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The Pulse of the Pharmaceutical Industry
The worst is not yet over for the pharma industry. Despite a general sense from many companies that the worst of the impact from their blockbusters going off patent is passing and better times are ahead, there are still complex challenges that many are still struggling to deal with. According to Christopher Wright, managing director at ZS Associates, the industry is facing four main challenges: the need to adapt cost models or otherwise face extinction; the need to acknowledge that specialty drugs are the new reality; the fact that new commercial models are struggling to take hold; and the need to do contingency planning in the face of legislation that will affect the industry.
“One of the things that’s not so clear to everybody, this patent cliff we’ve been talking about, the worst is yet to come,” Wright says. “The worst hasn’t happened yet, especially when you consider the biologics. There is more patent expiration happening these next two years than what has happened so far.”
According to ZS Associates, between 2012 and 2016, almost 40 drugs with sales of more than $108.9 billion will go off patent, and an additional $44 billion in lost sales is projected from 2017 to 2020. In 2014, 11 biologics will lose their patents, kicking off a wave of expirations of these products with an expected $39 billion in revenue loss from 2014 to 2020.
However, with biologics, the expiration of their patents does not mean there will be immediate generic competitors as there are for small-molecule drugs.
“Also, I feel the price effect will never be the same as what happens when a small molecule goes off patent,” Wright says. “This is because makers of biosimilars will have to do clinical trials to prove the safety and equivalency of their drugs.”
Additionally, there is no regulatory word yet in the United States whether substitution will be allowed at the pharmacy. “If there’s no substitution, there will have to be branding of some kind, because the doctor will have to prescribe that particular one. And as soon as there is branding, there has to be marketing, and then there have to be marketing and sales forces and all that stuff,” Wright says.
Among the top 50 pharmaceutical companies, one is already meeting the challenge of marketing branded biosimilars – Teva Pharmaceutical Industries (see profile on page 72), with its biosimilar version of filgrastim, the main component of Amgen’s Neulasta. Other leading pharma/biotech companies involved in the biosimilars business include Novartis, through its generics subsidiary Sandoz (see profile on page 56), and Amgen (see profile on page 26).
Another factor to consider is that most of the companies seeking to produce biosimilars are not able to manufacture such complicated molecules, Wright says. “It’ll be the proprietary, branded companies who get into the biosimilar business,” he told Med Ad News.
Besides the impact of biosimilars entering the market, companies will have to continue to deal with the aggressive stance of payers, who are stunting the launch of new products. ZS Associates shows that new products launched within the last five years, compared to the five years before that, achieve only 60 percent of the sales. Also, 65 percent of payers say their default position for a new product is to reject coverage or assign the highest tier with a prior authorization. Customers are also having to pay more due to increases in co-insurance, four-tier plans, and large differences in co-pays between tiers.
Doctors are also being driven to generics by formulary inclusion in e-prescribing programs. At present, e-prescribing is used for about 40 percent of all prescriptions, with e-formulary available for about 20 percent of prescriptions written. As the number of MDs using e-prescribing is expected to grow over the next five to 10 years, the more physician prescribing decisions will be influenced.
“The position that they [insurers] take is denying, they want to deny access to these new products,” Wright says. “And that’s very different from how they were behaving 10 years ago. They were never easy to get along with, but they are much tougher now.”
And as there are more substitute products – generic launches because of patent expirations – there will be more denials of new products by insurers.
“They’ve become very good at putting the patient in the middle of the problem,” Wright told Med Ad News. “They’ve had a very hard time controlling the doctor, so they’ve learned how to control the doctor through the patient – get the patient to complain about the co-pay. That’s been the technique they’ve really leveraged.”
Executive teams at pharma companies have also become more efficiency-minded than in the past. “We work alongside these guys all of the time, so we see how it’s happening on the inside,” Wright says. “One of the things we have seen is how the marketing teams are changing their way to work, and we’ve seen them changing a lot, and they continue to do so.”
Specialty pharma is also the new reality, as many companies are changing to become specialty companies. “At first, some of the companies would boast about it as a strategic choice that they were making, but they were forced into it,” Wright says. “It was the inability to develop those next gigantic blockbusters.
