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Recession: Bounce Back

Beyond Patent Wars

A number of key pharmaceutical trends emerged in 2010; but their effects on the future of the industry, and whether we have finally seen the back of the recession, are yet to be seen.  

2010 has been a turbulent year for the pharmaceutical industry, with the aftermath of the recession continuing to put pressure on drug discovery, compliance and customer interactions. These pressures have been further exasperated by ongoing industry challenges, including a shrinking drug pipelines with the number of new molecular entities being approved by FDA reducing in the last few years, and the end of the blockbuster drug era with growing competition from the generics.

In addition, most large pharmaceutical companies are facing a high proportion of patent expirations between 2011 to 2014, which analysts expect will detrimentally affect over $150 billion of revenues from those branded drugs. Demand from emerging markets is also shifting traditional sales and marketing practices as pharmaceutical companies explore non-traditional customer bases and tackle the associated challenges, such as dealing with unstructured distribution, counterfeiting and lower price points.This article investigates how these trends will continue to influence the industry in 2011, the likely areas of investments and how to capitalise on them, and if the industry will be able to get back to pink health at the end of the recession.

Rising to New Challenges

The challenges faced by the UK and European pharmaceutical industry are not hugely different from those being faced by the industry in the US or elsewhere, but several factors vary on a local scale:

  • There is higher revenue pressure for companies with dependence on the European market due to the tightening of budgets in the publiclyfunded, centralised healthcare sector (certain companies have decided not to promote certain drugs in some markets – for example Nexium in Germany)
  • The disease pattern in Europe is shifting towards more chronic and long-term therapeutic areas due to the ageing population
  • The patchwork of local and European/ regional regulations – be they related to drug pedigree, clinical trials or commercial operations – makes it more arduous to operate in that space

Traditional, large pharmaceutical companies are becoming less dominant in spite of increasing size and portfolio. Innovation is happening outside of the big vendors; more than 50 per cent of new drugs and molecular entities getting approved are from the smaller biotechs.To combat this trend and plug the innovation and pipeline gap, larger producers are using their financial muscle and size to acquire the smaller companies.

There has been increased activity on the mergers and acquisitions front, culminating in large deals recently: Pfizer- Wyeth, Roche-Genentech, and Merck- Schering Plough. In addition, there has been a string of smaller acquisitions, co-licensing agreements and general consolidation in the biopharmaceutical space. Most of these are driven by the need for companies to acquire new drugs to bulk up their portfolio, complement their sales and marketing with innovative R&D set-ups, and get into therapeutic and clinical areas, which will make them more competitive (such as vaccines, animal health, Alzheimer’s, and so on).

Nevertheless, in spite of bulking up, and after the inevitable rounds of consolidation and portfolio rationalisation, the jury is still out on whether these mergers have been accretive to the process of higher innovation and research productivity.

The other set of changes that has buffeted the pharmaceutical sector in 2010 has been the product and manufacturing quality issues that have affected respectable companies. Johnson & Johnson’s product recall of respected brands like Tylenol due to quality issues, as well as the discovery of manufacturing irregularities at Genzyme, have once again brought into sharp relief the overall ‘trust’ factor in this sector and the role of the regulators, compliance and product quality.

The overall set of sales and marketing activities have faced changes too.What used to be seen as ‘business as usual’ has now come under scrutiny with sunshine laws and sharply defined ethical boundaries. Even well-respected companies have had to settle with regulators due to certain brand promotional practices that were considered dubious.To adapt to changed provider expectations and restructure the way sales teams operate, GSK has recently announced a moving away from a revenue-based compensation model for their sales force to a more serviceoriented structure.The increased use of social media and a 360-degree view of the patients and physicians is driving transformations related to marketing operations, patient adherence, keyopinion leader management and sales analytics. Some of the key trends affecting the pharmaceutical industry are illustrated in Figure 1. 

