sometimes, the issue driving the supply disruption will have little or no bearing on the safety, efficacy, or quality of the product, or the issue may be addressed in an innovative way that is not covered by the registered application. Therefore, it is important that MAHs consider all options to achieve responsible regulatory compliance that keeps the benefit/risk profile of the patient at the forefront, and interact candidly with health authorities to determine the most appropriate path forward during challenging circumstances.

This article summarizes key stages and decision points for successful business continuity planning to mitigate and prevent drug shortages, and the foundational concepts described are aligned with ICH Q9 guideline, Quality Risk Management. 5 The approach was developed from across company experiences and has benefited from preliminary learnings from the COVID-19 pandemic. It will be reviewed and updated, if required, based on further learnings emerging from industry interactions and regulatory feedback.

Each drug shortage event presents unique challenges and opportunities for improvement, and the events related to COVID-19 are no exception. One of the many outcomes of the COVID-19 pandemic has been that companies have needed to rely on business continuity planning to be more flexible and sharpen their focus on ways to ensure continuous supply of critical medicines. When we overcome these difficult times, it will be important to understand which business continuity measures worked well during this enormous, global event and which did not. There will also be an important opportunity to identify which manufacturing or business practices developed during the pandemic may be appropriate to implement routinely for greater effectiveness in the supply chain overall. Exciting new directions and enduring solutions for preventing and mitigating drug shortages may be achieved, and this constant evolution in the business continuity planning space should always be embraced.

The ISPE Drug Shortages Team is a team of multidisciplinary experts who seek to assist ISPE membership, industry, and regulatory collaborations to reduce drug shortages globally through technology, quality, and manufacturing innovation and regulatory compliance. This team is actively monitoring developments related to drug shortages and is available to respond to any associated questions. We welcome input on best practices to support the continuity of supply and decision-making regarding actual or potential drug shortages.

Larger versions of the figures in this article are available here: Business Continuity Planning to Prevent Drug Shortages figures

Acknowledgment

The ISPE Drug Shortage Initiative Team collectively developed the content for this article and special recognition is extended to the following contributors:

James Canterbury, Principal, Ernst & Young LLP, Iselin, NJ

Dawn Culp, BS, Hikma Pharmaceuticals USA, Inc., Berkeley Heights, NJ

Nasir Egal, PhD, Sanofi, Washington, DC

Erin R. Fox, PharmD, University of Utah Health, Salt Lake City, UT

Jean Francois Duliere, Pharmaceutical Senior Expert and Consultant, Paris, France

Emma Harrington, Moderna, Norwood, MA,

Drishya Nair, MS, Ernst & Young US LLP, Iselin, NJ

Terrance Ocheltree, PhD, RPh, Corium, Inc., Libertyville, IL

Christopher J. Potter, CMC Pharmaceutical Consultant, Marlborough, UK

Thomas Zimmer, PhD, ISPE Vice President, European Operations , Harxheim, GER

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The Congressional spotlight on the company has rattled the pharmaceutical industry, which is already struggling with widespread drug shortages now at a 20-year high . Some biotech executives have pushed back, trying to impress on Congress that a sudden decoupling could take some drugs out of the pipeline for years.

WuXi AppTec and an affiliated company, WuXi Biologics grew rapidly, offering services to major U.S. drugmakers that were seeking to shed costs and had shifted most manufacturing overseas in the last several decades.

WuXi companies developed a reputation for low-cost and reliable work by thousands of chemists who could create new molecules and operate complex equipment to make them in bulk. By one estimate, WuXi has been involved in developing one-fourth of the drugs used in the United States. WuXi AppTec reported earning about $3.6 billion in revenue for its U.S. work.

“They have become a one-stop shop to a biotech,” said Kevin Lustig, founder of Scientist.com, a clearinghouse that matches drug companies seeking research help with contractors like WuXi.

WuXi AppTec and WuXi Biologics have also received millions of dollars in tax incentives to build sprawling research and manufacturing sites in Massachusetts and Delaware that local government officials have welcomed as job and revenue generators. One WuXi site in Philadelphia was working alongside a U.S. biotech firm to give patients a cutting-edge therapy that would turbocharge their immune cells to treat advanced skin cancers.

