Market Report Source

Overview

Introduction

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.

Scope of this report

• Review of key external factors impacting Pharma and shaping their strategies
• Analysis of steps undertaken by pharma companies to achieve cost saving and improve efficiency
• Assessment of corporate strategies employed by drug developers to generate new revenue growth

Research and analysis 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.

Key reasons to read this report

• Identify the key trends that are impacting the industry in 2007, going forward in 2008 and beyond
• Understand what strategic steps pharma companies are making to maintain their profitability by cutting costs
• Gain insight into how Pharma are capturing new opportunities to sustain historic growth rates

Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY
Scope of the report
Key findings
External factors driving change in the pharmaceutical industry
External factors affecting pricing in the pharmaceutical industry
External factors affecting proliferation in the pharmaceutical industry
External factors affecting product portfolios in the pharmaceutical industry
External factors affecting drug penetration in the pharmaceutical industry
External factors affecting costs in the pharmaceutical industry

CHAPTER 2 EXTERNAL FACTORS IMPACTING THE PHARMACEUTICAL MARKET DURING 2007
Overview of external factors impacting the pharmaceutical market during 2007
Increased focus on safety is keeping drug approval rate low
The effects of longer clinical trials on Pharma’s ROI
Questions over safety and efficacy are the prime causes for delayed approval
Strategies implemented to improve drug safety
Drugs affected by the FDA’s increasing safety focus
Legislative events continue to significantly impact Pharma
The FDA Amendments Act (FDAAA) aims to overhaul the drug safety program but many uncertainties remain
PDUFA was reauthorized and user fees were raised but the DTC program was abandoned
Risk Evaluation and Mitigation Strategies (REMS) can restrict the market penetration of a drug
The FDA’s ability to require post-marketing studies has been expanded
The FDAAA gives the FDA the power to mandate labeling changes
FDA proposal for new labeling pre-emption rules is upsetting the lawmakers
Drug safety will be assessed by two separate bodies
Manufacturers not complying with the new safety requirements are subject to hefty civil penalties
Clinical trial registry and results database
Pediatric trial exclusivity term is kept at six months for all drugs despite opposition from the generic industry
Citizen Petitions may no longer delay the approval of generic drugs by the FDA
The FDAAA did not include generic user fees but they may be introduced in the near future
Changes in the US patent law may weaken the position of Pharma
The outcome of the US Presidential and Congress elections will impact the industry in the world’s largest market
Republican candidates are against a federal universal healthcare system
Both leading Democrat candidates are proposing universal healthcare coverage
Tightening of pricing and reimbursement across the global pharma market
Increasing healthcare costs driving cost cutting initiatives globally at the possible expenses of pharmaceutical innovation
US – healthcare costs escalate prompting cost-effective initiatives
Reasons behind escalating healthcare costs
Medicare unable to negotiate with Pharma on drug prices
Japan implements further price cuts but delays reforms to P&R system
EU – implementing price cuts and reference pricing are the main cost containment tools used in most EU countries
Uncertainty over EU P&R reform
Italy to pay increased attention to pharmaceutical innovation
France – reimbursement drug list reforms have been insufficient in cutting reimbursement costs due to
lack of physician compliance
Germany – continues to implement and review cost-cutting policies
Spain – reference pricing has cuts cost but is also partly responsible for a drop in investor confidence in
Spain as a R&D center
UK – further implementation of cost-cutting reforms seen in 2007
Generics overview in the seven major markets
The global generics market is growing
Several measures to increase generics use were introduced in 2007 and will drive
growth in the immature markets
Generics to be listed twice a year in Japan
Mandatory generic substitution in Japan
Education is key to improving generics uptake in all immature markets
The more mature markets are the most competitive
Generics companies engaged in price-fixing scams
Medicaid reimbursement for generics drugs to be reduced
Wal-Mart likely to push generic drug prices down further in the US
Biosimilars – a growing threat to biologics
Europe continues to lead in biosimilars approvals
Five biosimilars of epoetin alfa were approved in 2007 in the EU
Substitution is an unresolved issue in many countries, but France and Spain have banned automatic substitution
Payers are yet to introduce incentives for the use of biosimilars
The US is making progress towards establishing a pathway for approval of biosimilars
Lifecycle management strategies will also have to be employed for biologics in the future
Regulatory focus on immunogenicity is impacting the approval of both new biologics and biosimilars
Generic Lovenox was rejected by the FDA
Patients as consumers now have the ability to influence and alter healthcare decisions
The evolving role of patients and caregivers
Patient advocacy groups now have the ability to influence and alter healthcare decisions
Lack of transparent information for patients is affecting public perception of the Pharma industry – increasing distrust
Direct to consumer advertising under regulatory scrutiny in the US
EU to allow companies to provide information to patients
Current communication practices implemented by pharma companies are not tailored to patient needs
The emergence of new prescribers and influencers

