The big pharmaceutical companies must overcome significant challenges if they are to grow. In this article, Tom Oakley, Head of Drug Delivery Device Development at Springboard, identifies the main challenges and opportunities for growth.
Challenges facing pharma
Everybody associated with the pharma industry knows about the patent cliff of patent expiries for the blockbuster drugs. Another USD 50 billion worth of drugs will lose patent protection in throughout 2014, although some of these are not trivial to copy due to their complex biologic nature or delivery devices.
The top-selling drugs which are likely to lose patent protection in 2014 include Roche’s Rituxan (indicated for some cancers and rheumatoid arthritis), Sanofi’s Lantus (for diabetes mellitus), Lilly’s Cymbalta (for depression), and Novo Nordisk’s NovoRapid and NovoLog (for diabetes mellitus).
The patent cliff continues in 2015 with about USD 34 billion worth of sales losing patent protection.
In addition to the patent cliff, healthcare budgets across the world are being squeezed. In Europe, where much drug spending comes from national healthcare budgets, sovereign debt is reducing drug budgets. European countries are delaying payments to drug companies by up to 3 years, which is effectively using the pharma companies as sources of credit but without paying any interest. Merck has had enough and is no longer supplying the cancer drug Erbitux to Greek hospitals, with Roche and Novartis amongst the big pharma companies considering whether to restrict supplies.
If that was not enough, the requirements of regulatory authorities tend to become more onerous rather than less, and the number of new drugs coming to market has reduced.
Opportunities for growth
Despite the challenges listed above, there is upward pressure on the value of the pharma industry as described below.
People in the developed world are living longer and therefore require more medical intervention. For example, people over the age of 65 typically need 4 times more medical services and products than younger people.
Living with chronic diseases
People are living with one or more medical conditions for longer. The success of drugs for chronic conditions such as diabetes and AIDS means that patients often live with these conditions, and their co-morbidities, for many years. Chronic conditions such as diabetes, asthma, cancer and heart disease are on the rise in both developed and developing countries.
People in emerging economies are demanding improved healthcare, and leading less healthy lifestyles (increased sugar and fat in their diets, and less exercise), both of which are driving increased healthcare spending.
When drugs lose their patent protection there is a corresponding sales opportunity for generic drugs.
Biologics are difficult to produce and therefore difficult to copy. In addition, the US Food and Drug Administration has not yet decided how to approve generic copies of biologics (called biosimilars).
High value indications
Some indications are not well-served, and/or may need repeated drug doses for long periods of time. An example of a high value drug is Gilead’s Sovaldi for chronic hepatitis C, which sold an astonishing USD 2.27 billion in its first quarter.
Oncology, immunology and diabetes remain popular targets for high value drug developments due to their prevalence in the population and long-term nature of most treatments.
Payment by results
Some healthcare payers have been asking to move from a “pay per dose” to a “pay by results” model. For example, rather than paying per dose of salbutamol (or similar), the payer may pay according to a reduced rate of emergency hospital admissions with an asthma attack.
According to this payment model, the pharmaceutical company is likely to become more of a whole patient care provider. For example, a payer may pay the company to handle an asthmatic’s whole treatment regime, from diagnosis to training to monitoring and support. If this happens, the company will be incentivised directly to tackle issues such as adherence to the drug regime.
Pharma companies may diversify even if payment by results does not become widespread. For example, Sanofi has launched the BGStar and iBGStar blood glucose meters to complement its range of drugs for diabetes.
Other pharma companies may diversify into diagnostics, delivery devices and interventional devices in order to increase their market share.
This article gives a snapshot of the challenges facing the pharmaceutical industry, and ways in which the pharma companies can tackle those challenges in order to achieve growth.
If you are from a pharmaceutical or medical device company and are interested in finding out more, please contact Tom Oakley.