The tension has grown since February, when four lawmakers asked the Commerce, Defense and Treasury Departments to investigate WuXi AppTec and affiliated companies, calling WuXi a “giant that threatens U.S. intellectual property and national security.”

A House bill called the Biosecure Act linked the company to the People’s Liberation Army, the military arm of the Chinese Communist Party. The bill claims WuXi AppTec sponsored military-civil events and received military-civil fusion funding.

Richard Connell, the chief operating officer of WuXi AppTec in the United States and Europe, said the company participates in community events, which do not “imply any association with or endorsement of a government institution, political party or policy such as military-civil fusion.” He also said shareholders do not have control over the company or access to nonpublic information.

Last month, after a classified briefing with intelligence staff, the Senate homeland security committee advanced a bill by a vote of 11 to 1: It would bar companies from receiving government contracts for work with Wuxi, but would allow the companies to still obtain contracts for unrelated projects. Government contracts with drugmakers are generally limited, though they were worth billions of dollars in revenue to companies that responded to the Covid-19 pandemic.

Mr. Connell defended the company’s record, saying the proposed legislation “relies on misleading allegations and inaccurate assertions against our company.”

WuXi operates in a highly regulated environment by “multiple U.S. federal agencies — none of which has placed our company on any sanctions list or designated it as posing a national security risk,” Mr. Connell said. WuXi Biologics did not respond to requests for comment.

Smaller biotech companies, which tend to rely on government grants and have fewer reserves, are among the most alarmed. Dr. Jonathan Kil, the chief executive of Seattle-based Sound Pharmaceuticals, said WuXi has worked alongside the company for 16 years to develop a treatment for hearing loss and tinnitus, or ringing in the ear. Finding another contractor to make the drug could set the company back two years, he said.

“What I don’t want to see is that we get very anti-Chinese to the point where we’re not thinking correctly,” Dr. Kil said.

It is unclear whether a bill targeting WuXi will advance at all this year. The Senate version has been amended to protect existing contracts and limit supply disruptions. Still, the scrutiny has prompted some drug and biotechnology companies to begin making backup plans.

Peter Kolchinsky, managing partner of RA Capital Management, estimated that half of the 200 biotech companies in his firm’s investment portfolio work with WuXi.

“Everyone is likely considering moving away from Wuxi and China more broadly,” he said in an email. “Even though the current versions of the bill don’t create that imperative clearly, no one wants to be caught flat-footed in China if the pullback from China accelerates.”

The chill toward China extends beyond drugmakers. U.S. companies are receiving billions of dollars in funding under the CHIPS Act, a federal law aimed at bringing semiconductor manufacturing stateside.

For the last several years, U.S. intelligence agencies have been warning about Chinese biotech companies in general and WuXi in particular. The National Counterintelligence and Security Center, the arm of the intelligence community charged with warning companies about national security issues, raised alarms about WuXi’s acquisition of NextCODE, an American genomic data company.

Though WuXi later spun off that company, a U.S. official said the government remains skeptical of WuXi’s corporate structure, noting that some independent entities have overlapping management and that there were other signs of the Chinese government’s continuing control or influence over WuXi.

Aides from the Senate homeland security committee said their core concerns are about the misuse of Americans’ genomic data, an issue that’s been more closely tied to other companies named in the bill.

Aides said the effort to discourage companies from working with WuXi and others was influenced by the U.S. government’s experience with Huawei, a Chinese telecommunications giant. By the time Congress acted on concerns about Huawei’s access to Americans’ private information, taxpayers had to pay billions of dollars to tear Huawei’s telecommunication equipment out of the ground.

Yet WuXi has far deeper involvement in American health care than has been discussed in Congress. Supply chain analytics firms QYOBO and Pharm3r, and some public records, show that WuXi and its affiliates have made the active ingredients for critical drugs.

