US focus: still top of the pharma pile
pharmafile | June 16, 2014 | Feature | Manufacturing and Production, Medical Communications, Research and Development, Sales and Marketing | Medicare, Obama, Sunshine Act, US, United States, america, report
Population: 313.9 million (2012)
Government: Federal presidential republic
Leader: President Barack Obama of the
liberal Democratic Party
Gross Domestic Product: $16.2 trillion (2012)
Currency: US dollar
Healthcare spend: €$2.8 trillion, $263.3 billion
of which on prescription drugs (2012)
Industry: Largest pharmaceutical market in the world
Lobby group: The Pharmaceutical Research and Manufacturers of America (PhRMA)
Employment: More than 272,000 people employed in the pharmaceutical sector (2010)
Research spend: $36.8 billion on pharmaceutical R&D (2012)
Top therapeutic classes by dispensed prescriptions (2012):
Antihypertensives, plain and combination
Pain
Mental health
Antibacterials
Lipid regulators
Other central nervous system disorders
Antidiabetics
Respiratory agents
Anti-ulcerants
Nervous system disorders
Thyroid preps.
By far the largest in the world, the US pharma market has weathered various crises and controversies over the past decade. Economic recession, patent cliffs, healthcare reform, lean periods of regulatory approval: it’s faced the lot – and never even come close to toppling off the global top spot.
Indeed, despite a dip in drugs spending in 2012, the wider pharma industry has enjoyed consistent growth in that time. Not quite as stellar as the double figures posted by ‘pharmerging’ markets like China and Brazil, but solid nonetheless.
According to industry information services firm IMS Health, the US pharma market was worth more than $320 billion in 2011, and research company ReportsnReports expects that figure to jump as high as $476 billion by 2020. In contrast, Japan’s pharma market, currently second in the world, is not expected to surpass the $150 billion mark by that point.
The US’s dominance is attributable to many factors, not least of all its post-World War II emergence as the world’s major economic power. With more recent economic deceleration, however, the industry has had to innovate to maintain growth.
Healthcare specialist Suzanne Elvidge, writing last year in New Scientist magazine, suggests that pharma’s greater involvement with biotech start-ups has helped spark an upturn in R&D efforts and drug approvals. “Established pharma companies are providing support by creating bioincubators – clusters of small labs with shared infrastructure – that give new and emerging companies a cost-effective and low-risk start.”
Elvidge draws specifically on Janssen Labs in San Diego, which backs start-ups working in areas of unmet need, granting them access to the firm’s research facilities. Notable bioincubator success stories from the last few decades include New Jersey-based Amicus Therapeutics, which last year entered a Parkinson’s disease research collaboration with Biogen Idec, and Martek Biosciences, which was acquired in 2010 by DSM for more than $1 billion.
Pricing and regulation
The average spend on drugs per person in the US every year is nearly $1000. This figure is the highest of any country in the world and nearly twice the average spend of the 34 OECD member countries.
This statistic is attributable both to the fact that Americans consume more medicine than any other nationality (around a third of global drug spending takes place in the US) and that they pay more for those treatments: OECD statistics indicate that patented drugs cost twice as much in the US as they do in the UK and Australia.
Indeed, while countries such as the UK have agencies to regulate the cost of drugs the US has a much more liberal pricing environment. American insurers tend to accept the prices set by pharma companies, unless there is significant competition in a treatment’s therapeutic field.
With comparatively unrestricted pricing practices, the main hurdle to market access in the US is the Food and Drug Administration (FDA). Headquartered in Silver Spring, Maryland, the agency has a remit that extends beyond pharma products to food, cosmetics and radiation-emitting devices. Indeed, the regulator claims to oversee the safety and suitability of products that account for 25% of all money spent by American consumers.
For standard approvals, the FDA sets itself a 10-month target to complete the process. It also has a robust system in place to accelerate the review of treatments for severe, dangerous and rare conditions. A number of designations, including ‘Fast Track’, ‘Accelerated Approval’, ‘Priority Review’ and most recently ‘Breakthrough Therapy’ have been introduced since the early 90s.
Drugs to have benefited from faster approval include blockbuster cancer drugs Xeloda (capecitabine, Roche) and Glivec (imatinib, Novartis), as well as Merck’s mega-selling HIV treatment Isentress (raltegravir).
However, there have also been instances of accelerated drugs that have had to be withdrawn from the market, such as Pfizer’s Mylotarg (gemtuzumab ozogamicin), which was taken off shelves after showing no clinical benefit in post-marketing trials.
FDA’s international reach
Around 80% of the active pharmaceutical ingredients (APIs) used in US drug manufacturing are sourced from outside the country. As a result, the FDA has a significant global presence with offices in territories such as India, China, Europe and South America.
Its Indian activities have been particularly prominent in the headlines recently, with quality concerns leading to product recalls, warning letters and even import bans. In February, FDA commissioner Margaret Hamburg visited the country to personally oversee the implementation of quality measures – as well as quell any emerging tension by stressing that India was not being singled out.
As pharma continues to globalise and the market – both in the US and globally – continues to expand, the influence of the FDA in international manufacturing is likely to grow.
Obamacare and the Sunshine Act
In March 2010, President Barack Obama’s legacy legislation, the Patient Protection and Affordable Care Act – also known as ‘Obamacare’ – was signed into law. By far the biggest shake-up to US healthcare since the introduction of Medicaid and Medicare in the 1960s, the provisions of the new legislation have been divisive, to say the least.