The unique dynamics of specialty markets are the driving force for big pharma to build these new capabilities. According to ZS Associates, these are personalized medicine, with about a quarter of oncology drugs in Phase II and Phase III including the development of companion diagnostics; targeted combination treatments; increased competition in late-stage pipelines or the market; payer/reimbursement issues; and a site of care shift, with more than 70 percent of patients receiving care in a hospital setting, or a setting affiliated to a hospital, by 2015.
Companies have to acknowledge that with this change comes a very different way of marketing products. Many companies grew up marketing primary-care products, so making the switch in most cases has been as awkward and unsuccessful as basketball great Michael Jordan playing baseball. “The professional people, they all have to go through a retooling, and not all of them make the transition,” Wright says.
For example, although Sanofi has had some success in diabetes marketing (see profile on page 70), Pfizer is still feeling its way along when it comes to oncology (see profile on page 65).
With the new commercial models, companies are having a hard time making the shift. “It’s not because they don’t know the right answer, I think that they generally do, but working in the new way is so hard for them because they’re so wrapped up in the old way of working,” Wright says.
Despite the challenges, Wright believes that most large pharma companies are going to become specialists in oncology. As of April 2013, there are 549 oncology agents under development and about 1,317 research projects being conducted. But marketing oncology drugs is very different and the companies have to learn to adapt.
Additionally, oncologists are among the hardest to see physicians for sales reps, and the access has only gotten worse. “It’s the worst of any specialty, and it’s gotten bad so fast,” Wright says. “So here we have the perfect storm, a bunch of new molecules, a bunch of new pharma companies getting into oncology – they look to this small population of doctors, and they think that the value per patient is so high for the product, they should just call on everyone. But everybody can’ do that, it’ll just drive these guys nuts. It’s almost the same conditions that were present back in the mid-90s that caused the big arms race in primary care. Hopefully it won’t happen here in oncology.”
Though companies talk about being more customer-centric, and want to achieve this goal, their discussions keep looping back to the old topics, such as ways of getting reps in to see the doctor. They talk about being customer-centric and having a relationship with physicians. “What they fail to realize is that most doctors do not want to have a relationship with them,” Wright told Med Ad News. To many physicians, because of generic alternatives and many choices in most drug classes, having a strategic supplier relationship with a drug company is like having a strategic supplier relationship with a vendor of paper clips.
“It’s hard for pharma companies to accept, but even Pfizer, if they never existed, most doctors would have more or less the same business they have right now,” Wright says. “Now if someone could put together a large bundle where a doctor or doctors could say, ‘I need those people and that company and their service line in order to do my business …’ Device manufacturers have that advantage. They have an orthopedic surgeon, and he needs that hip or he needs that knee, he built his practice around it. He can have a key relationship with that company, and they do have relationships because of that. But pharma, unfortunately the business is so fragmented, there are too many companies, there are too many products, there are too many doctors, there are too many patients, everything is too fragmented, and I think it’s a source of much of the inefficiency that is still present in the industry. If somebody could bundle that together, you might be able to flip that, nobody is even close though.”
Payer reluctance to pay for new products, a slowdown in product approvals, and a glut of me-too products have contributed to another aspect of today’s industry, the much-reduced sales force. As of the first quarter of 2013, where were about 58,600 sales reps in the United States, a 41 percent decline from 2006.
The driving force behind the growth of the sales force was new products. “New products grew this thing, and the patent expirations declined it, there just isn’t as much sales work to do,” Wright says. “I think we have come to a pretty stable period now, it’s going to stabilize around this number. There will be forces that will drive the number up – the introduction of new products, there are a lot of new products coming but they are specialty products and they don’t need a lot of sales force work.”
Still, the new product approvals will drive the sales forces up slightly. What will drive it down is as more doctors adopt digital means of communicating with pharma companies. But companies have made considerable progress in creating more nimble sales organizations. Now the number of reps and the product lines flex to fit with what the local customers need.
Another change has occurred with marketing teams, who used to work in big annual processes where the budgets and the target lists would be set. “The whole rest of the year was about execution,” Wright says.
