Pharma at a Crossroads
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Stan Bernard, president of Bernard Associates, a pharmaceutical consulting firm, says these challenges are not unexpected.
“The same way people go through middle age, our industry is going through middle age,” he said during a panel session titled “The Future of Pharma: Pharmaceutical Innovation, Competition and Pricing,” held during the University of Miami Global Business Forum, Jan. 12–14, 2011.
“We’ve moved from the growth stage into the mature, or competitive, state of our industry,” Bernard said.
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Panelists (L-R) Adrian Thomas, MD, FRACP, World
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Among the biggest challenges is the decline in revenues, with some companies now reporting single-digit profits — particularly alarming to stockholders accustomed to soaring bottom lines. One reason for the fall is expiring patents on blockbuster drugs like Lipitor, which has fueled the growth of the generics industry. Just six years ago, generics held 50 percent of market volume; today, their share is nearly 85 percent, said Fred Hassan, a partner at the private equity firm Warburg Pincus and chairman of Bausch + Lomb.
Another issue is the increasingly complex process of drug research, development and approval. “We hear a lot of great speeches about how inroads are being made, but the reality is that this FDA is not the FDA that it was 11 or 12 years ago, when we led the world in new approvals and it was proud to be an innovation machine,” Hassan said. Demand for change is pouring in from other sectors, as well, including insurers and patients. “Patients are becoming more involved and demanding preventative medicine,” noted Susan O’Connor, marketing director for Pfizer.
Experts do, however, see light at the end of the tunnel, including aging baby boomers who will use health care services in greater volume. Norbert G. Riedel, corporate vice president and chief scientific officer at Baxter International, pointed to treatments for diseases affecting the central nervous system, including Alzheimer’s and Parkinson’s, as “huge, unmet needs,” and trumpeted the potential of regenerative medicine, which involves the creation of living, functioning tissue to repair organs.
“I truly believe that this will be a completely new way in which medicine will be applied in the future, and it brings great, great hopes, because we truly will be able to treat diseases that have not been at all treatable in the past,” Riedel said.
Another promising area is personalized medicine — using an individual’s genetics to determine treatments, said Bernard, pointing to the cancer drug Herceptin. He acknowledged that Herceptin is effective in only 25 percent of women with advanced breast cancer, making it a niche product, but, he said, “It’s a $6 billion niche product.”
Other ideas for growth include focusing on a global strategy. “Any changes in the marketplace flow right through to the others,” said Adrian Thomas, worldwide vice president of market access, global strategic marketing and market access for Johnson & Johnson Pharmaceutical Services. But he cautioned against automatically assuming that some emerging markets, such as China, are a sure bet. “Because people see a huge Audi manufacturing plant in China, they think it’s a great market for pharmaceuticals. But guess what? The trillion dollars China is putting into health care reform is going into rural areas, with cents on the dollar. So the reality is that health care in China is very limited.”
Companies also must diversify. “The best example of this is Johnson & Johnson, where you have diversity within a company making both nutritionals and diagnostics devices, as well as health and wellness components,” O’Connor said.
Offering examples of several companies forging success in the new marketplace, Bernard pointed to Roche’s purchase of Genetech, which propelled that company into dominance in the cancer treatment market. By purchasing Alcon, Novartis now controls 70 percent of all sales in vision care. And although Pfizer and GlaxoSmithKline were once bitter enemies, Bernard noted, “They came together, put their portfolios together, and said, ‘Hey, this is the only way we’re going to compete in HIV.’ You’re going to see all types of partnerships going forward.”
However, he also sounded this warning: Competition will be stiff, and not everyone will come out a winner. “People say that the industry has been competing for years. Well, it will be much more intense. We are going from playing a friendly game of golf, where everyone wins and has a good time, to full-contact football,” he said.
Still, said Riedel, “If we pay attention to the questions and look for the right answers, I do believe the industry will be sustainable and successful and continue to make fantastic contributions to the well-being of society.”
