The Steep, Slow Climb - Pharmaceutical Executive

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The Steep, Slow Climb
The new year presents pharma with so many unprecedenteds and unpredictables that the patent cliff may be the least of its problems. A survey of leading experts reveals 2011's sobering reality and the trends that smart drugmakers will follow into the next decade


Pharmaceutical Executive


1. THE PATENT CLIFF

The 2011 and 2012 patent shreddings—six of the 10 top-selling US brands and a total of $30 billion in sales exposed to generic competition—have haunted pharma for so long that CEOs may find some relief in their arrival. Says Tollman: "The industry is so cash rich and its timelines are so glacial that reality never quite hit. It took a long time for companies to dig themselves into this hole and it will take a long time to dig themselves out."

The disappearance of multibillions of dollars in revenue at a bevy of world-class drugmakers is an unprecedented event, and not even the experts can safely predict the fallout. One thing is certain: A reliance on one or two big-ticket products will not save the future, given the rate at which Phase III failures and FDA rejections continue to mount. Consider AstraZeneca: With one quarter of its sales falling off the patent cliff by 2015, the British firm had pinned high hopes on its novel bloodthinner Brilinta, with proven superiority to Plavix (patent R.I.P.: 2012). But the FDA has put the brakes on approval with a request for more safety data. AZ's moves over the next 12 months will be carefully scrutinized.

The smart firms are on a long, steep climb toward the rationalized cost structure of any healthy industry. In their favor is the obvious but oft-overlooked fact that society needs them to succeed: The bankruptcy of companies that make lifesaving medicines is bad for everyone.

2. THE BUSINESS MODEL


Carolyn Buck Luce, Ernst & Young
The familiar question—diversification or pure-play?—will gain increasing urgency as the patent cliff meets new price ceilings. "What's clear is that it's very unclear which business model is best," says Aitken. "But we are seeing companies placing their bets because they have to. And it's worth noting that CEOs are more explicitly questioning what others are doing and why."

The move to "grow lean" may come to mean more than just cost cutting. "I think companies will be taking a very close look at their organizational effectiveness—the many levels of bureaucracy, the low level of employee engagement—and linking it to the lack of innovation," says Tollman.

Some experts predict that big pharmas will get rid of dead weight by spinning off underperforming divisions—or rebranding them as "innovative collaborations," as GSK and Pfizer did with ViiV Healthcare. It is even possible that 2011 will see the first leveraged buyout of a top-50 pharma, with private equity then shutting down R&D and pocketing the cash flow.

Still, pharma innovation abides, even if not powerfully enough to meet Wall Street expectations and its own bottom line. A handful of important therapeutic advances will come to market in 2011, including the first treatments for triple negative breast cancer and malignant melanoma, oral drugs for hepatitis C and multiple sclerosis, new drugs for stroke prevention, and the first new lupus treatment in 50 years (see "Ride the Wave: Pipeline Report 2011," Pharm Exec Dec. 2010). All are expected to reach blockbuster status or better, some rolling out with restricted REMS.

Yet the majority of new drugs remain, at best, incremental advances. Their prospects of success are diminishing as generics come to define the market. "Most new branded products will be fighting for a third-line rather than a first-line position. Even a new brand that is first-line is much less likely to be used," says Aitken.


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