Affordable, Preventive and Patient-Centric Healthcare is the Future

Technology is helping in a big way in tackling some of the issues and trends described earlier. Companies are renewing their focus on improving R&D productivity by investing in better collaboration and analytical tools. Research departments are using next generation sequencing technologies to:

  •  ‘Fail fast and fail cheaper’ (in their quest to determine and subsequently identify the right drug candidates)
  • Increase their externalisation efforts (collaborating with external partners for research as in-house research to deliver better results)
  • Use standardisation and analytical tools for better reuse of existing digital assets and information
Clinical trials are becoming more adaptive by incorporating signal detection technologies, as well as being more efficient in terms of global supply chain and forecasting.Pharmaceutical sales and marketing is beginning to embrace the web, especially the 2.0 models of social networks and media, for doctor and patient interactions.

One of the biggest changes in the future for the pharmaceutical industry is that their potential market size will expand due to healthcare reforms taking place across the Europe and the US.This will not happen right away as some of the changes do not kick in until 2014, but it does help to ease some of the revenue pressures they have been facing due to patent expirations and shrinking pipelines. Nevertheless, the expanded market does not come without strings attached and as a result there will be more government intervention in terms of drug approvals, pricing and reimbursements.The pharmaceutical industry also has to justify new drugs and treatments with regards to patient outcomes and comparative effectiveness.

Comparative effectiveness research and pay-for-performance imperatives would drive big changes in the way trials are managed, safety and sales data are analysed, and new investments are being made. Future drugs and treatments are to be priced and reimbursed based on demonstrable outcomes and features which make them different from those that are already on the market. Institutional buyers are going to be more active due to higher role of payers in the pharmaceutical delivery and outcomes, and focus in sales and marketing will gradually shift towards managed markets.

Changing Customer Perceptions

Society is showing less trust in drugs alone as the key element of treatment. Customer-centricity is leading to patients and doctors demanding better outcomes and patients having a higher stake in their own health management decisions and treatment regimes.Patients want health solutions from pharmaceutical providers, not just drugs, and expect more adherence and compliance support for complex and chronic treatments.They are also turning towards prevention and lifestyle changes to combat diseases.

The use of telemedicine and remote health monitoring for illnesses such as diabetes, cardiac arrests and sleep disorders are on the increase due to their popularity and obvious cost advantages to the value chain. Mobility in a broader sense is also gaining in importance, both within the enterprise, as well as with providers and patients.

The digitisation of patient health records is another area which is going to have continued and accumulating higher investments starting in 2011.The entire healthcare information exchange and data inter-operability across research, development, safety, sales and postmarketing – continuing on to providers, physicians and patients – are to be the holy grail for players both inside and outside this sector. Cloud computing and predictive analytics that will enable more real-time decision-making out of the huge amounts of inter-connected information will drive investments in technology.

Looking to the Future

The future of the healthcare economy is going to be driven by three big imperatives: affordability, prevention, and patient-centricity. Each of these areas offers the opportunity for the drug industry to adapt and prosper, but also have their own challenges which technology has the potential to tackle. In particular, there are five areas which will see increased investment in order as pharmaceutical companies seek to exploit the changing industry: mobility, inter-operability, social media, cloud computing and predictive analytics.

How global pharmaceutical companies gear up to face the ongoing challenges will ultimately decide whether the coming year will help lift them out of the recession or will tip them further downwards towards the cliff.

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Arun Kumar serves as a Vice President and Head of the Global Life Sciences business unit at Infosys. He is responsible for the various innovations, transformations and large, complex managed services engagements in his client base that comprises of Big Pharma, biotechs and medical devices companies. Arun started his career at Infosys seven years ago, and has managed multiple roles, including a previous stint as the Head of Worldwide Sales for the large deals group in Infosys. In his 17 years of professional experience, Arun has been involved in strategic management, unit leadership, business-technology solutions and global sourcing. Arun has a B Tech from the Indian Institute of Technology Mumbai, and an MBA from the Indian Institute of Management, Kolkata, India.
Arun Kumar
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