They include Imbruvica, a leukemia treatment sold by Janssen Biotech and AbbVie that brought in $5.9 billion in worldwide revenue in 2023. WuXi subsidiary factories in Shanghai and Changzhou were listed in government records as makers of the drug’s core ingredient, ibrutinib.

Dr. Mikkael A. Sekeres, chief of hematology at the University of Miami Health System, called that treatment for chronic lymphocytic leukemia “truly revolutionary” for replacing highly toxic drugs and extending patients’ lives.

Janssen Biotech and AbbVie, partners in selling the drug, declined to comment.

WuXi Biologics also manufactures Jemperli, a GSK treatment approved by the Food and Drug Administration last year for some endometrial cancers. In combination with standard therapies, the drug improves survival in patients with advanced disease, said Dr. Amanda Nickles Fader, president of the Society of Gynecologic Oncology.

“This is particularly important because while most cancers are plateauing or decreasing in incidence and mortality, endometrial cancer is one of the only cancers globally” increasing in both, Dr. Fader said.

GSK declined to comment.

The drug that possibly captures WuXi’s most significant impact is Trikafta, manufactured by an affiliate in Shanghai and Changzhou to treat cystic fibrosis, a deadly disease that clogs the lungs with debilitating, thick mucus. The treatment is credited with clearing the lungs and extending by decades the life expectancy of about 40,000 U.S. residents. It also had manufacturers in Italy, Portugal and Spain.

The treatment has been so effective that the Make-A-Wish Foundation stopped uniformly granting wishes to children with cystic fibrosis. Trikafta costs about $320,000 a year per patient and has been a boon for Boston-based Vertex Pharmaceuticals and its shareholders, with worldwide revenue rising to $8.9 billion last year from $5.7 billion in 2021, according to a securities filing .

Trikafta “completely transformed cystic fibrosis and did it very quickly,” said Dr. Meghan McGarry, a University of California San Francisco pulmonologist who treats children with the condition. “People came off oxygen and from being hospitalized all the time to not being hospitalized and being able to get a job, go to school and start a family.”

Vertex declined to comment.

Two industry sources said WuXi plays a role in making Eli Lilly’s popular obesity drugs. Eli Lilly did not respond to requests for comment. WuXi companies also make an infusion for treatment-resistant H.I.V., a drug for advanced ovarian cancer and a therapy for adults with a rare disorder called Pompe disease.

WuXi is known for helping biotech firms from the idea stage to mass production, Dr. Kolchinsky said. For example, a start-up could hypothesize that a molecule that sticks to a certain protein might cure a disease. The company would then hire WuXi chemists to create or find the molecule and test it in petri dishes and animals to see whether the idea works — and whether it’s safe enough for humans.

“Your U.S. company has the idea and raises the money and owns the rights to the drug,” Dr. Kolchinsky said. “But they may count on WuXi or similar contractors for almost every step of the process.”

WuXi operates large bioreactors and manufactures complex peptide, immunotherapy and antibody drugs at sprawling plants in China.

WuXi AppTec said it has about 1,900 U.S. employees. Officials in Delaware gave the company $19 million in tax funds in 2021 to build a research and drug manufacturing site that is expected to employ about 1,000 people when fully operational next year, public records and company reports show.

Mayor Kenneth L. Branner Jr. of Middletown, Del., called it “one of those once-in-a-lifetime opportunities to land a company like this,” according to a news report when the deal was approved.

In 2022, the lieutenant governor of Massachusetts expressed a similar sentiment when workers placed the final steel beam on a WuXi Biologics research and manufacturing plant in Worcester. Government officials had approved roughly $11.5 million in tax breaks to support the project. The company announced this year that it would double the site’s planned manufacturing capacity in response to customer demand.

And in Philadelphia, a WuXi Advanced Therapies site next to Iovance Biotherapeutics was approved by regulators to help process individualized cell therapies for skin cancer patients. Iovance has said it is capable of meeting demand for the therapies independently.

By revenue, WuXi Biologics is one of the top five drug development and manufacturing companies worldwide, according to Statista , a data analytics company. A WuXi AppTec annual report showed that two-thirds of its revenue came from U.S. work.