CHAPTER 3 STRATEGIC RESPONSES TO CUT COSTS
Overview of strategic responses to cut costs
Outsourcing is increasingly used to cut costs
Manufacturing is mainly outsourced to India and China
GMP compliance and safety of products are critical for emerging market CMOs
More companies outsource clinical trials in order to speed up the trial process and cut costs
Emerging markets are presenting many cost- and time-saving opportunities for clinical trials
Many companies are moving some of their own operations to emerging markets
Generic drug-makers are also tapping into the cost-saving opportunities in India
Is Big Pharma facing an R&D efficiency crisis?
Pharma enters the biomarker era
Restructuring the R&D model
Roche focuses on specialized R&D centers
Pfizer and Bayer-Schering – cutting costs and concentrating R&D focus
Indian companies spin-out R&D
Which R&D model is best?
Using contract research organizations to optimize R&D
Pharma’s evolving sales force effectiveness model through specialized reps and outsourcing
2007 was a year of cost cutting for Pharma
Increased regulation of sales and marketing set to continue and intensify in 2008
Pharma continues to streamline and develop sales and marketing departments to meet current challenges
Trends in new media’s role in sales and marketing strategy

CHAPTER 4 STRATEGIC RESPONSES TO INCREASE SALES
Overview of strategic responses to increase sales
Cost-saving drives continued M&A growth
Factors driving M&A
Driving expansion and diversity in therapeutic and geographic markets
Simplifying access to drug candidates
Increased market penetration through sales force acquisitions
Divesting non-core assets to focus on core business strategy and specialization
Investigating future core areas and focusing on specialization
Licensing is becoming an increasingly expensive and complex option for Pharma
Increased competition and cost drives licensing of early-stage candidates
Rising cost of licensing deals increases pressure on cost-conscious Pharma
The increasing complexity of licensing deals
Biotechs increasingly exercise their bargaining power during deal negotiations
Deals between Big Pharma set to rise
Oncology remains the number one therapy area, and will drive the growth of the biologics market
Changes in the drug supply chain will impact on both legitimate and illegitimate players
Changes to the UK drug supply chain
Distribution of power shifts from pharmacists to manufacturers under DTP
Pharmacies are paying more under Pfizer’s DTP model, for poorer service
Widespread changes in distribution will have a wide-ranging impact
The government’s response to DTP
Implications for parallel trade in the EU
Simplified supply chains are insufficient, alone, to combat counterfeits
Emerging markets continue to attract Big Pharma despite challenges
Large patient potential is the main attraction
Strong economic growth is fueling the demand for modern pharmaceuticals
IP environment – improving but still a way to go
Indian Patent Act of 2005 – failing to deliver?
Chinese IP environment still needs to improve despite signing up to TRIPS
Compulsory licenses were issued in several emerging market countries in 2007
Increased funding of public healthcare systems gives hope for wider reimbursement
Drug pricing is tightly regulated in some countries
Personalized medicines offer an alternative to the traditional blockbuster model
Theranostics – Pharma revolutionizing its approach to diagnosis and treatment
Theranostics set to improve P&R of niche drugs
Investor uncertainty remains the biggest hurdle to theranostics
Current and future lifecycle management trends
Pharma moves away from indication expansions to R&D strategies that offer a greater ROI
Rx-to-OTC – to switch or not to switch?
Weighing up the success of Alli
The pitfalls of Rx-to-OTC switching
BTC adds another string to Pharma’s bow

CHAPTER 5 BIBLIOGRAPHY
Publications and online articles
Conference literature
Datamonitor resources
Databases
Abbreviations

APPENDIX

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

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