5-year plans and Biotech: China is becoming an innovator, begins by revamping Pharma and Biotech

China's mammoth manufacturing power needs no introduction. China's innovative sector, however, is perhaps something you have never heard of - for legitimate reasons. Innovation has really not been China's forte, and why should it, after all? Sans world-renowned tech visionaries and science gurus China has already made its way into anything between 80 and 100% of your everyday life - be it through the TV you watch all the way down to the vitamins you take. 

In the Pharma world, China has naturally made a mark as the manufacturing hub for many global drug producers, and generally feeds its own domestic market with the help of massive local generic players (the likes of Harbin Pharma and SinoPharm) which can easily stomp out any or all of the global pharma conglomerates by comparison. 

But one needn't be a leading economist to foresee obvious limitations to a manufacturing and, to some extent, imitation-driven economy. Intrinsically dependent on developments beyond its own borders, such an economy is characteristic of a follower, rather than a leader. 

Whichever way you look at it - China's seemingly exponential growth is only as exponential as is the growth of the economies which produce the novel technologies on which it relies. And China knows it. 

Over the next weeks we will be blogging about China's shifting pharma landscape, everything from the novel government initiatives to what is currently slowly brewing in this domestic industry's primordial bio-broth. 

Follow us for weekly updates on one of Pharma industry's most monumental changes! 

"Made in China” to “Designed in China” part 1: the 12th Set of 5-year Plans

5-year plans are China's social and economic development initiatives and goals for the subsequent 5 years, drafted by the Central Committee and national congresses on behalf of the Communist Party of China (CPC). In 2011 the CPC released the 12^th set of 5-year plans (2011-2015). This latest set of guidelines has been referred to as the most innovation-focused government initiative China has ever faced, and one which explicitly emphasizes innovation in the bio-industry.

In 2006, the National Congress used the word “innovation” for the first time, realizing the country’s massive potential for innovative growth, and in 2011, China’s utmost objective through to 2020 has become to make a transition from a manufacturing-based economy to one guided by innovation-driven growth. The government’s spending on R&D has already been on a steady increase from just 0.6% of GDP in the 90’s to 1.6% in 2011, with plans to reach 2.5% by 2020.

One of the major goals of the latest plans is universal and more accessible healthcare coverage, which will give a necessary market boost to the pharma industry. Domestic developers of pharmaceuticals are encouraged to consolidate, as the industry remains highly fragmented and dominated by a multitude of small-scale players. Foreign investment is being directed towards cutting-edge developments in the country, and domestic players can now take advantage of a 159% increase in the R&D budget  (now amounting to US$ 6.7 billion for biotech alone, from a total of US$ 48 billion), allocated by the government in order to acquire novel IP or establish in-house R&D.

Some of the goals the latest 5-year plans advocate are:

• Emphasis on Intellectual Property rights 

• Government support of joint research programs with foreign companies

• The addition of innovative medicines to the National Essential Drugs List in order for innovators to be compensated for R&D investment
• Applied tax reduction for the pharmaceutical industry
• Development of 30 kinds of innovative drugs and 150 kinds of diagnostic reagents within the next 5YP timeframe
• Initiation of more than 10 clinical trials of new vaccines
• Development of at least 40 biological drugs
• Strengthening of on-site verification of drug registration
• Strict control of development site supervision and drug registration
• Strict control of drug review and approval standards
• Effective control of fraud
• Strong focus on national support of entrepreneurship and innovation
• Active participation in the globalization of drug development and research
• Focus on learning from the scientific supervision concepts of the FDA

Sales of patented drugs have already been steadily on the rise, in line with total biopharmaceutical sales (figure 1),  but as a result of the latest 5-year plan initiatives, domestic Rx pharma sales are expected to exhibit marked growth over the next decade, and to potentially hit sales of US$ 60 billion by 2020.

Perhaps more so than in other industries, the pharmaceutical industry has historically benefited from dedicated government support. The most scientifically innovative countries, the likes of which are Switzerland, Germany, Israel and the US, benefit from higher-than-usual R&D-per-capita budgets, and the Chinese government has not remained oblivious of this fact. The latest set of 5-year plans will inevitably induce visible changes in the innovative pharma industry, and the new decade is likely to see a substantial increase in the volume of foreign investment in China’s developing bio sectors.

Check back next week for Part 2 of "Made in China" to "Designed in China": China's domestic Pharma market situation & stats, plus a briefing on its current industry players who are already innovating!

