Challenges for pharma - past and present

3 May 2016 09:07

Justin Schroeder, PCI Pharma Services, takes an in-depth look at the issues affecting the pharmaceutical sector – past and present

2015 closed as a turbulent year in the world economy. Across the globe significant factors have stressed the marketplace as oil prices fall, stock markets swing dramatically, capital markets retract, and humanitarian crises persist with no end in sight. The global pharmaceutical and biotech market continues to push forward, evolving and adapting, despite these challenges.

Within the industry, merger and acquisition activity persists. Drug companies continue to rethink their pipeline development strategies and it is clear that acquisition will increasingly be a key strategy in supplementing their own internal pipeline development, even as companies pay significant premiums to acquire developing companies.

Tremendous pressure from the investment space has driven companies to buy or be bought, and speculation of who is next is compelling daily reading. With the evolution of tax inversion strategies, a remarkable new wrinkle has entered the equation. The tables have turned and it is not simply the traditional model of ‘big buys small’. The ability of a company to relocate its stake in the ground has major financial ramifications. To that end, the ongoing saga between Mylan, Teva, and Perrigo captured much of the pharmaceutical world’s attention. Likewise, the industry is eager to see how Pfizer and Allergan will look 12 months from now. It is apparent that, M&A will continue to be a major prevailing wind driving the future direction of the industry.

There is also continued reconciliation for pharmaceutical company strategy around maintaining complimentary businesses such as consumer over-the-counter medicines, vaccines, and animal health medicines. On the heels of Novartis selling its animal health business to Elanco, GSK completed its acquisition of the Novartis vaccine business. Novartis, in turn, acquired GSK’s oncology business as well as entering a partnership in marketing a portfolio of leading OTC products. Meanwhile, Bayer significantly doubled down in the consumer space in acquiring Merck’s OTC portfolio which it had acquired from the Schering merger. While Pfizer has divested its interests in animal health through the Zoetis spin-off, many analysts believe Bayer will continue to diversify and will make a future play for a larger presence in animal health. For every leading company going one way, it seems there is another going the opposite.

2014 was a record year for new ethical drug development and 2015 continued that trend. Companies have focused attention on novel therapies and unmet needs, supported by regulatory changes that have encouraged development in this space. In 2014, 17 approvals, or 41% of the total, were for rare diseases that affect 200,000 or fewer Americans ⁽¹⁾. These 17 approvals were regarded as ‘first-in-class’ therapies or 41%⁽¹⁾. 19 NDAs were approved utilising the Fast Track or Breakthrough status ⁽¹⁾. That trend continued in 2015, with 36% of approvals, or 16 of the 45 total, designated as ‘first-in-class’, and 47%, or 21 approvals, going to orphan disease indications⁽²⁾. 14 approvals utilised Fast Track status, 10 were Breakthrough therapies. 24 approvals utilised Priority Review, and six followed Accelerate Approval, designated for drugs for a serious or life-threatening illness that offers benefit over existing treatments⁽²⁾. In total, 60% of the new drug approvals utilised one of the four expediting categories FDA has created to inspire development of therapies for unmet needs⁽²⁾.

Drug pricing for these breakthrough therapies continues to be a hot topic. Gilead scored a major win with the commercialisation of Sovaldi and was thrust into the spotlight for its pricing. Despite significant pressure from payers, both private and governmental, treatment continues to be quite costly. The revenue has helped fuel substantial growth and market speculation about Gilead’s own plans for M&A. To date Gilead has weathered the storm and the company now sits with a substantial war chest. It had $26.2 billion in cash, cash equivalents and marketable securities at the end of December⁽³⁾. Many believe the organisation will be responsible for the next large acquisition in the market.

Despite the challenges to the global economy, emerging markets continue to be an attractive area for industry growth. The world was caught off guard by retraction in China’s economy, however – according to leading analyst McKinsey & Company, pharmaceutical spending in overall emerging markets has now overtaken the EU5 economies (Germany, France, Italy, the United Kingdom, and France) and has a total market size of USD 281 billion⁽⁴⁾. Between 2015 and 2020 emerging markets are expected to account for USD 190 billion in sales growth⁽⁴⁾. It is clear that the industry is committed to its investment in emerging markets.

While the global and domestic economies continues to face challenges, the pharmaceutical industry ploughs forward, all the while adapting and recalibrating to look for new areas of growth. With a track record for success, it seems a safe bet.

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