The Pharmaceutical Industry 2008: Current and Future Trends and Strategic Issues Shaping Pharma

Today, pharma companies face growing competition from generics and me-too drugs, combined with increasingly tough P&R, a clamp down on healthcare spending, and the need to treat patients for longer due to the aging population. These factors threaten both current and future revenues prompting Pharma to adopt a range of corporate strategies to respond to the changing market dynamics.



Report Highlights
Fewer drugs are gaining FDA approval year-on-year, primarily due to increasing pressure the pharmaceutical industry is facing over drug safety, fueled by several recent high-profile drug withdrawals and black box warnings. Compounded with the recent expansion of the FDA's safety powers, this will have a negative impact on Pharma's profitability. The pharmaceutical industry is facing increasingly cost-conscious times, with a declining ROI and numerous blockbuster products facing imminent generic competition. This is exacerbated by the increasing cost of licensing and M&A deals, and a harshening P&R environment. A key trend in 2007 has been the vast number of job cuts across Big Pharma in an effort to cut costs, in response to disappointing financial results driven by patent expiries of key products and resulting generic erosion. Price pressure and low reimbursement rates, which are impacting company revenues, are set to continue in 2008.


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CHAPTER 1 EXECUTIVE SUMMARY 4
Scope of the report 4
Key findings 5
External factors driving change in the pharmaceutical industry 5
External factors affecting pricing in the pharmaceutical industry 6
External factors affecting proliferation in the pharmaceutical industry 7
External factors affecting product portfolios in the pharmaceutical industry 8
External factors affecting drug penetration in the pharmaceutical industry 9
External factors affecting costs in the pharmaceutical industry 10
CHAPTER 2 EXTERNAL FACTORS IMPACTING THE PHARMACEUTICAL MARKET DURING 2007 14
Overview of external factors impacting the pharmaceutical market during 2007 16
Increased focus on safety is keeping drug approval rate low 17
The effects of longer clinical trials on Pharma's ROI 18
Questions over safety and efficacy are the prime causes for delayed approval 19
Strategies implemented to improve drug safety 20
Drugs affected by the FDA's increasing safety focus 22
Legislative events continue to significantly impact Pharma 24
The FDA Amendments Act (FDAAA) aims to overhaul the drug safety program but many uncertainties remain 25
PDUFA was reauthorized and user fees were raised but the DTC program was abandoned 27
Risk Evaluation and Mitigation Strategies (REMS) can restrict the market penetration of a drug 29
The FDA's ability to require post-marketing studies has been expanded 31
The FDAAA gives the FDA the power to mandate labeling changes 32
FDA proposal for new labeling pre-emption rules is upsetting the lawmakers 33
Drug safety will be assessed by two separate bodies 34
Manufacturers not complying with the new safety requirements are subject to hefty civil penalties 34
Clinical trial registry and results database 35
Pediatric trial exclusivity term is kept at six months for all drugs despite opposition from the generic industry 36
Citizen Petitions may no longer delay the approval of generic drugs by the FDA 36
The FDAAA did not include generic user fees but they may be introduced in the near future 37
Changes in the US patent law may weaken the position of Pharma 38
The outcome of the US Presidential and Congress elections will impact the industry in the world's largest market 41
Republican candidates are against a federal universal healthcare system 44
Both leading Democrat candidates are proposing universal healthcare coverage 44
Tightening of pricing and reimbursement across the global pharma market 46
Increasing healthcare costs driving cost cutting initiatives globally at the possible expenses of pharmaceutical innovation 47
US - healthcare costs escalate prompting cost-effective initiatives 48
Reasons behind escalating healthcare costs 49
Medicare unable to negotiate with Pharma on drug prices 50
Japan implements further price cuts but delays reforms to P&R system 50
EU - implementing price cuts and reference pricing are the main cost containment tools used in most EU countries 51
Uncertainty over EU P&R reform 51
Italy to pay increased attention to pharmaceutical innovation 52
France - reimbursement drug list reforms have been insufficient in cutting reimbursement costs due to lack of physician compliance 52
Germany - continues to implement and review cost-cutting policies 53
Spain - reference pricing has cuts cost but is also partly responsible for a drop in investor confidence in Spain as a R&D center 54
UK - further implementation of cost-cutting reforms seen in 2007 54
Generics overview in the seven major markets 58
The global generics market is growing 58
Several measures to increase generics use were introduced in 2007 and will drive growth in the immature markets 59
Generics to be listed twice a year in Japan 60
Mandatory generic substitution in Japan 60
Education is key to improving generics uptake in all immature markets 60
The more mature markets are the most competitive 61
Generics companies engaged in price-fixing scams 61
Medicaid reimbursement for generics drugs to be reduced 62
Wal-Mart likely to push generic drug prices down further in the US 63
Biosimilars - a growing threat to biologics 64
