The future is bright – but don’t rely on emerging markets
pharmafile | November 16, 2012 | News story | Manufacturing and Production, Medical Communications, Research and Development, Sales and Marketing | China, emerging markets, industry, pwC
The pharma industry could be “on the cusp of a golden era” of renewed productivity and earnings – but only if it learns to reinvent itself.
A new report by consultants PwC says the pharma sector can thrive over the next decade, but must first address the challenges of rising customer expectation, changes in healthcare systems and other pressures.
‘Pharma 2020: From vision to decision’ is the latest in the ‘Pharma 2020’ series of reports from PwC’s pharma and life sciences division. The firm undertook a year-long research initiative that included meetings and interviews with 50 pharma industry executives and the input and perspective of more than 70 reviewers, including PwC professionals, industry executives and regulators around the world.
Health reform is accelerating the need for wholesale changes in the pharmaceutical industry and its response to rising demand for medicines, major scientific and technological advances, economic pressures and socio-demographic shifts – in both developed and growth markets around the world.
In its report, PwC portrays a beleaguered pharma industry that has reached a critical juncture: the prospect exists for unprecedented global growth in the future, but the industry’s prevailing business model and management culture are ill-suited to capitalise on the market opportunity over the next decade and beyond.
Pharma companies that survive a difficult transitional period in the coming years can prosper in 2020 if they are willing to prune their pipelines and make tough decisions to address rising customer expectations, poor scientific productivity and cultural barriers, the report says.
“A healthy, vibrant and responsive pharma industry is vital to society for the development of new medicines,” said Steve Arlington, global pharmaceutical and life sciences advisory leader, PwC and a principal author of the report.
“More needs to be done to support and encourage long-term investment in the discovery and development of medicines to treat serious disease. We need to all work together to improve the wellbeing of populations.”
Rising customer expectations
One of the major hurdles the pharma industry faces is the mounting healthcare bill. The demand for medicines is rising and global pharmaceutical sales could increase by nearly 40% to roughly $1.6 trillion by 2020.
Yet the expenditure as a percentage of gross domestic product (GDP) is climbing in countries in every income bracket, and most steeply in mature markets where the industry has historically made most of its money. At a time when all economies are feeling the tougher times, the industry has to position itself as part of the solution, says PwC.
The industry’s customers – physicians, patients and payers – are demanding evidence of better outcomes with hard, real-world data as a precondition for payment and pricing for new medicines. PwC’s research suggests pharma companies have a choice: either offer more value without charging more or prove that it can remove costs from another part of the healthcare system to justify premium pricing.
In mature markets, there is an enormous opportunity for the industry to help payers save money and for providers to deliver better quality care for less money, according to PwC’s report. Around 85% of global health spending currently goes to healthcare services delivered by doctors, hospitals and other providers, and less than 15% goes to medicines.
By demonstrating that medicine can reduce spending on costly medical services and procedures, PwC estimates that pharma’s share of healthcare expenditure could rise to 20% by 2020.
In growth markets, the demand for medicines is expected to more than double by 2020. PwC’s analysis, however, found that the opportunity in these markets is fragmented and comes with challenges. The report says pharma can be profitable in these markets but needs to target the right population with the right medicine, and delivers value tailored to the market.
“The pharmaceutical industry is living the tale of two markets,” said Michael Swanick, global pharmaceutical and life sciences industry leader, PwC. “In established markets, pharma companies have to deliver ‘real’ value in solutions and cures to prove their worth and rebuild trust in the sector. In growth markets, companies must respond responsibly to a growing population’s needs, recognising demographic and cultural diversity.
“The industry has historically found change difficult to deal with but time is running short and decisions must now be taken. Those that do, face an optimistic future, while failure to respond now could lead to many regrets.”
The report stresses the need for pharma to rebalance expenditures and invest more in the early part of the R&D process to improve productivity. PwC’s analysis found that most of the products that will be launched in the coming years are already in the pipeline, but are not aligned with medical needs and demand or rising expectations from healthcare payers, providers and patients.
Record levels of late-stage failures are one indication of the crucial need for pharma to marry the pipeline with the market.
An entrenched, reactive culture
Despite significant external changes in the market, the culture within the pharmaceutical industry has changed little over the past few decades, and may be more deeply entrenched in reaction to emerging threats, PwC’s research found.
New entrants to the market and new technologies are beginning to disrupt the status quo, and pharma companies can expect an even more demanding commercial environment going forward.
PwC’s report says that new pharma will be less secretive, more collaborative and that the industry’s top figures are likely to be mavericks that have the vision and courage to break the mould.
Andrew McConaghie
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