Dreams to Reality
Steve Naylor
NostraPharmus revived: a future of end and spend or discernible leadership for pharmaceutical companies
Dr Stephen Naylor; Founder, CEO & Chair, MaiHealth Inc
Insights 2015

Another five years has passed and the pharmaceutical industry continues to struggle in terms of performance metrics. Today we enquire about his 2010 predictions and request an evaluation of their accuracy.

In addition we have asked him to revive his pharmaceutical crystal ball and offer us his ‘seering’ [sic] insights into this sector for the next five years.

Question: Once again, welcome Dr NostraPharmus. Back in 2010 you provided us with a perspective on the future of the pharmaceutical industry. Could you review how pharmaceutical companies have fared? What major trends have emerged in the past five years that are most likely to impact the pharmaceutical business of tomorrow? Dr NostraPharmus: Pharmaceutical companies have experienced another tumultuous five years and been subjected to the vagaries and buffeting winds of pharmaceutical climate change. They have met with mixed fortunes in their attempts to satisfy the increased, ever-changing demands of the Janusian thinking of patients and consumers.

There has also been an emerging dilemma confronting the pharmaceutical industry. This incongruity consists of a rapidly expanding population of ageing individuals beset with a panoply of chronic, lifestylerelated diseases. In contrast, healthcare providers, payers and Governments demand reduced cost/prices, a value-based pricing system and improved outcomes. A consumer-ladened, clinical, regulatory and economic transitional landscape has required pharmaceutical companies to adopt new practices and respond to the competing needs of different stakeholders. As I suggested five years ago all this has been driven by the following:

1 Mergers & Acquisitions – Economies of scale have ceased to be a major driving force, and mega-mergers are now a rarity. Indeed, the one recent example of note resulted in Pfizer abandoning its $118 billion acquisition bid for AstraZeneca in early 2014. However, the pressure on pharmaceutical company revenue streams from aggressive generic drug competition and blockbuster drug patent expirations has fuelled consolidation and smaller-sized deal trends. In particular, large pharmaceutical companies have been aggressively acquiring small-sized biotech companies with late stage development candidate drugs.

2 R&D productivity – Large pharmaceutical companies have continued the trend of downsizing their internal drug discovery work and outsourcing their drug development activities to the CRO sector. This has been counterbalanced by concerted strategic discovery partnership initiatives as epitomised by the Sanofi deal with Evotech, which was consummated earlier this year. In addition, in-licensing of early-to-late stage drug candidates or outright acquisition of biotech companies with a candidate drug pipeline has served to fill the drug candidate portfolio of individual pharma companies. Such activities have facilitated a recent surge in the net present value (NPV) of the sector’s R&D pipeline as well as an increase in the number of approved NMEs and their market sales potential.

3 Globalisation – Global pharma markets in 2014 were dominated by sales within North America (42%) and Western Europe (20%). In contrast, projected annual growth of pharmaceutical sales through 2018 for North America is ~6.5% and an anemic ~2% in Western Europe. The projected annual growth rates of ~18% in China alone, and ~10% throughout Australasia and Asia provides a sharp contrast. The increased needs of an ageing population afflicted with chronic lifestyle-related diseases in the developing world are now driving this phenomenon. As an example, China and India now have the largest patient populations of diabetes sufferers with 98 million and 65 million people respectively.

4 Drug costs and competition – There has been a concerted effort by both public and private healthcare system providers to move from a volume-based to a value-based pharmaceutical drug model. Such an approach has been predicated on evidencebased medicine and comparative effectiveness research metrics. In addition, Government and private sector payers have instituted price controls and increased the use of generic and biosimilar drugs to curb and contain costs.

5 Stakeholders – Recent improved R&D productivity over the past 2-3 years combined with ongoing cost containment has stabilised shareholder value in the pharmaceutical sector. But the demanding nature of investors, payers, financial analysts and consumers has forced pharmaceutical companies to be more receptive and flexible towards change across many different elements of their business.

6 Diversification – This trend has continued and increased in activity. For example, Pfizer grew its consumer health business with the $17 billion acquisition of Hospira earlier this year. In addition, the joint venture between GSK and Novartis has now created the largest consumer health products business in the world!