If you want to skip straight to the point, check out our latest white paper, 

Pharmerging Markets: China – the Next Innovative Pharma Market?

Why the Pharma Industry No Longer Warrants Public Trust: Reasons for Extortionate Big Pharma Drug Prices, and What Governments Are Doing to Contain Them

For governments and patients, the pharmaceutical industry has been both a curse and a blessing. The majority of “pharma sceptics” would nowadays argue that the industry used to be a trustworthy environment where innovative products automatically secured the confidence and demand of the public. However, whilst the productivity and quality of pharmaceutical innovation has steadily waned in recent years, the regulatory framework founded on the idea that all novel approved pharmaceutical products are efficacious and in-demand has hardly changed. Until very recently companies still enjoyed the unanimous trust of doctors and the passivity of patients, but has perhaps finally pushed its luck to the limits as it attempted to compensate for low productivity and spiralling research costs at the expense of the public. As the Rx market became less and less affordable for patients and governments, and as its ethical conduct became dubious, mistrust, suspicion and antipathy superseded simple conformity.  Seemingly, somewhere along the way the combination of capitalism and healthcare resulted in a raging war of corporate wealth versus public health, which left some patients wondering whether medicine, once so respectable, has become nothing more than a consumerist tool.

According to the Harris Poll of public opinion, already by 2006 the pharmaceutical industry in the US found itself at the bottom of the public trust ladder along with oil and tobacco companies; public trust last year stood at 11%, in contrast with 25% in 2006 and 60% in 1997. The majority of respondents, inclusive of stakeholders and patients, blamed the poor reputation of the industry on the shift in perceived motives from improving healthcare to maximizing financial success. Perhaps a number of highly publicized scandals, ranging from misrepresented indications and illegal marketing, to practices dangerously bordering on bribery, bear testimony to the fact that pharma has performed rather badly on the ethical front in recent years. Nonetheless, public mistrust has perhaps reached exaggerated levels: according to a report by PriceWaterCoopers titled, “Recapturing the Vision: Restoring Trust in the Pharmaceutical Industry by Translating Expectations into Actions,” two thirds of respondents grossly overestimated the percentage of the US healthcare budget allocated to medications (50-80% vs just 10% in reality), and underestimated by nearly 50% the costs of bringing a drug to market. 

Controversy aside, the figures alone paint an unsustainable picture: prescription medication cost the US government US$ 307 billion in 2010, accounting for 2.1% of GDP, in contrast with US$ 40 billion in 1990 when its portion of GDP was only 0.6%. Furthermore, amidst the patent cliff and health reform turmoil, 181 branded drugs in the US saw a whopping 8.7% price increase - the highest in the last decade, by far outstripping the inflation of 1.3% measured by the consumer price index, and in stark contrast with a 9% price drop of widely used generics (Fig. 1). Most importantly, over the past 12 years, generic substitution has saved the US government a colossal US$ 1.031 trillion, with over US$ 200 billion saved owing to the patent cliff alone (Fig. 2).  Benefits of such magnitude are not surprising: for instance, Erbitux, the antibody for colon cancer treatment distributed by ImClone, Bristol-Myers and Merck, costs US$ 17,000 a month per patient - and there are more expensive treatments on the market. Vertex Pharmaceutical’s new cystic fibrosis drug Kalydeco, for instance, costs US$ 294,000 a year per patient - treatment which even the best insurance could hardly cover. This begs the question whether such prices are really justified, and whether the patent cliff is a legitimate cause for celebration by pharma sceptics.

Reasons for High Drug Prices

According to drug companies, drug development costs today are more extortionate than ever, standing at over US$ 1 billion per compound, which is undoubtedly reflected in the high cost of prescription drugs. Table 1 shows a number of monthly consumer prices of common blockbusters in the US, where they are arguably the highest in the world. The prices of generic versions or equivalents of these drugs would range between 10-30% of the indicated costs. 

