Please be seated…for now

The industry can rely on a few cushions to ease the transition. One is the mountain of cash compiled through divestitures and restructuring: Pfizer alone is sitting on $23 billion, followed by Merck and Abbott, with $18 billion and $11 billion, respectively. But deciding what to do with the windfall is harder than it seems. Even small acquisitions can prove a poor fit with an inflexible Big Pharma culture. Few experts believe that buying your way to market growth is a viable strategy, given discouraging precedents like Astra Zeneca's $15 billion purchase of MedImmune in 2007. Called transformational at the time, it has had zero impact on the company's deflated stock price.

Another cushion is the break in the patent cliff, which peaked last year but eases off considerably in 2013, with Eli Lilly facing the most significant exposure from LOE of its Cymbalta anti-depressant and two leading insulin replacements, Humalog and Byetta. After a moderate tick-up in 2014, when the last big tranche of primary care blockbusters like Nexium and Celebrex go generic, the industry will be free to focus on uptake of a new generation of targeted therapies drawn not from traditional chemistry but from the networked science of molecular biology. Some of these could be blockbusters, but many will carry smaller label indications that must be expanded over time. This requires a re-think of how to allocate clinical, manufacturing, and promotional spend, not to mention the substantial post-marketing study commitments demanded by regulators—and, increasingly, by payers.

Running from the rules

A few companies are pursuing a niche model that avoids this world entirely, in favor of stakes in products and geographies that are predominantly or exclusively private pay, with no requirement to negotiate access. Valeant's recent move to downgrade its presence in Europe is an amplification of what many other companies are thinking. Like it or not, company product launches—and ultimately patient access—are being re-evaluated and sequenced to minimize the impact of cross-national reference pricing on global revenues. Last year, Eli Lilly, Boehringer-Ingelheim, Pfizer, and GSK all decided to forgo launching new products in Germany rather than risk finding that near-generic pricing mandated by the country's AMNOG reform law might become the baseline for P&R decisions on these drugs in many other markets.

If this pattern continues into 2013, and indications are that it will, the result will be a widening of drug access discrepancies among countries in Europe—a trend that EFPIA appears determined to raise as another source of the health inequalities that the EU Commission wants to target as a legislative priority. There may also be a spillover effect as the EU Parliament begins its assessment of a revision to the 1989 Price Transparency Directive, which includes new measures sought by industry to penalize national authorities when they delay decisions on reimbursement beyond the 180 days set forth in the directive. Member states are decidedly cool about the revision, even though it gives them more leverage to demand, disclose, and share essential price information.