7 Decision making and risk mitigation – The pharmaceutical sector has been plagued with product safety issues, intellectual property conundrums and illegal marketing practises. This has led to tightening of regulatory control mechanisms and repeated calls for greater business transparency. These activities continue to demonstrate that pharmaceutical executives struggle to make timely and appropriate decisions across the DDD and post-market approval process.

Question: Describe the pharmaceutical industry of 2020. How does the pharmaceutical company of the future address discovery, development, sales and marketing of its products? NostraPharmus: Tough times lay ahead for this industry, but there are also unprecedented opportunities. At a fundamental level it requires that pharmaceutical companies understand the issues and needs of all stakeholders. This would enable the industry to lead and not just continue to react to an ever-changing healthcare landscape. I believe there are at least 10 key issues that individual pharmaceutical companies and the industry will face and have to address in the next five years:

1 R&D process and productivity: Individual pharma companies will focus efforts on fewer disease areas with the potential of higher rewards and/or limited competitive landscape. They will continue to ‘end’ internal discovery and development efforts and ‘spend’ to furbish their pipelines.

2 Drug repurposing: Due to the emerging understanding of the polypharmacology of individual drugs, there will be more sustained efforts to find new disease indications for existing drugs.

3 Big data and clinical trials: The ability of companies to rapidly adopt and utilise ‘big data’ will be critical in enabling cheaper, more efficient clinical trials.

4 Competition generics and biosimilars: Generic drug use is already high in the US (70% market volume) and Europe (50%). However, the biosimilar market has just opened up in the US, and will be a major competitive element for biopharma companies and their biologic products, many of which are approaching a ‘biologics patent cliff ’. Pharma/Biopharma companies need to develop a clear strategy for developing a ‘Generic Portfolio’ pipeline process.

5 Drug pricing: Educated consumer groups will exert considerable pressure on Government and payers to force pharmaceutical companies to drastically reduce prices. This will be done in concert with the demand of safer, more efficacious drugs predicated on evidence-based medicine, comparative effectiveness metrics and value-based models.

6 Emerging markets: As the middle class grows in developing world markets so will the demand for lifestyle-related disease medications. There will also be a concerted effort by the pharmaceutical sector to provide prescription drugs to the next emerging market wave. This will include parts of Eastern Europe (eg Poland), SE Asia (Philippines and Indonesia) and Latin America (Mexico and Venezuela).

7 Personalised medicine: Consumers and payers will demand new treatments that are genetically compatible with individual users. This will necessitate pharma companies developing new drug pipelines in concert with appropriate ancillary tools such as companion diagnostics and clinical decision support systems. As a corollary drugs will, of necessity, have to be safer and more efficacious.

8 Stakeholders: The increasing and specific demands and needs of regulators, investors, payers, financial analysts and consumers will force pharmaceutical companies to be more receptive and flexible towards change across many different areas of their business.

9 Corporate structure: The sales and marketing efforts, which will constitute the major focus of traditional pharma companies, must modernise and utilise tools of the 21st century, such as sophisticated social media outreach. In addition they must attempt to stop the upward trend of litigious damage by becoming more transparent in their business dealings.

10 Business model: The ‘End and Spend’ model appears to be working, and thus this trend will continue. It is unclear whether pharma companies will take a more active leadership role in defining the debate on the value and usage of pharmaceutical drug products. Based on past precedent the answer is no!

Individuals, organisations and government now have access to unprecedented information content that facilitates unparalleled choice and aggressive consumerism. This is fuelling the demand for dramatic change in healthcare delivery on a global basis. The demanding consumer or stakeholder of today is no longer satisfied to be merely a passive recipient but requires a wide range of products that provide value. In the case of the individual that necessitates drugs that actually work, but more importantly requires healthy outcomes. The pharma of tomorrow MUST provide products that meet such needs. In addition their business model of tomorrow must account for three separate value propositions, namely i) managing outcome; ii) expanding access through appropriate pricing and iii) meeting unmet medical need. In order for such a model to be successful and garner the trust of the payor and the consumer, outcomes must be validated. ‘Sell what you claim to sell’.