Industry news: Global pharma market must transform to capitalise

The global pharmaceutical market will more than double in value to $1,3 trillion by 2020, according to a new report on the future of the pharmaceutical industry released by PricewaterhouseCoopers. The increase is driven by soaring worldwide demand for medicines and preventative treatments as the population grows, ages, becomes more obese and more prosperous.

But the PwC report Pharma 2020: The Vision - Which Path Will You Take? indicates that the current pharmaceutical industry business model is both economically unsustainable and operationally incapable of acting quickly enough to produce the types of innovative treatments demanded by global markets. In order to make the most of future growth opportunities arising from unprecedented demand for pharma products, the industry must fundamentally change the way it operates.

Pharmaceutical companies are facing a dearth of new offerings in the pipeline, rising selling and marketing expenditures, increased legal and regulatory constraints and tarnished reputations. At the same time health care payers and providers have recognised that current health care expenditure levels are also unsustainable unless they deliver more demonstrable care and cost benefits over the long term.

Denis von Hoesslin, PwC SA pharmaceutical industry leader, says that the pharma industry must focus on improving R&D productivity. “The industry is investing twice as much in R&D as it was a decade ago to produce two-fifths of the new medicines it then produced. It is simply an unsustainable business model.”

Von Hoesslin comments that over the next decade, it is crucial that the industry shifts its investment focus towards research and less on sales and marketing. “Pharma's traditional strategy of placing big bets on a few innovations and marketing them heavily with the intent of achieving blockbuster sales, will no longer suffice. It must focus on the development of medicines that prevent, treat, cure, have tangible benefits and tackle unmet medical needs.”

Some of the major changes that PwC forecasts for the industry are:

· A greater emphasis on outcomes and measurable results will drive product development, pricing and reimbursement decisions and risk-sharing agreements between industry, health care payers, providers and regulators.

· Solutions to monitor and ensure that patients are fully compliant with their medications could generate more revenues and improve outcome and patient safety. One U.S. study found that 20 per cent of Americans never fill their original prescriptions or use other people's medicines, and 60 per cent of patients cannot identify the drugs they are taking
· The focus will shift from treatment to prevention and pharma will enter the realm of health management, with wellness programmes, compliance monitoring, vaccinations and other value-added services.

· New technologies such as genetic-based diagnostics in the development of personalised medicines will revolutionise the R&D cycle for products and further research into the human genome will open up a new world of opportunities in molecular science.

· The current R&D process involving four linear phases of clinical trials will fall away. We will see a system that involves in-life testing and live licences being issued contingent on the performance of the drug over its lifecycle.

· There will be greater international regulatory cooperation and the sharing of safety and efficacy data and by 2020 there may well be one global regulatory system.

· The blockbuster sales model will disappear, replaced by integrated packages of medicines and health care services.

· The over-the-counter self-medication sector will grow and new technologies will enable automated dispensing of medicines direct to consumers using email or smart cards.

Von Hoesslin says that the South African pharma industry has some of its own unique challenges to address over the long term. “SA has an unusual dual health care model whereby private and public health care co-exist. It is generally believed that the private sector, to some extent, cross-subsidises the public sector. So if there is limited growth in the private sector, but public sector demands increase, the financial viability of the ethical (branded) pharma companies in particular is threatened. Private medical aid fund membership has remained fairly flat over the last 5 - 10 years suggesting that the emerging black middle class continues to rely on the overwhelmed public health care system.

With regard to anti-retrovirals, many multinational pharma companies have made their patents available to generic pharma companies at little or no charge or have provided products to the public sector at significantly reduced prices.”

While some emerging markets are seeing significant growth in this sector, pharma companies in SA are experiencing real decreases in the pricing of their products since the introduction of Single Exit Pricing legislation. “Increases in volumes have, to some extent, compensated for these reductions. And compulsory generic substitution continues to negatively impact on the pharma industry.”

Von Hoesslin concludes that pharmaceutical companies can no longer shape their own destiny. “They will now have to take note of changing health care market dynamics and must adapt their business models accordingly.”