Sunday, June 24, 2012

Why Pfizer Is Hurt by the Aurobindo Foul-Up

Two years ago, Pfizer (PFE) trumpted a deal in which Aurobindo, a large supplier of active pharmaceutical ingredients that is based in India, would make a few dozen generic meds for the brand-name drugmaker. The move was part of a grand plan to expand into generics with lower manufacturing costs and revive growth as patents on big-selling, brand-name meds began expiring.

“These agreements represent solid, measurable progress, and a strong commitment to achieve our growth objectives,” said David Simmons, who heads the drugmaker’s emerging markets and established products units, in a statement. “We will dramatically change Pfizer’s Established Products portfolio to an engine of positive growth.” ("Established Products" is a Pfizer euphemism for generics and branded generics.)

Since then, Pfizer has inked similar deals with other suppliers. Shortly after the pact with Aurobindo was reached, another was struck with Claris Lifesciences; last month, an agreementwas signed with Strides Arcolab. In all, Pfizer has added some 200 meds, both pills and injectables, to its so-called established products portfolio thanks to deals with Indian suppliers.

Now, though, Aurobindo has been tagged by the FDA (see hereand scroll down). An import alert was issued for failing to meet compliance requirements at a facility in Hyderabad, which primarily makes cephalosporins (see here). The plant supplies Pfizer with several meds, some of which are also sold by its Greenstone generics unit, although of 60-plus meds supplied by Aurobindo, fewer than a dozen are affected.

This allows Pfizer to downplay the episode. But the real issue goes beyond near-term sales. That’s because Pfizer has talked up the notion that expanding its established products unit by signing deals with low-cost foreign suppliers will provide a dividend, of sorts. How so? The value proposition is that the Pfizer or Greenstone name on a generic is supposed to infer quality manufacturing and reassure doctors and patients concerned about the safety of copycat meds. For that to work, however, the Pfizer supply must not encounter these types of hiccups, or worse.

Instead, questions are now being raised about the quality of meds that Pfizer is selling from its suppliers in India. Manufacturing gaffes are not unusual, but this is not the first time, in fact, that one of Pfizer’s newly minted providers has suffered an FDA import alert. Last fall, Claris was scolded for a host of significant manufacturing violations at its facilities in which IV bags were contaminated with fungus and bacteria (details here).

The wider context, of course, is the national supply chain and the safety of products from foreign suppliers, an issue that has been in the spotlight ever since the heparin scandal a few years ago in which contaminated ingredients from China were linked to 81 deaths in the U.S. Since then, the FDA has attempted to scrutinizemore foreign suppliers, although its resources are lacking.

In other words, the Pfizer growth strategy bumps up against growing concerns about product safety. Of course, this dilemma confronts any other large brand-name drugmaker going down a similar path. As for Pfizer, its choice of suppliers -- at least so far -- suggests an inability to “separate the wheat from the chaff,” as one source, who is familiar with the big drugmaker and the Asian market, tells us. And as another points out: “This is a much bigger deal, internally, than sales alone.”

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