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pharmafile | July 7, 2008 | News story | Sales and Marketing |Â Â Â
Pharmaceutical companies must adapt to changing market dynamics in 2008
Pharma companies face growing competition from generics, increasingly tough pricing and reimbursement, a clamp down on healthcare spending, and the need to treat patients for longer due to the aging population. Combined, these factors threaten both current and future revenues, prompting pharmaceutical companies to adopt a range of corporate strategies to respond to the changing market dynamics.
According to a new Datamonitor report, pharmaceutical companies are faced with growing challenges in the major markets. Because of this, they are adopting a range of strategies designed to reduce costs and maximize efficiency. With growing competition from generics and thin late-stage pipelines, drug lifecycle management strategies are gaining prominence. In the face of a slowdown in the major markets, pharmaceutical companies are exploring a variety of new opportunities to sustain historic growth rates. These include M&A and licensing used to gain access to new drug candidates, increased presence in the emerging markets and capitalizing on the growing role of patients as consumers.
Every year, fewer and fewer drugs are gaining FDA approval. One factor responsible for the decreasing number of novel drugs approved each year is the increasing pressure that the pharmaceutical industry is facing over drug safety. This has been fueled by several recent high-profile drug withdrawals and black-box warnings.
Following the controversy with Vioxx in 2004, US legislators were prompted to significantly expand the FDA's authority by passing the FDA Amendments Act of 2007. Although it is not yet certain to what extent the FDA will use its new powers, this crucial legislation changes the balance of power between pharmaceutical companies and the FDA, giving the agency greater powers to impose additional safety studies both prior to and post-approval. Thus, the legislation has the potential to increase development costs, reduce market penetration and impact upon approval rates. However, the new FDA power to demand post-marketing studies may actually be beneficial for certain drugs that would not be approved otherwise.
Additionally, in recent years, the duration of clinical trials has increased so that, despite swifter approval times, the duration between the start of Phase I clinical trials and approval is becoming longer. Consequently, at the same time that emphasis on cost-containment is mounting, pharmaceutical companies are facing the prospect of increasingly expensive drug development, now estimated to be in the region of $800 million to $1 billion per drug.
As such, for each day that a drug's launch is delayed – whether through longer clinical trials or regulatory non-approval leading to additional clinical development – it can cost the manufacturer up to $23 million in lost sales in the US alone, and approximately $37,000 per day in additional development costs. It is, therefore, vital that companies ensure that sufficient safety and efficacy data are attained before regulatory submission so as not to delay or jeopardize a drug launch, which will further impact upon the declining return on investment already facing the industry.
Therefore, the failure to secure regulatory approval in the US not only prevents a drug launching in the most lucrative global market, but also prejudices launch in markets that reference the FDA for drug approvals, such as Canada and Mexico. Thus, gaining a timely and first time approval in the US has never been more important for pharmaceutical companies than it is today.
Cost-saving drives continued M&A growth
The level of M&A activity in the pharmaceutical market is continuing to rise, with the number of deals made in 2007 increasing over the previous year. With Eisai completing its acquisition of MGI Pharma in January 2008 for $3.9 billion, the M&A trend is forecast to continue throughout 2008.
The primary factor driving this increase in consolidation and the continued growth in the number of licensing deals is the fact that the output from the internal R&D process in Big Pharma is decreasing. This is because companies face ever-harsher pricing and reimbursement and regulatory pressures, hampered further by the imminent patent expiry of countless blockbuster and other high-value products. As a result, from 2007 to 2012, the top 50 pharmaceutical companies (based on 2007 sales) are facing patent expiries on $115 billion worth of drugs.
Ultimately, in cost-conscious times with deal values rocketing, licensing and M&A deals will increasingly become a strategy that fewer players will be able to adopt. Companies that traditionally have opted to enter M&A or licensing deals to solve internal pipeline issues will instead have to turn to more radical strategies, such as readdressing internal R&D processes. However, while M&A may only offer short-term solutions, the economies of scale attained through such moves are limited. Therefore, those companies forced to take alternative measures may ultimately reap greater rewards in the long run.
Pharma streamlines workforces
An ongoing trend in the pharmaceutical industry has been the vast number of job cuts made in an effort to cut costs, in response to disappointing financial results driven by the patent expiries of key products and resulting generic erosion. Price pressure and low reimbursement rates, which are impacting upon company revenues, are set to continue in 2008.
Historically, large in-house sales force teams were used to create and maintain share of voice in the market, but the industry is now increasingly moving towards outsourcing strategies as part of its growing cost-saving initiatives. This strategy not only saves money but provides a more flexible approach to manufacturing and selling a drug throughout its lifecycle, by allowing companies to increase and decrease the size of its sales force in accordance with demand. This also allows companies to use their existing sales force in a more targeted way, building added-value into their key brand franchises.
Pfizer first announced job cuts in 2005, which were to be phased in over three years following patent expiries and the onslaught of cheap generics. Subsequently, in late 2007, Pfizer announced 2,200 job cuts in its sales and marketing departments. This move signified the opening of the flood gates for other pharmaceutical companies to follow suit, with several major players, including Abbott and GlaxoSmithKline, also announcing manufacturing job cuts. The trend is set to continue throughout 2008 as more companies streamline their workforces in an effort to contain costs for the lean years ahead. Consequently, sales and marketing departments will have to adjust and adapt new strategies if they are to maintain acceptable levels of performance.
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The Pharmaceutical Industry 2008: Current and Future Trends and Strategic Issues Shaping Pharma
