Why the Patent Cliff is Likely to Jeopardize Global Drug Safety

[Source: RSC.org]

The patent cliff has been a hard-to-miss event in the pharma industry: not only has it been extensively covered in pharma news and blogs, its notoriety frequently extends into mainstream media in the context of global pharma pricing pressures and Obamacare.

The immediate effects of the cliff are well understood: between 2009 and 2015, the innovative pharma industry is facing the sharpest and most abrupt revenue decline in history. Of the 20 historically best-selling drugs, 18 will lose patent protection. The total annual losses inflicted on the industry by patent expiry during the 2009-2015 patent cliff period will amount to ~US$ 170 billion - a figure which is already rocking the pharma world. Pfizer’s Lipitor and Viagra, Eli Lilly’s Zyprexa and Sanofi-Aventis’s Plavix, will face patent expiry and inevitable engulfment by the generics industry, which stands to gain lavishly from this tremendous event.

Amidst aggressive cost-cutting strategies on the part of Big Pharma, and alongside increased competition and consolidation in the generics sector, the effects of this colossal event rocking the world’s second largest industry reach further than what meets the eye.

One of the natural seismic shifts induced by the cliff is steadily sailing the industry towards unfathomed shores—namely, the much-hyped-about “Pharmerging markets”. India, China, Russia and Brazil are some of the more obvious novel destinations for large pharma to nest in—but the likes of Ukraine, Romania and Egypt are there too.

IMS-defined "Tiers" of Pharmerging markets: 

The projected growth of “pharmergers” is undeniably seductive for pharma: the spending on branded medications in China is expected to double by 2015, and to grow nearly six-fold since 2010 for generics. Other markets are steadily following suit.

Domestic markets are not likely to provide for the demand, at least not in the innovative sector: currently only 15% of the domestic pharma market in China is captured by patented products. Despite the heavy focus of the next set of 5-year plans on inducing innovation, the unpronounced local interest in originator medication is not likely to skyrocket in the immediate future, and multinational pharma have taken notice of this.

So how is the industry whose R&D and production facilities are still largely based in Europe and North America going to cope with accommodating such unprecedented, and geographically inconvenient, demand?

As one of the first proactive partakers in the Pharmerging phenomenon, Roche has pledged to spend over US$ 310 million in China in order to take it up three spaces up to its second largest market. Roche will be opening offices across nine cities and heavily investing into “Personnel development, recruitment, instruments and systems”, according to Daniel O’day—Roche Diagnostics’ COO.

Similarly, in 2010, Novo Nordisk had pledged US$ 100 million to expand its R&D centre in Beijing, and GSK announced that it will be moving its anti-bacterial facility to Shanghai.

With a wave of new entrants in emerging markets, and increased cost-cutting through offshore manufacturing, drug safety will inevitably become a concern for the public.

According to a 2010 survey by Pew Prescription Project, Americans already hold very low esteem in foreign-made pharmaceuticals, and perhaps rightfully so. Manufacturing issues have shaken the pharma world on several occasions: in 2009, at the very onset of the patent cliff, the number of FDA recalls shot up by a staggering 309%, for the most part due to faulty packaging and labelling, as well as contamination. Generally, generic medicines are the culprits of recalls, though Pfizer, Novartis and Bristol-Myers Squibb have all issued drug recalls in the past year, in addition to common global GMP violators, such as Aurobindo and Ranbaxy, against whom a consent decree of permanent injunction was recently filed by the US Department of Justice.

Inductively speaking, unless pharmerging governments are able to categorically instil the importance of GMP in domestic pharma sectors, the industry is in for a rocky road ahead. Governments of emerging economies must prepare for the new high-volume drug era: healthcare efforts must focus on drug safety as well as availability, and appropriate penal codes must be put in place for repeated violators. WHO is putting forth pharmacovigilance guidelines which will accommodate offshore manufacturing for developing countries, food and medical safety are high priority on the next G20 agenda, and local governments are generally expected to increase focus on novel healthcare regulations in the near future.

It seems that the parallel shifts created by the patent cliff are travelling at velocities with a potentially dangerous mismatch, and public awareness is perhaps the first step to ensuring that governments and Big Pharma put enough focus on ensuring safety first and foremost.

To read more in detail about these, and many other cliff-related developments, check out Bioassociate’s latest report: “The significance and apparent repercussions of the 2009-2015pharmaceutical patent cliff”. 

New Bioassociate report available for download: The Significance and Apparent Repercussions of the 2009-2015 Pharmaceutical Patent Cliff

Between 2009 and 2015, the pharmaceutical industry is facing the sharpest and most abrupt revenue decline in history. As part of this period, titled the “patent cliff”, 18 of the top 20 bestselling drugs will lose patent protection, inflicting losses on nearly all Big Pharma players, which have already resulted in tremendous changes in the industry’s modus operandi.

Sparked by the patent cliff, the transition period which befell the industry is currently on-going, with remarkable developments promising to re-shape the pharma world and beyond already visible.

Bioassociate has published a new report which covers the immediate effects of the patent cliff and the short- and long- term cliff-cushioning solutions adopted by large pharma, and introduces some of the clear industry trends emerging as a result.

Naturally, the repercussions of the patent cliff are further-reaching than the Innovative Pharma industry itself. The generics industry is undoubtedly anticipating lavish gains, but contract research, manufacturing and sales organizations are also bracing for significant growth in the near future.

Furthermore, affected by the current state of the global economy, governments are also working to incorporate price cuts on medications, which have become significantly more affordable as a result of the patent cliff.