Stepping away from WuXi could cause a “substantial slowdown” in drug development for a majority of the 105 biotech companies surveyed by BioCentury , a trade publication. Just over half said it would be “extremely difficult” to replace China-based drug manufacturers.

BIO, a trade group for the biotechnology industry, is also surveying its members about the impact of disconnecting from WuXi companies. John F. Crowley, BIO’s president, said the effects would be most difficult for companies that rely on WuXi to manufacture complex drugs at commercial scale. Moving such an operation could take five to seven years.

“We have to be very thoughtful about this so that we first do no harm to patients,” Mr. Crowley said. “And that we don’t slow or unnecessarily interfere with the advancement of biomedical research.”

Julian E. Barnes contributed reporting, and Susan C. Beachy contributed research.

Christina Jewett covers the Food and Drug Administration, which means keeping a close eye on drugs, medical devices, food safety and tobacco policy. More about Christina Jewett

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Manufacturing business plans for private nuclear reactor in Butte

A private nuclear power plant could come to Butte. The company behind the plan said it has backing from local government.

Butte-Silver Bow commissioners at a recent meeting were enthusiastic about the nuclear energy proposal from XGen Holdings and the manufacturing jobs it could bring.

Butte-Silver Bow Chief Executive J.P. Gallagher told commissioners he’d been working with the company for several months on the project and said the state was also aware of it.

“This is real. This is an opportunity for Butte-Silver Bow. It’s something I think I can stand behind and I can support,” Gallagher said.

XGen Holdings President Christian Barlow said he intends to purchase 160 acres of land west of Butte to headquarter his company and its manufacturing plants.

He said Westinghouse Electric Corporation agreed to build a small, modular nuclear reactor to power his operation. While discussing the proposal, Barlow told commissioners the following:

“We’ve already talked with the NRC, which is the federal regulation for nuclear power plants. We have talked with them; we have already been greenlit to build here. We do have NRC’s blessing. We’ve gone through a lot of that vetting process already.”

However, after the initial publication of this story, Nuclear Regulatory Commission public affairs officer Scott Burnell told MTPR the agency has not approved the nuclear reactor XGen Holdings described, and that the agency is not reviewing any applications for the reactor from XGen Holdings.

Burnell’s full statement is below:

“There are no applications for XGen before the NRC. There are no approvals from the NRC for the project XGen has described.

The NRC is in early discussions with Westinghouse for the designs that XGen has mentioned. Those are early discussions. There is no application under review for either design. For the micro-reactor that was part of the discussion, the NRC is in “pre-application” discussions with Westinghouse. The company is providing individual pieces of information that, in the future, could be part of an application. But there is nothing in front of the agency that would approve that design for use.”

MTPR reached out to XGen Holdings president Christian Barlow and Butte-Silver Bow Chief Executive J.P. Gallagher and requested clarification on Barlow’s comments.

XGen’s proposed manufacturing plants would build products used in night-vision goggles and air filtration.

Barlow also told commissioners that because the modular nuclear reactors are mobile and air-cooled, the county would not have to “deal with” waste.

Barlow said he intends to have the first reactors online by January 2026. State lawmakers in 2021 repealed a policy that required any proposal for nuclear power to go before voters.

Public funds to incentivise manufacturing and clean energy projects, Prime Minister Anthony Albanese says

Live Moment Public funds to incentivise manufacturing and clean energy projects, Prime Minister Anthony Albanese says

Prime Minister Anthony Albanese says Australia must stay in the "global race" for jobs, as he prepares to detail a taxpayer-funded incentive scheme for advanced manufacturing and clean energy projects.

The "Future Made in Australia Act" will seek to compete with US President Joe Biden's massive spending plans under the US Inflation Reduction Act.

Mr Albanese said it would consolidate existing efforts under one banner, including Hydrogen Headstart, Solar Sunshot and the government's $15 billion National Reconstruction Fund.

"We know during the pandemic, we learnt the risks of what happens if we're cut off from trade. We can't afford to not be able to stand on our own two feet," Mr Albanese told Channel Seven.