Table 1. US average monthly consumer prices of selected blockbuster drugs

Commercial drug	Consumer price (US$/month)
Celebrex	$130.27
Zyprexa	$423 - $1,242
Seroquel	$272 – $1,197
Prozac	$225
Lipitor	$161
Singulair	$131
Actos	$305
Avandia	$202
Humira	$2,034
Enbrel	$2,648
Plavix	$214
Exelon	$228
Lyrica	$306

How are high drug prices determined and justified, and have drug companies been making excessive profits? The American Federation of Labour Congress of Industrial Organizations states that for every US$ 100 of a prescription drug’s price, 15% is for R&D costs, 26% is for manufacturing, executive and staff costs, 35% is for marketing and administrative costs, and 24% is net profit. Measuring the cost of intangible input (i.e. R&D) is an ambiguous practice - as the financial impact of failed compounds needs to be priced in to the cost of successful ones for the companies to operate. Taking the whole pipeline into account, a price-determining reagent becomes apparent: the productivity of R&D - which is, or theoretically should be, inversely proportional to medication costs. Thus, the higher the ratio of failed to successful compounds, the more financial compensation needs to take place via consumer prices.  Considering the poor pipeline output of the past decade, it isn't surprising that prices have witnessed such a sharp rise.

Crippling drug prices have a particularly dramatic effect in emerging economies where out-of-pocket payers constitute the majority of patients. Globally, pharmaceuticals account for nearly a fifth of all health spending, and payers on average pay four times more for branded medication where generic versions are available. In China, the brand premium reaches up to 13.2 times. According to recent WHO statistics, even generic medications are beyond the reach of many patients in middle- and low- income countries. On average, generic treatments cost over 2 days’ wages in half of the emerging markets studied, whilst originator medications would consume between 10 days’ and over 30 days’ salaries. In instances of chronic illness in low-income countries, treatment with branded medication becomes entirely unsustainable. Figure 3 demonstrates the affordability of a course of antibiotics by country, exposing the harsh reality that it would take some patients up to 50 days of work to pay off just one course of branded medication.

Pharmacoeconomics: Generic Uptake and Pricing Pressures

The immense rise of generics during the cliff presented governments with novel possibilities to re-budget healthcare systems by increasing generic uptake. Widespread legislation changes took place throughout Europe and the rest of the world in the wake of financial crisis, which took advantage of vast generification. The risk added by health reforms, and the imminent end of pharma’s honeymoon in the US were the main factors attributing to sharp price increases of medicines last year. New legislation almost inevitably leads to temperamental price spikes, but the picture appears gloomier for pharma this time around.

In Europe, the industry has been the worst hit by pricing pressures. Amidst widespread austerity measures European governments are under more strain than ever to lower healthcare costs, and in this respect the patent cliff has been a great empowerment in negotiations with large pharma. European price cuts were triggered by Greece’s austerity measures, but EU governments commonly cross-reference to prices in other countries, which so far lead to an EU-wide pandemic of stringent savings in Spain, Portugal, Italy, France, Ireland, Denmark, Germany, Sweden and the United Kingdom (Table 2). In addition, an EU-wide sales tax of 1.6% will be imposed on the industry in 2012, 2013 and 2014.

Table 2. Selected EU pharmaceutical price cuts, 2010

Country	Price cut	Details
Greece	20-27%	-27% on drugs priced over €100, otherwise -20%
Germany	6-16%	Discount increase on non-fixed-price products from 6% to 16%
Italy	10%	€2.2 billion savings on medicines, particularly in hospital sector
Spain	7.5%	Mandatory 7.5% discount on list price

The UK National Health Service (NHS) instated a Pharmaceutical Price Regulation Scheme (PPRS) in 1957, and will be adopting a more stringent Value-Based-Pricing approach in 2014. France unveiled an austerity package which aims to cut €700 million over the next two years, mostly by slashing prices of branded and generic drugs. The French government also pledged to increase the time-frame of cost-benefit evaluations of new drugs in 2011. Germany, Europe’s largest drug market, introduced a benefit system in 2011 which requires all companies marketing new medication to provide proof of the drug’s superiority over other available treatments. According to BMI, this system, along with other measures, lead to savings of €1.9 billion in 2011, three times higher than the savings in 2010. In addition to a mandatory 7.5% discount on medication list prices, Spain has, in recent years, passed legislation enforcing savings altogether amounting to 23% on prescription medication and 25% on generics, which will amount up to US$ 2 billion.

Sadly for the industry, the price-slashing pandemic hasn’t been confined to European borders: many of the emerging markets and, most notably, the major Rx market of Japan have all initiated healthcare savings in recent years. Healthcare expenditure in developing markets is on a steady increase, instigated by novel government regulations and a growing number of private insurers, which has led to a burgeoning focus on cost containment and on generic substitution.

Japan exercises a bi-annual price cut system, with the next round of roughly US$ 7 billion savings anticipated in April of 2012. Furthermore, having previously boasted a notoriously low level of generic penetration, faced with a growing ageing population the Japanese government now aims to bring generic volume up to 30% by 2013 and onwards to new generic heights, which will inevitably stifle the growth of the pharma industry in Japan over the coming years.

