Can pharma find new solutions to some old problems in 2006?
For an industry that once seemed immune to the ebb and flow of the economy and was highly regarded by the public, 2005 was a particularly tough year.
By on Jan 4, 2006For an industry that once seemed immune to the ebb and flow of the economy and was highly regarded by the public, 2005 was a particularly tough year. Instead of the headlines of stellar earnings reports and increased profits the industry had grown used to garnering, 2005 found pharma grabbing headlines of a decidedly different flavor, including high-stakes lawsuits over product safety, clinical trial data disclosure controversies and regulatory coddling claims.
2005 has, by most industry experts's assessments, been a year of unequivocal crisis for the industry. And it is taking its toll.
Merck, hit hard by the withdrawal of Vioxx, eliminated 7,000 of its 63,000 employees and closed 5 plants and 3 laboratories, saying it is just the beginning of the most severe restructuring in its 114-year history. Pfizer, with sales down by more than 15% in the 3rd quarter, announced it was closing 23 of its 93 factories and cutting costs by $4 billion. And others are restructuring, including Wyeth, which has shifted many of its sales reps to part-time positions.
In fact, according to outplacement firm Challenger, Gray & Christmas, job cuts in the first 11 months of 2005 were up 150% over 2004, with more than 25,000 pharma workers slashed.
Much of the belt-tightening is being driven by looming blockbuster patent expirations, which IMS Health predicts will account for $23 billion in losses in 2006, the highest in at least five years and more than two and half times the $9 billion that went off patent in 2002. All tolled, 39 major drugs are set to lose patent protection by 2010, according to the independent UK media company visiongain.
So what can we expect in the new year ahead?
IMS forecasts that the global market will grow to between $640 and $650 billion in 2006, an increase of 6 to 7% and holding fairly steady compared to the 7 to 8% growth seen in 2005.
The group says the US market, which accounts for 43% of pharmaceutical sales worldwide, will grow 8 to 9%, fueled by increased access for US seniors to lower-cost medications through Medicare Part D and an expected rebound from the impact of Cox-2 product recalls and safety issues.
But it predicts the five major European markets France, Germany, Italy, Spain and the UK will experience only 4 to 5% growth in 2006 due to impacts from expansion of the reference price system and mechanisms to encourage the use of generics. And the Japanese market, IMS predicts, will experience a rather sharp downturn with 0 to 1% growth in 2006 compared to the 5 to 6% seen in 2005, as a result of the impacts from more restrictive National Health Insurance (NHI) reimbursement listings and biennial price cuts.
Industry-wide, 39 new products are expected to launch in 2006, and 26 of those will be targeted at specialists. Many new products will be from two key therapy areas: oncology products, which are expected to see 17 to 18% growth in 2006 and statins, predicted to grow 7 to 8% in 2006.
But despite such bright spots for the industry, it still faces many challenges to continued profitability.
Although most industry experts agree that the new Medicare prescription drug benefit will boost sales and profits, at least during the first year or two while insurers compete for members and could account for a 2 to 3% boost in earnings during 2006 and 2007, many also predict the program will increase pricing transparency and pressures on margins. And ultimately, that pressure they predict could decrease earnings for the pharma industry by as much as 3 to 13% by 2009.
Meanwhile, IMS forecasts generics, already 53% of all US prescriptions, will grow 18 to 19% in 2006, driven by patent expirations for many blockbuster drugs. According to visiongain, the world market for generics was $39.6 billion in 2004 and will rise to $83.9 billion by 2010. Nine of the top ten fastest growing pharma companies, the group says, are generics makers.
To respond to changing market conditions and shifts in their product portfolios, IMS suggests pharma manufacturers must: reassess sales and marketing spend levels and practices, accelerate safety surveillance efforts, and invest in health outcomes and pharmacoeconomic studies to prove the value of medications.
The group also encourages companies to pursue growth in emerging markets such as China, Latin America and Eastern Europe.
Some industry analysts, in fact, are predicting that traditional pharma companies will evolve into pure marketing organizations while outsourcing manufacturing, clinical trials and drug discovery to business partners in China and India.
But most agree pharma's single biggest issue in 2006 is to address its waning public image.
Collectively, the pharmaceutical industry must continue its efforts to enhance its public image and demonstrate its commitment to the advancement of healthcare, says Murray Aitken, senior vice president of corporate strategy for IMS. The pharmaceutical industry must carefully consider how to adapt its business model to sustain growth worldwide. Market conditions are changing, the governments's span of control is growing and future success will only be achieved by those manufacturers with innovative products, demonstrable cost-effectiveness and productive, evidence-based sales and marketing approaches.
Key areas that pharmas must consider as they strive to make 2006 a turning point toward greater profitability and public trust are:
Transparency of clinical trial data
A strong commitment to completing post-marketing studies in a timely and transparent manner
A more public commitment to drug safety and surveillance
A shift toward physician and patient education in sales and marketing to better balance drug benefits against risks
Enhanced patient compliance and persistency to improve health outcomes and the public's perception of the value of medicines
Advocacy role in Medicare Part D education of physicians and patients
There are no easy answers, of course. But pharma is an industry built on innovation and 2006 is promising to be a year of rethinking, rebuilding and reinventing.