"And we saw manufacturing leave this country in the 70s and 80s. We want to bring it back."

The prime minister will make the case for the Future Made in Australia Act in a major speech on Thursday, setting out his agenda for the next year leading up to an election.

He will warn Australia's economy will suffer without greater government intervention, as other nations draw "an explicit link between economic security and national security".

Mr Biden's landmark Inflation Reduction Act includes hundreds of billions of dollars in tax breaks and subsidies over the next decade, aimed at boosting clean energy infrastructure and encouraging high-tech manufacturing.

"Obviously, Australia cannot go dollar for dollar with the United States' Inflation Reduction Act," speech notes provided by the prime minister's office state.

"But this is not an auction – it's a competition.

"And Australian can absolutely compete for international investment when it comes to our capacity to produce outcomes, the quality of our policies and the power of our incentives."

The federal government has been urged to do more to entice investment in renewable energy and critical industries, amid warnings the US could hoover up available international capital under its own plans.

The prime minister has frequently referred to his desire to see Australia step up in areas such as battery and solar panel manufacturing, harnessing the materials mined in Australia but currently exported overseas for processing.

Mr Albanese will reference efforts from the US, European Union, Japan, South Korea and Canada to strengthen their own critical industries.

"All these countries are investing in their industrial base, their manufacturing capability and their economic sovereignty," the prime minister is expected to say.

"This is not old-fashioned protectionism or isolationism – it is the new competition.

"These nations are not withdrawing from global trade or walking away from world markets or the rules-based order, and let me be clear, nor should Australia."

Live Moment

Look back at how ABC readers and other Australians responded to this live moment.

That concludes the PM's address

Thanks for joining us for the live moment.

We'll leave our live coverage here.

How will the new act impact the economy?

The PM has been asked:

How do you expect the plan you unveiled today to impact the economy at a time when inflation is approaching the RBA's target range?

Here's what Mr Albanese says:

"It is about encouraging private sector investment, it is about making sure as well that all of the measures that we have put in place, including all of our cost of living measures, have been aimed at areas that would not contribute to inflation."

The risk of increasing power prices

The PM has been asked whether there is a risk an energy transition would be costly and cause power prices to increase.

"That is what is driving the change," Albanese says. "In terms of where that new investment will go. So we want to create an environment whereby we provide support but we acknowledge the importance of market mechanisms and what that means is investment in renewables will lead to cheaper power because that is what every economist tells us."

Wondering what this is? Join us next time we're live and be part of the discussion.

Not the invisible hand, nor heavy-handed either, PM argues

In a pre-emptive strike against critics who would argue against taxpayer funds being spent, Mr Albanese will make the argument that Australia's partners are "moving to the beat of a new economic reality."

"None of this is merely being left to market forces or trusted to the invisible hand," he is expected to say.

"The heavy lifting of economic transition and industrial transformation is not being done by individuals, companies or communities on their own.

"It is being facilitated, enabled and empowered by national governments from every point on the political spectrum.

"Because this is not about ideology, it's about opportunity – and urgency."

The Future Made in Australia Act would focus on boosting investment in areas such as rare earths mining and processing, hydrogen and solar energy production.

"We recognise that for Australians to share fully in the rewards, government needs to be prepared to use its size and strength and strategic capacity to absorb some of the risk," the speech notes state.

"Only government has the resources to do that, only government can draw together the threads from across the economy and around our nation."

Casting forward to budget

Ahead of the federal budget on May 14, the prime minister will argue the policy complements other measures, such as revised income tax cuts, to improve productivity across the country.

"The first four years of this decade have tested the resilience of our economy and our society alike," he is expected to say.

"Alongside the devastation of floods and bushfires, Australia has endured a once-in-a-century global pandemic and the biggest international energy crisis in 50 years.

"Government needs to have this same capacity to respond and adapt, to anticipate change – and shape it – when it comes to building for the future."