Meanwhile, South Korea uncovered plans of introducing 14% price cuts of pharma products, which sparked a protest rally of pharma CEOs and employees in Seoul. The Chinese pricing authority, the National Development and Reform Commission (NDRC) introduced tighter controls over the pricing of foreign pharmaceuticals in 2010, outlined in its New Methods and Regulations on Drug Prices protocol. Since 2011, 174 medicines ranging from antibiotics to heart medication marketed by Lilly, Merck, Novartis, Pfizer, Roche and Bristol-Myers saw an average price cut of 19%, generating savings of roughly US$ 300 million a year. It has been further rumoured that the country is aiming to adopt a pharmacoeconomic drug assessment model, and will make use of a price-referencing system with countries such as South Korea and India.

In Russia, novel regulations unveiled in 2010 will allow the government to decide on maximum mark-up prices for drugs, and to slash prices that it believes are too high.

Time for Pharma to implement drug costs into the foundations of the drug development model

All in all, the unsustainability of the pharmaceutical business model is affecting far greater layers of society than the industry itself. Government pricing pressures are further driving the model towards extinction. The fundamental truth which finally dawns upon Big Pharma is that payers can no longer compensate for lavish pipeline ethics, and this will inevitably serve to instil the notion of the importance of smart-cost drug development, which has for so long been overdue in the pharma world. 

Stay put for our next post: The Pharma Industry and Public Trust Part 1: Medicalization and the Placebo Effect next week, and read about everything we cover in detail in Bioassociate's White Paper: "The Significance and Apparent Repercussions of the 2009-2015 Pharmaceutical Patent Cliff". 

The New Age Pharma Business Model: Part 2 - The New Big Pharma Business Models

Amidst mass generification of history’s bestselling drugs, Big Pharma is extensively finding itself cornered by aggressive competition from generic drugs which only recently ceased to be their very own blockbusters. As market share and annual revenues plummet off the patent cliff, pharma multinationals have resorted to a series of radical changes to restore the precarious equilibrium between the ever-battling yin and yang that are the originator and the generics industries.  

Our last post addressed the trend of the visibly shrinking R&D departments, particularly what has become of them, and how their lingering potential could still be of interest to downsizing pharma.

This week we will be looking at the colourful abundance of individual strategies companies are adopting in these austere times. Some trends may be more fashionable than others, but one thing seems certain: no pharma player has remained unmoved by the industry’s desperate cries for change.

In-licensing and later-stage acquisitions

There is an undeniable R&D productivity crisis in the pharmaceutical industry. Output of in-house R&D has been at its lowest in the past 5 years, despite an increase in the number of projects and in the availability of funds. The ratio of the number of FDA-approved NMEs to R&D spend for nine Big Pharma companies (fig 1) demonstrates a harsh reality that in-house R&D as it is conducted in the industry today is simply no longer sustainably efficient.

Figure 1. Number of total NMEs approved by the FDA versus R&D spending by: AstraZeneca, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Merck, Novartis, Pfizer, Roche and Sanofi-Aventis-Aventis, 2005-2010

Source: “The significance and apparent repercussions of the 2009-2015 pharmaceutical patent cliff”, Bioassociate, 2012

It has been argued that R&D turnout has been so poor in recent years due to the decreasing number of “easy targets” - that is, companies are addressing less well-elucidated disease pathways in a tunnel-vision search for the next blockbuster, increasing the risk of their ventures. In other words, basic research has apparently not caught up with the demands of the industry.

Pipeline collaborations, partnerships and in-licensing as a way to dilute the costs and potential hazards, and 91% of industry executives believe that in the next decade the industry will be riddled with pharma-biotech mergers; 69% also believe that consolidation amongst small biotechs will be on the rise.

Notably, in anticipation of the patent cliff, the majority of licensing deals struck in Q2 of 2010 involved molecules in marketing stages of development; leads in phase III trials were the second most popular licensing target. Most pharma executives anticipate a significant influx of later-stage, clinical molecules into their pipelines over the next two years (Fig. 2).

