Industry Outlook – Pharmaceuticals

Tougher price regime for drug prices following presidential elections

Major drug companies are preparing for a tougher drug pricing environment in the U.S. after the presidential election in November 2016, which would likely lead to a restructuring of the global pharmaceutical industry. Pharmaceuticals companies would have to introduce new pricing models for their top-selling drugs since presidential candidates Hillary Clinton and Donald Trump have both pledged to clamp down on elevated drug prices, even while the rapidly increasing older population is intensifying pressures on the U.S. health system.

Threat of biosimilar competition and patent disputes

Source: Hospira - Biosimilars, a visual perspective
Source: Hospira – Biosimilars, a visual perspective

Biosimilars are copies of biologic drugs that usually go through a complex manufacturing process. Biosimilars have been used in European and Asian markets for almost a decade, but made a late entry in the U.S. The U.S. government gave the FDA a mandate to approve biosimilar versions of drugs in 2010.

In the U.S., Sandoz, the generics unit of Novartis International AG (NYSE: NVS), launched Zarxio in 2015, a biosimilar of Amgen Inc.’s (NASDAQ: AMGN) Neupogen, an oncology molecule. The second biosimilar to be launched in the U.S. was manufactured by Pfizer Inc. (NYSE: PFE), and Celltrion and is a version of Johnson & Johnson Inc.’s (NYSE: JNJ), Remicade.

U.S.-based branded drug manufacturers are faced with the threat of competition from biosimilars, and are outdoing one other to develop biosimilars of expensive, popular products for the American market, while also launching patent disputes with other firms that are creating copycats of their own drugs.

Source: Bernstein Research
Source: Bernstein Research

Biosimilars are expected to generate revenue of $25 billion to $35 billion by 2020 according to industry experts. Globally, around 700 biosimilar molecules are undergoing various phases of development, targeting different therapeutic areas.

The advent of biosimilars is expected to benefit insurers, patients, and the medical community. Pharmacy Benefit Managers (PBMs) are expecting the launch of several biosimilars since the patient pool is set to rapidly expand owing to lower prices. PBMs are looking to work on securing pricing deals and benefits with companies that manufacture biosimilars. Express Scripts Holding, for instance, expects the launch of 11 biosimilars to save patients $250 billion between 2014 and 2024, as per Bloomberg’s report on September 12th, 2014. Biosimilars will also lead to huge savings for patients covered within the Medicare and Medicaid programs. According to statistics gathered by the Congressional Budget Office, the savings from certain biosimilars will touch $25 billion during 2013-2020, owing to the Biologics Price Competition and Innovation Act of 2009. These savings will lower the cost of insurance, and PBMs will be able to provide more competitive premiums to patients.

However, the R&D process of biosimilars is a more expensive process than that of generics. Pharma companies will have to spend between $40 million to $300 million to develop a biosimilar drug in about five years.

Drug firms make a beeline for China

I3Drug giants are focusing on China, the world’s second-largest drugs market after the U.S., and estimated to be worth around $185 billion by 2018, as per IMS Health and as reported by Reuters on June 28th, 2016. As a result, pharmaceutical manufacturers are making a beeline for China by setting up facilities as well as investing in acquisitions, licensing deals, and joint ventures, with the aim of gaining an edge in dealing with domestic regulators and government bodies. Moreover, biologics are underutilized in China, accounting for 4% of medicines prescribed in the country, compared with 22% in the U.S., according to Pfizer. Pfizer will invest $350 million to build a plant for biotechnology drugs in China’s eastern Hangzhou region, as reported by Bloomberg on June 28th, 2016.

Other drugmakers with exposure to the Chinese market include GlaxoSmithKline PLC (NYSE: GSK), Novartis International AG (NYSE: NVS), AstraZeneca PLC (NYSE: AZN), and Merck & Co. Inc. (NYSE: MRK). Novartis opened its $1 billion third major research center in Shanghai on June 1st, 2016, while Merck opened its $120 million pharmaceutical manufacturing facility in Hangzhou in April 2013.

Focus on precision medicine

The global pharmaceutical industry is making a push towards increased development of precision medicine in 2016. According to the U.S. FDA, precision or personalized medicine focuses on providing “the right patient with the right drug, at the right dose at the right time”. Hence, pharma companies are building their capabilities through advances in genomics and Big Data to provide targeted therapies by analyzing the characteristics, needs, preferences, and genetic makeup of patients. In the recent past, AstraZeneca, Pfizer, and Roche Holding, have invested in personalized medicine research.

Taking the technology leap

Lastly, pharmaceutical companies are embracing technology like never before, especially in the area of analyzing Big Data to attain deeper insights and improve decision-making in their R&D process. With the emergence of predictive and prescriptive analytics, drug majors are looking to apply data mining technology to drive efficiency, achieve cost-effectiveness, and lessen the time needed for real-time validation in the research, development, sales, marketing, and distribution of medicines. Companies are expected to focus on leveraging these insights to stay ahead of their rivals in an increasingly competitive marketplace.

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