Earlier this year, we were deep into a consulting report on general trends in the Pharma industry and were struck by data in different yearly reports from PhRMA, the industry body in the US. Basically, when we pieced the data together, it was clear that the market share of generics was not only growing but also likely to get worse in the next 2-3 years with major expiries expected.
Take a look at this chart we put together from PhRMA reports:
We were therefore not in the slightest bit surprised to read this report in The Economist last month predicting that a huge drop in branded sales revenues is to be expected in 2011, which is very much in line with our own analysis and predictions:
In case you're wondering what's happening in 2011, think blockbusters such as Lipitor, Plavix, Seroquel and Zyprexa to name a few and some of those will experience patent challenges before then. Interestingly, between 2009 and 2011 Pfizer (Lipitor), Lilly (Gemzar and Zyprexa) and sanofi-aventis (Eloxatin, Taxotere and Plavix) will all see major losses in revenues due to patent erosion as they scramble to make up for the losses with various approaches.
In addition on the oncology front, Taxotere, Doxil and Gemzar are all due to expire next year, so the biggest impact in overall revenues will likely be seen in 2011 when multiple generic entries will further drive the price down significantly.
It's no wonder, then, that Pharma and Biotech companies are starting to rethink their future strategies given the dearth of new products coming through the pipeline at a rate that isn't fast enough to replace the blockbusters going generic.
What options are out there that can be considered?
a) License late stage or 'hot' products from smaller pharma or biotech companies at a premium. Many oncology companies are racing to do this such as J&J with abiraterone, Astellas with Medivation and Celgene with romidepsin, for example.
b) Creative life cycle management such as new formulations, branded generics or own-label medications (eg Novartis has successfully tried combinations of these with Voltaren, Sandogobulin and lactulose)
c) Expand into generics in emerging countries such as China, Brazil, Russia and Asia where their is a rapidly growing middle class demand for new medicines to treat lifestyle and aging diseases (eg sanofi-aventis, Pfizer, Novartis, Merck and GSK)
d) Consolidate therapy areas and have a narrower focus with increased licensing ties or acquisitions in specialty areas of interest (eg BMS, Genentech)
e) Greater focus on rarer diseases with a strong focus on rationale drug design and efficacy, leading to higher per patient prices (eg Genzyme, Novartis, Allos Therapeutics)
The recent round of mergers is unlikely to be the last for a while as others are already happening or being worked on. The rate of licensing deals has begun to pick up significantly lately, driving up the asking price in the process, as Biogen IDEC found recently when Facet Biotech tartly declined their $17.50/share offer for the company.
Overall, I think the general trend for utilising more creative strategies with generics, emerging markets and better life cycle management strategies are here to stay. There will always be new products coming onto the US market, but with an increasing focus by the Obama Government on pharmacoeconomics and cost effectiveness of new medicines, the Pharma industry must either innovate, diversify or struggle as patent expiries focus everyone's attention on the bottom line.
It will be interesting to see who comes out stronger and better positioned for the future and who dies. The difference between winning and losing is sometimes very small, as Vion found this year with Onrigin. Others may well follow suit and seek bankruptcy protection in 2010 if their Russian Roulette strategy doesn't come up trumps.