 Figure 2. Pipeline changes anticipated by pharma executives over the next two-three years (2011—2014)

Source: Life Science Strategy Group and William Blair & Co, 2011

GSK, Merck, Novartis, AstraZeneca, Pfizer and Roche have announced that in-licensing is to become a core part of their business strategies, and have already secured over 50% of all Top 20 Pharma in-licensing deals struck in the 2005-2010 period. The number of licensing agreements has increased by 16% in the last five years, and the majority of licensing deals struck in Q2 of 2010 involved molecules in marketing stages of development; leads in phase III trials were the second most popular licensing target.

Companies who strongly oppose diversification, such as Bristol-Myers and Roche, have divested from their non-Rx portfolios but have streamlined their efforts towards partnering and in-licensing rather than towards in-house innovation. Bristol-Myers’s “string of pearls” strategy is exclusively aimed at partnerships and licenses which would address a vast array of target disease niches and compliment the company’s existing pipeline. . As part of “pearl acquisitions” the company purchased the immuno-oncology specialist Medarex for US$ 2.3 billion, obtaining an abundant cancer and biologics pipeline in the process. Other pearl acquisitions included Kosan Biosciences and the protein biologics developer, Adnexus Therapeutics.

Similarly Merck’s chief licensing officer, Dr. Barbara Yanni, has revealed the company’s “scientific scout” model, as part of which licensing “detectives” are trained to hunt for lucrative deals amongst academia, small biotechs and even large multinationals. In 2009 the scouting strategy has lead the company to close 51 licensing deals.

Shifting Therapeutic focus

Based on the in-licensing activity in the industry, oncology, central nervous system disorders, cardiovascular health and autoimmune diseases currently dominate the target disease field, whilst the biggest blockbusters of the last decade have for the most part targeted pervasive “first world” conditions such as stroke, heartburn and asthma.  With Lipitor going generic, Pfizer declared that the company will no longer focus on cardiovascular health in their pipelines, shifting resources to oncology and Alzheimer’s disease instead. GSK is also set to diversify into oncology, cardiovascular health and vaccines, whilst Takeda will focus on metabolic & central nervous system disorders and oncology.

The ageing population of the world, which will reach 19% of the global population by 2030, is becoming pharma’s most faithful client. In the US, prescription use is sizeably dominated by the 65+ age group and R&D focus is shaping accordingly, with diabetes, osteoporosis, Parkinson’s disease and other chronic illnesses becoming the target of choice for applied research.

Outsourcing

For companies who chose to retain a certain level of home-brewed innovation, scientific outsourcing with contract research organizations (CROs) appears to be a more cost-effective alternative to in-house R&D. Global CROs such as Quintiles, Charles Rivers Laboratories, ICON and Parexel are expected to profit lavishly from the current industry turnaround.

In 2011, pharma companies have outsourced US$ 36.6 billion worth of R&D expenses to contract organizations - up 6.6% from 2009, and have as a consequence lowered their research expenditures from 74% to 62% in the past year. 

Smaller pharma and biotechs are expected to be responsible for the majority of outsourcing activity, as in-licensing will remain a priority for large pharma. The shift towards outsourcing has been made inevitable by expanding pipelines and shrinking R&D departments, and rates of outsourcing are expected to increase by 10% across all research areas by 2015, with growth rates exceeding 60% within the next decade.

Commercial Outsourcing

Drug commercialization is a process with a bulky price tag for Big Pharma, and one which is strongly dependent on an array of ever-shifting variables - i.e. fluctuating markets and exclusivity times. Occurrences like patent expirations may suddenly make obsolete massive product-specific sales teams, resulting in redundancies or substantial amounts of resources spent on product re-focusing. Essentially, pharma commercial teams have an “on and off” switch which begs for immense flexibility not afforded by the current pharma model. Since marketing is astonishingly as costly a process as R&D itself, it invariably possesses an equally large potential for cost cutting. 

CROs like Quintiles and Charles Rivers are beginning to develop specialized commercial outsourcing units, and numbers of global Contract Sales Organizations (CSOs) are on the rise, having already secured some Big Pharma customers. Sales outsourcing potentially eliminates the danger of post-expiration redundancies and the uncertainty which surrounds commercial matters in the industry. By 2016, the global CSO market is expected to be worth over US$ 9.2 billion, up from US$ 3.7 billion in 2009, and the US$ 200 billion Big Pharma spent on marketing in 2010 testifies to the potential of this niche. 

Diversifying into the generics, biologics, biosimilars, consumer healthcare and vaccine markets

As pharmaceutical innovation is decelerating due to a decreasing number of target diseases, diversifying into a competitor’s realm is continuously becoming a more attractive strategy for multinational pharma. According to Roland Berger Strategy Consultants, 78% of pharma executives perceive generics to be the most important area of diversification, followed by consumer health (50%) and vaccines (42%). Importantly, the strongest potential of generic and consumer health diversification is perceived to be in pharmerging markets.