In order to incorporate the wide-reaching repercussions of this event, this report is divided into four sections addressing the patent cliff and its effect on: ethical pharma, the generics industry, investors and governments and patients.

In the current industry situation, awareness of this tremendous event is a must for anyone wishing to have a more elucidated picture of pharma’s future.

Click here to download a copy of Bioassociate's latest report.

Why Israeli Life Sciences are an Undervalued Opportunity

For a small country which boasts a biotechnologist for its first president, Israel has certainly lived up to its high-tech reputation.  

Statistically speaking, you won't find quite the same abundance of ingredients necessary for commercial success anywhere else in the world, with perhaps the exception of the bustling Boston Metropolitan area. Israel has the highest number of scientists per capita in the world, and is considered to be the world's "start-up nation", competing with the likes of Switzerland, Denmark and Japan in innovative developments. 

More than 1,100 life science companies currently operate in Israel, with 40 to 60 new companies established each year. 46% of all Israeli life science companies are less than 5 years old, with a further  34% of these  young companies already generating revenue.  On the Tel Aviv Stock Exchange, life sciences represent the largest sector, with 57 listed life science companies; several other companies are also listed on foreign stock exchanges. 

Technology is on everyone's lips in Israeli media and politics, and the country's scientific fixation hasn't eluded even the president: Pres. Shimon Peres's profound interest in Neuroscience has been well-documented, and was recently showcased at the 4th Israeli Presidential Conference in Jerusalem, a substantial portion of which the President allocated to the latest Israeli developments in the sphere of brain technologies. 

Despite the plethora of encouraging facts, Israeli companies remain gravely under-funded in comparison with their US counterparts. Per capita, Israeli life sciences actually attract more venture capital dollars than the ones state-side, and Israel currently ranks 4th in the Global 2012 Venture Capital Confidence Survey conducted by Deloitte. However, particularly in the bio industry, deal sizes are on average smaller and less meaningful in Israel than in the US. 

Development-stage Israeli companies are also generally characterized by early IPOs: by number of public life science companies, Israel competes only with the likes of the UK and Sweden, and significantly supersedes Switzerland, Denmark and Germany. Companies on the TASE are characterized by rather low trading volumes, and despite slightly better performance on foreign markets, are still often overlooked on the NASDAQ. 

Are Israeli technologies simply not good enough?

Some would argue that, given the country's intellectual and academic predisposition (Nobel Prize winners  have become somewhat of an annual occurrence in Israeli academia), the life science industry is over-hyped as a result of immense inductive expectation. Following the example of global corporations who lavishly profited from the successes of the Israeli hi-tech industry, large pharma and other multinationals have begun to set up shop in Israel with noticeable tech-scouting funds and R&D centres throughout the country. But does the infantility of the industry imply that these companies and investors are still embarking on a gamble? 

Recent bio-exits in Israel demonstrate the cost-benefit of Israeli bio, and suggest that the odds are strikingly in favour of the acquirers. In the US, the average bio-M&A deal size was nearly US$ 800 million in 2011, whilst in Israel, some of the biggest bio-exits of the past decade--Omrix Biopharmaceuticals and Taro Pharma, have only amounted to just over half that price. 

For multinationals, Israeli bio remains cheap, cheerful and profitable, and on aggregate, continues to yield solid returns for those who dared to invest in the industry here.

So why is the industry, in particular the publicly traded sector, still so under-invested?

We think the answer is Analyst Coverage.

Many investors agree that, having been plagued by consistently insufficient analyst reporting, public companies in Israel are seriously under-valued. After all, much of the value of previously unknown companies is created by the publicity and confidence which follow valuation reports. 

For instance, the relatively well-, but sadly not well-enough-known Israeli drug development company BioLineRx was recently valuated by a Roth analyst in the US, which almost immediately caused BioLine stock to jump nearly 25% on the TASE - and we still believe its upside is greater than that stated by the analyst (see the full story on SeekingAlpha here)

The Tel Aviv Stock Exchange has not been oblivious of these issues. In an attempt of confront under-reporting, TASE is working to introduce more accurate valuation and to raise awareness of the public life science sector. As part of these efforts, the stock exchange is co-sponsoring a novel study program at Tel Aviv University’s faculty of management, titled “The Analysis of Healthcare Companies”. In addition, a number of high-profile investor conferences have been organized by TASE in the U.S., in conjunction with NASDAQ. The Stock Exchange is also looking to partner with reliable independent valuators to cover all publicly traded life science companies. 

With these changes taking place, we at Bioassociate are confident that, in the long run, a wealth of value will be created in the Israeli Life Science sector as analyst and investor awareness of the industry grows. 

After all, from the point of view of a foreign investor, all the ingredients for great returns are already here: great science, enthusiastic and vibrant entrepreneurs and sub-intrinsic-value trading. With elementary and effective elimination of the limiting reagent--the mere lack of global awareness--the TASE Biomed Index is likely to witness better times ahead.

Thus, anyone taking note of these changes now is likely to benefit from forthcoming developments in the near future. 

See the Bioassociate report "Investing in the Israeli Life Sciences 2012" for a detailed look at recent developments and current state of investment in the Israeli Life Science arena.

Bioassociate’s CEO on the Israeli Life Science Industry

In may of 2012 Bioassociate attended the 5th Annual Investor Conference on the Biomed Industry, held jointly by the Tel Aviv Stock Exchange and NASDAQ in New York. The introduction to the conference booklet was written by Bioassociate’s CEO, Dr. Ofir Levi–click here to read the article!