Supporters of healthcare reform say the act will allow a vulnerable section of society to gain access to affordable coverage, while opponents see the law as a ‘big government’ infringement of personal freedom. Ideological arguments aside, reform is now very much a reality and affects pharma in two critical ways.
Firstly, extending health insurance to an additional seven million people (a figure expected to rise as high as 32 million by 2016) is an expensive business – and the industry will have a foot a chunk of that bill through rebates and taxes.
Forbes reports that pharma will cough up an estimated $100 billion in the first decade of the new law’s lifetime. The amount each firm pays will depend on their size and market share: Johnson & Johnson, for instance, was set to fork out $1 billion last year.
However, more people with insurance means a greater demand for treatments and other pharmaceutical products. This trend is set to increase revenues, but it remains unclear as to how beneficial this sales lift will be for pharma in the long term.
At an industry event last year, Eli Lilly chief executive John Lechleiter described expanded access in the US as a ‘double-edged sword’. He said: “Greater access is inherently good for our industry, in general. The question, however, is: ‘what is the upside to this access?’ I don’t think any of us have been able to say that this will lift all boats. It may be good for company A or company B, but the verdict is still out.”
The second major impact of the new legislation is the Physician Payment Sunshine Act, which formed part of the Patient Protection and Affordable Care Act. This has affected how the industry interacts with doctors and medical institutions, compelling firms to record and report all transactions of value.
The first phase of Sunshine-mandated reports was submitted by firms in March of this year. According to Don Soong, a vice president at life sciences consultancy Cegedim Relationship Management, the sector is undergoing a massive transition as a result of the new regulations.
“The Sunshine Act and, in general, transparency requirements have fundamentally changed the manner in which the life sciences industry operates,” he tells Pharmafile. “Industry-established code of conduct for sales representative interaction with healthcare professionals, along with adherence to legislative requirements at US state and federal levels, have transformed the operations and governance at life sciences companies.”
Firms must now re-evaluate how they conduct their relationships with healthcare professionals (HCPs) – while ensuring good working relationships remain – and, as Soong puts it, “reinforce the benefits of legitimate interactions”.
There are also significant logistical considerations: “Ensuring accurate spend data linked to an HCP is a very complicated process, especially when the data must be gathered from many data sources and systems. Overall, companies have invested heavily in both personnel and systems to implement their transparency programmes.”
It’s still too early to assess the long-term impact of the Sunshine Act, but the challenges it presents will be of interest to pharma firms on the other side of the Atlantic as similar regulations are expected to come into place in Europe in 2016.
Top US pharma firms
Considering the size of its domestic market, it is no great shock that four of the top 10 global pharma players are US-based firms. Here we look at their backgrounds and recent fortunes:
Johnson & Johnson
2013 turnover: $71.3 billion, a rise of more than 6% on the previous year
Biggest drug: Rheumatoid arthritis and Crohn’s disease treatment Remicade (infliximab), with $6.7 billion in 2013 sales
Established in 1886, Johnson & Johnson was a pioneer in the mass production of many of today’s daily healthcare standards, including first aid kits, sanitary pads and dental floss. Lead by succeeding members of the Johnson family until 1963, the firm has had just seven chief executives in its history. The most recent of these, Alex Gorsky, has been credited with steadying a ship rocked by controversy when he came to power in 2012.
For example, in the 12 months to October 2010, the company issued an average of one major recall every month, including withdrawals of best-selling OTC painkiller Tylenol as well as thousands of hip implants. The latter controversy cost more than $4.4 billion in mass settlements.
Pfizer
2013 turnover: $51.6 billion, after taking in $54.7 billion in 2012
Biggest drug: Pain drug Lyrica (pregabalin) notched up sales of $4.6 billion in 2013
Pfizer is best known for its landmark drugs Lipitor (atorvastatin) for lowering cholesterol and Viagra (sildenafil citrate) for erectile dysfunction.
It started out as a fine chemicals firm in 1840s New York, with the 20th century seeing the firm use innovative new fermentation methods to mass produce penicillin. It eventually became the world’s foremost producer of the antibiotic, with its contribution to the Allied effort in World War II leading to a military award.
In recent years, high-profile acquisitions have driven growth, including multi-billion takeovers of Warner-Lambert (2000), Pharmacia (2003) and Wyeth (2009). Its latest target, British-Swedish firm AstraZeneca, recently rejected a ‘final offer’ of about $118 million.
Merck & Co
2013 turnover: Annual sales dropped by almost 7% to $44 billion
Biggest drug: Merck made more than $4 billion from diabetes pill Januvia (sitagliptin) last year
Originally founded in Darmstadt, Germany in 1668, Merck is the oldest pharma company in the world – but has a curious recent past. The company’s American assets were seized by the US government during World War I with the two countries on opposing sides of the conflict.
This lead to the complete separation of Merck & Co from the original Merck KGaA, and the two firms have remained distinct ever since. Merck has a wide-ranging portfolio, although it recently offloaded its OTC repertoire to German drugmaker Bayer in a cost-cutting $14 billion deal.
Lilly
2013 turnover: Total sales of £23.1 billion, growing marginally on 2012
Biggest drug: Cymbalta (duloxetine) for depression and anxiety disorder brought in $5.1 billion in 2013
Founded by US Civil War veteran Colonel Eli Lilly in 1876, Lilly’s major breakthrough therapy was Iletin, the world’s first commercially available insulin product. Launched in 1923, it provided a lifeline for a previously deadly condition with no effective treatment.
Lilly’s most iconic brand of the 20th century, however, is arguably the anti-depressant Prozac (fluoxetine), which was first approved in the US in 1987 and brought in annual sales of $2.8 billion at its peak.
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