Pfizer’s acquisition of Wyeth was in part motivated by the diversification potential of the deal, which gave Pfizer access to the established vaccines, consumer health and biologics departments of Wyeth. On a similar note, Sanofi-Aventis announced plans to become a diversified global healthcare leader in 2009 increasing non-patented drug and other product sales from 5% to 12% in recent years. GSK, who faces losses of US$ 9.3 billion during the patent cliff, was one of a select few multinationals to report Q3 2011 sales growth, for the most part due to a 21% increase in the sales of vaccines and a significant consumer healthcare sales growth in emerging markets.

Diversification is not on every multinational’s agenda, however. Eli Lilly and Bristol-Myers Squibb, for example, remain dedicated to their Rx programs, as investors and analysts are weary that conglomerates are likely to trade below the sum of their parts.

The Unmet Need Arena

In the current context, new innovative drugs entering the market must not only demonstrate that they are en par with or better than their marketed competition, but to differentiate enough from growing numbers of cheaper generic alternatives, and to justify the price premium over them.

Of particular importance over the next few years will be novel action or delivery mechanisms in major disease areas to accommodate those patients for whom current methods are unsuitable. Novel classes of diabetes drugs, such as the new SGLT-2 class, will be particularly prominent. Drugs targeting orphan diseases will also be on the rise, but will not be a significant source of revenue.

“Pharmerging Markets”

Currently, major global drug consumers are the US, Japan and the EU, but the growth rate of these markets is predicted to slow down to as low at 1% in the next decade. In contrast, pharmerging markets, such as the BRIC countries, South America and Eastern and Central Europe, have the potential to grow at 14-17% and to rake in up to US$ 180 billion annually for the pharma industry. Growth of income in these markets, which is normally 80% correlated with growth in affordability of and spend on medication, is extremely robust, and serves as the primary allurement for major pharma investors.

Defined by IMS Health as a “Tier 1” pharmerging market, China presents the greatest opportunity, with a predicted annual growth of 20% in terms of pharmaceutical demand, in contrast with the average global growth of only 5-8% through to 2014. China’s immense market growth is predicted to be mainly due to a significant rise in chronic illnesses, which currently amount to 80% of total deaths in the country. The IMS “Tier 2” Brazilian, Russian and Indian markets are expected to grow at 13-16% in the next five years, even despite the lack of adequate governmental patent protection. “Tier 3” countries such as Egypt, Indonesia, Mexico, Pakistan, Turkey, Romania and Ukraine, among others, are also steadily picking up pace. By 2014 pharmerging markets will represent 49% of the global pharmaceutical demand, in contrast with only 8% in 2001. 

Befriending Academia Still in the Cards

Basic research happening in the academic arena and government facilities has been identified as a profitable force by Big Pharma for some time now. Companies have nurtured academic links through the building of research incubators, offering of industrial placements, funding of PhD projects and sponsorship of individual labs. In the new era business model, however, friendship with academia has seemingly waned as a result of diminishing in-house R&D and increased outsourcing. According to latest research by the Association of the British Pharmaceutical Industry, industrial placements have been on a steep decline: from 530 in 2007 to 355 in 2009 and 268 in 2011. But this is simply the result of less in-house work, as other numbers show that industry has in no way lost interest in keeping in touch. In 2009, the number of sponsored PhD partnerships was 384, whilst in 2011 this number rose to 644.

This seems to re-iterate the notion that pharma is “down but not out”—in other words, declining annual revenues have called for more economical ways of maintaining contacts, but companies are  by no means less enthusiastic about scouting potential “socially”.

The trends the industry is following today are a result of a single apparent variable: lesser funds. With less money to throw against the conservative R&D model, companies have been able to isolate and target the root of pharma’s problem: the unproductive beast that the in-house R&D strategy has become along the way.

In-licensing and outsourcing may eventually lead to a new pharma “shell” model, whereby giants merely reign over countless contracts and licenses. But there may yet be a hindrance to this development. Come back to the Bioassociate blog next week for Part 3 of the New Era Pharma Business Model: The Case of the No-Exit Biotech.

For more in-depth details and numbers of the shifting trends, have a look at our report: "The Significance and Apparent Repercussions of the 2009-2015 Pharmaceutical Patent Cliff"

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”.