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Company that made millions of defective sleep apnea machines ordered to overhaul manufacturing

FILE - Jeffrey Reed, who experienced persistent sinus infections and two bouts of pneumonia while using a Philips CPAP machine, poses with the device at his home, Oct. 20, 2022, in Marysville, Ohio. The company responsible for a global recall of sleep apnea machines will be barred from resuming production at U.S. facilities until it meets a number of safety requirements under a long-awaited settlement announced Tuesday, April 9, 2024 by federal officials. (AP Photo/Jay LaPrete, file)

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WASHINGTON (AP) — The company responsible for a global recall of sleep apnea machines will be barred from resuming production at U.S. facilities until it meets a number of safety requirements, under a long-awaited settlement announced Tuesday by federal officials.

Philips will be required to overhaul its manufacturing and quality control systems and hire independent experts to vet the changes, according to a court order announced by the U.S. Department of Justice. The company must also continue to replace, repair or provide refunds to all U.S. customers who got the defective devices, the department said.

The action is a major step toward resolving one of the biggest medical device recalls in history, which has dragged on for nearly three years.

Most of the devices recalled are continuous positive airway pressure, or CPAP , machines. They force air through a mask to keep mouth and nasal passageways open during sleep. Left untreated, sleep apnea can lead to dangerous drowsiness and increased risk of heart attack.

Philips has recalled more than 5 million of the machines since 2021 because their internal foam can break down over time, leading users to inhale tiny particles and fumes while they sleep. Efforts to repair or replace the machines have been plagued by delays that have frustrated regulators and patients in the U.S. and other countries.

Lawyers for the federal government alleged that the company failed to comply with good manufacturing practices needed to ensure device safety. The company did not admit to the allegations, according to the court filing.

“This office, the FDA and our partner agencies are committed to holding manufacturers accountable when they violate the law and put the public at risk,” U.S. Attorney Eric Olshan said in a statement.

Under the legal agreement, Philips must hire independent auditors to create a plan for fixing its manufacturing problems and for monitoring problems with the sleep devices. The plan must then be approved by the Food and Drug Administration. The experts must also certify that new foam selected by the company meets FDA safety standards.

Jeffrey Reed, of Marysville, Ohio, experienced persistent sinus infections and two bouts of pneumonia during the seven years he used a Philips machine.

“I worry about my long-term health,” Reed said. “I used this machine for years and no matter what money I might get out of this, what’s going to happen?”

Reed received a newer Philips device after returning his old machine, but he doesn’t like to use it, preferring a competitor’s device.

“I don’t trust the company,” Reed said. “I don’t want to use it.”

Reed is one of more than 750 people who have filed personal injury lawsuits against the company over the devices. Those cases have been consolidated in a federal court in Pennsylvania.

Similar lawsuits are pending in Canada, Australia, Israel and Chile, according to the company.

The Dutch manufacturer announced in January it had reached a tentative agreement with the FDA and the Department of Justice. But U.S. regulators wouldn’t confirm the deal at the time because it had not yet been reviewed by a federal judge.

A company spokesman said Tuesday the agreement provides “a roadmap of defined actions, milestones, and deliverables to meet relevant regulatory requirements,” in an emailed statement. He noted that Philips will still be able to export some machines for sale outside the U.S.

The FDA’s website warns patients that the risks of ingesting the sound-dampening foam could include headache, asthma, allergic reactions and more serious problems.

An FDA inspection of Philips’ Pennsylvania offices in the fall of 2021 uncovered a spate of red flags, including emails suggesting the company was warned of the problem with its foam six years before the recall.

Between 2016 and early 2021, FDA found 14 instances where Philips was made aware of the issue or was analyzing the problem. “No further design change, corrective action or field correction was conducted,” the FDA inspectors repeatedly noted.

In 2022, the FDA took the rare step of ordering Philips to step up its outreach to customers about the recall including “clearer information about the health risks of its products.” At the time, the agency estimated only about half the people in the U.S. with affected machines knew they had been recalled.

Customers trying to obtain refunds or new or refurbished devices from the company have reported long delays.

The Associated Press Health and Science Department receives support from the Howard Hughes Medical Institute’s Science and Educational Media Group. The AP is solely responsible for all content.