Europe continues to lead in biosimilars approvals 65
Five biosimilars of epoetin alfa were approved in 2007 in the EU 65
Substitution is an unresolved issue in many countries, but France and Spain have banned automatic substitution 67
Payers are yet to introduce incentives for the use of biosimilars 67
The US is making progress towards establishing a pathway for approval of biosimilars 68
Lifecycle management strategies will also have to be employed for biologics in the future 70
Regulatory focus on immunogenicity is impacting the approval of both new biologics and biosimilars 71
Generic Lovenox was rejected by the FDA 71
Patients as consumers now have the ability to influence and alter healthcare decisions 72
The evolving role of patients and caregivers 72
Patient advocacy groups now have the ability to influence and alter healthcare decisions 73
Lack of transparent information for patients is affecting public perception of the Pharma industry - increasing distrust 75
Direct to consumer advertising under regulatory scrutiny in the US 76
EU to allow companies to provide information to patients 77
Current communication practices implemented by pharma companies are not tailored to patient needs 78
The emergence of new prescribers and influencers 79
CHAPTER 3 STRATEGIC RESPONSES TO CUT COSTS 82
Overview of strategic responses to cut costs 83
Outsourcing is increasingly used to cut costs 84
Manufacturing is mainly outsourced to India and China 86
GMP compliance and safety of products are critical for emerging market CMOs 86
More companies outsource clinical trials in order to speed up the trial process and cut costs 88
Emerging markets are presenting many cost- and time-saving opportunities for clinical trials 88
Many companies are moving some of their own operations to emerging markets 89
Generic drug-makers are also tapping into the cost-saving opportunities in India 92
Is Big Pharma facing an R&D efficiency crisis? 93
Pharma enters the biomarker era 95
Restructuring the R&D model 97
Roche focuses on specialized R&D centers 97
Pfizer and Bayer-Schering - cutting costs and concentrating R&D focus 98
Indian companies spin-out R&D 99
Which R&D model is best? 99
Using contract research organizations to optimize R&D 100
Pharma's evolving sales force effectiveness model through specialized reps and outsourcing 103
2007 was a year of cost cutting for Pharma 103
Increased regulation of sales and marketing set to continue and intensify in 2008 105
Pharma continues to streamline and develop sales and marketing departments to meet current challenges 105
Trends in new media's role in sales and marketing strategy 106
CHAPTER 4 STRATEGIC RESPONSES TO INCREASE SALES 108
Overview of strategic responses to increase sales 110
Cost-saving drives continued M&A growth 111
Factors driving M&A 114
Driving expansion and diversity in therapeutic and geographic markets 114
Simplifying access to drug candidates 115
Increased market penetration through sales force acquisitions 116
Divesting non-core assets to focus on core business strategy and specialization 117
Investigating future core areas and focusing on specialization 118
Licensing is becoming an increasingly expensive and complex option for Pharma 120
Increased competition and cost drives licensing of early-stage candidates 120
Rising cost of licensing deals increases pressure on cost-conscious Pharma 120
The increasing complexity of licensing deals 122
Biotechs increasingly exercise their bargaining power during deal negotiations 123
Deals between Big Pharma set to rise 125
Oncology remains the number one therapy area, and will drive the growth of the biologics market 125
Changes in the drug supply chain will impact on both legitimate and illegitimate players 128
Changes to the UK drug supply chain 129
Distribution of power shifts from pharmacists to manufacturers under DTP 130
Pharmacies are paying more under Pfizer's DTP model, for poorer service 130
Widespread changes in distribution will have a wide-ranging impact 131
The government's response to DTP 132
Implications for parallel trade in the EU 132
Simplified supply chains are insufficient, alone, to combat counterfeits 133
Emerging markets continue to attract Big Pharma despite challenges 135
Large patient potential is the main attraction 136
Strong economic growth is fueling the demand for modern pharmaceuticals 137
IP environment - improving but still a way to go 138
Indian Patent Act of 2005 - failing to deliver? 139
Chinese IP environment still needs to improve despite signing up to TRIPS 139
Compulsory licenses were issued in several emerging market countries in 2007 140
Increased funding of public healthcare systems gives hope for wider reimbursement 141
Drug pricing is tightly regulated in some countries 141
Personalized medicines offer an alternative to the traditional blockbuster model 143
Theranostics - Pharma revolutionizing its approach to diagnosis and treatment 144
Theranostics set to improve P&R of niche drugs 145
Investor uncertainty remains the biggest hurdle to theranostics 146
Current and future lifecycle management trends 149
Pharma moves away from indication expansions to R&D strategies that offer a greater ROI 151
Rx-to-OTC - to switch or not to switch? 154
Weighing up the success of Alli 156
The pitfalls of Rx-to-OTC switching 157
BTC adds another string to Pharma's bow 158
CHAPTER 5 BIBLIOGRAPHY 159
Publications and online articles 159
Conference literature 174
Datamonitor resources 175
Databases 176
Abbreviations 176
APPENDIX 181

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Table 1: Drug safety concerns and outcomes in the US, 2007 22
Table 2: Three bills were introduced in the legislative houses in the US in 2007 68
Table 3: Euro-Canada health consumer index, 2008 75
Table 4: Information needs of patients 79
Table 5: Several companies have announced reduction of in-house manufacturing capacities 85
Table 6: Several multinational pharmaceutical companies have established a R&D presence in China 90
Table 7: MNCs prefer to carry out R&D in India in collaboration with an Indian company 91
Table 8: Countries on the US Priority watch list presenting concerns over IP, 2007 102
Table 9: Pharma cost cutting strategies in 2007 104
Table 10: Summary of leading M&A deals by value in 2007 113
Table 11: Biologic products will experience a more than 10-fold growth rate compared to small molecules in 2007-08 118
Table 12: Rx-to-OTC FDA approvals and non-approvals 155
Table 13: Euro-Canada index weightings 181


Figure 1: External factors driving implementation of strategic responses in the pharmaceutical industry 5
Figure 2: External factors affecting pricing in the pharmaceutical industry 6
Figure 3: External factors affecting proliferation in the pharmaceutical industry 7
Figure 4: External factors affecting product portfolios in the pharmaceutical industry 8
Figure 5: External factors affecting drug penetration in the pharmaceutical industry 9
Figure 6: External factors affecting costs in the pharmaceutical industry 10
Figure 7: The impact of an increasingly safety conscious industry 18
Figure 8: Legislative events and policy changes impact pharmaceutical companies' profits in multiple ways 24
Figure 9: The FDAAA reauthorizes three acts and introduces several new provisions 26
Figure 10: FDAAA expanded the FDA's authority to review TV DTC adverts but the user-fee program was abandoned 28
Figure 11: The FDA can require REMS both before and after approval 30
Figure 12: New US Patent and Trademark Office rules are unfavorable for pharma and biotech 38
Figure 13: The Patent Reform Act of 2007 proposes some fundamental changes to the US patent system 39
Figure 14: The frontrunners for the US Presidential election have a great deal of overlap in their healthcare reform plans 42
Figure 15: Potential impacts of the US Presidential elections on pharma industry 43
Figure 16: Factors driving tightening P&R 46
Figure 17: The impact of tightening P&R in the pharma industry 47
Figure 18: Pricing policies in the US, Japan and 5EU, 2007 48
Figure 19: Generics use will continue to threaten innovator profits 58
Figure 20: Key generic trends impacting the seven major markets 59
Figure 21: Biosimilars present a threat to the profits of companies with biologics 64
Figure 22: Events and trends increasing the threat of biosimilars 65
Figure 23: The Biologics Price Competition and Innovation Act passed the Senate but failed to clear Congress in 2007 69
Figure 24: Various lifecycle management strategies can be employed to maximize revenues derived from biologics 71
Figure 25: How patient empowerment affects Pharma's profitability 72
Figure 26: Drivers of patient empowerment 73
Figure 27: Influence of patient advocacy groups 74
Figure 28: Decision-making processes for prescription drugs 80
Figure 29: Outsourcing can impact profitability of pharmaceutical companies in various ways 84
Figure 30: Advantages and disadvantages of conducting clinical trials in emerging market countries 89
Figure 31: Is Big Pharma facing an R&D crisis? 93
Figure 32: Recommendations to improve R&D efficiency in the pharma industry today 95
Figure 33: Novel technologies such as biomarkers improve R&D efficiency through a variety of means 96
Figure 34: Recent trends in the Pharma-CRO relationships 101
Figure 35: How CSOs can boost company profitability 103
Figure 36: $115 billion worth of branded drugs from the top 50 Pharma companies face patent expiry through 2012 111
Figure 37: Factors driving M&A and licensing in the pharma industry today 114
Figure 38: The line between licensing and M&A is becoming increasingly blurred 123
Figure 39: Drivers and resistors of co-promotion 124
Figure 40: Oncology remains the number one therapy area for licensing deals in 2007 126
Figure 41: The changing face of pharmaceutical supply 128
Figure 42: Impending changes to the drug supply chain 129
Figure 43: Emerging markets present an opportunity to grow revenues 135
Figure 44: Attractions and challenges facing global pharmaceutical companies operating or wishing to enter emerging market countries 136
Figure 45: Factors driving the growth of theranostics in the pharma industry 143
Figure 46: Drivers and resistors of theranostics and personalized medicines 144
Figure 47: Niche drugs experience a greater return of promotional spend compared to those for large patient populations 147
Figure 48: A wide range of brand defense strategies are available, however timing of implementation is key 149
Figure 49: Key factors driving implementation of LCM strategies in the pharma industry today 150
Figure 50: Risks associated with indication expansion launch timing 151
Figure 51: Indication expansion - multiple options for driving market share 152
Figure 52: Decline in US indication expansions approved since 2004 153
Figure 53: Rx-to-OTC switches in the US and UK, 2001-07 154
Figure 54: 2007 US revenues of GSK's Alli and Roche's Xenical 156

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