Because of all the changes happening at uneven times, marketing teams are now working with more continuous monitoring. “They don’t stick to the same program the whole year,” Wright says. “What they do is establish an ‘if then’ logic and make changes as the situation demands.”
Physician access is also changing because of the shifting business model of practices, as many doctors are joining larger systems. In 2000, 57 percent of physicians were not affiliated or networked with another practice, hospital, or health system. In 2013, only 36 percent of physicians could be considered to be truly independent. “With that comes a shift in power, from the doctor to his corporation,” Wright says. “It requires a complete rewrite of how you sell to a doctor.”
With the advent of the Sunshine Act, an important factor to consider is that for the first time, companies will be able to see what competitors are doing with doctors.
“Whoever dreamed up the Sunshine Act, I don’t think that’s what they intended,” Wright says.
Before the Act, the marketing transaction systems were not very good. “The vendors weren’t very good about keeping the records,” Wright says. “Now the pharma companies are focused on complying and doing what they’re told. What’s going to happen next is that they’re going to realize they’re going to have all the data from their competitors.”
Before the Sunshine Act went into effect, companies could see the sales data through third parties such as IMS, but now they will see much more of the marketing transactions. “Hopefully it will bring more efficient marketing, that’s what I would hope,” Wright comments.
But if the hope of the authors of the Sunshine Act is to decrease marketing, it may have the opposite effect, Wright says, as companies note where their competitors’ efforts are focused and try to compete.
Top 50 Pharma Charts (PDF Document)
Business Segments (Excel Document)
Consolidated Revenue (Excel Document)
Employees (Excel Document)
Healthcare Revenue (Excel Document)
Healthcare R&D Expenditure (Excel Document)
Headquarters and Est. (Excel Document)
Market Capitalization (Excel Document)
Most Profitable (Excel Document)
Net Income (Excel Document)
Shareholders Equity (Excel Document)
Total Assets (Excel Document)
General notes: For this annual special report, which is in its 27th year of publication, Med Ad News editors rank and profile the world’s top 50 companies that generate revenue from healthcare products. Companies that research, develop, manufacture, and sell healthcare products with a strong base in pharmaceuticals are eligible to be included in this special report. As defined by Med Ad News, healthcare products include human prescription and over-the-counter pharmaceuticals, generics, imaging agents, medical devices, medical equipment, medical/surgical supplies, raw pharmaceutical chemicals, diagnostics, and animal healthcare products.
To be considered for the top 50 company list, companies must be independent and publicly traded (or make their financials public) and must develop, manufacture, and market human prescription therapeutic drugs. The companies must have R&D programs that produce original products. Companies are ranked according to the name of the parent company. All companies are ranked in the main table by their worldwide 2012 healthcare revenue. Those numbers were provided by the companies, unless otherwise noted. Unless otherwise stated, all other data in the tables represent the group’s consolidated financial figures.
Many companies reported on a calendar-year basis (year ended Dec. 31, 2012). These companies reported on a fiscal-year basis (year ended March 31, 2013): Astellas Pharma, Daiichi Sankyo, Dainippon Sumitomo Pharma, Eisai, Forest Laboratories, Mitsubishi Tanabe Pharma, Otsuka Holdings, Shionogi, Sun Pharmaceutical Industries, Taisho Pharmaceutical, and Takeda Pharmaceutical. CSL’s fiscal year ended June 30, 2013. Although the charts and statistics report financial-statement and balance-sheet figures for 2012 and 2011, the information in the articles is as current as press time allows.
Companies that are new to this year’s ranking are Sun Pharmaceutical Industries at No. 48 and Meda at No. 49.
Companies that did not return to this year’s top 50 list are Ono Pharmaceutical (ranked No. 49 on last year’s list) and Teijin (ranked No. 50 on last year’s list). Ono and Teijin did not generate enough health-care revenue during 2012 to make this year’s top 50 company list.
Additionally, Actavis is a new name to the top 50 company list. Actavis Group was acquired by Watson Pharmaceuticals on Oct. 31, 2012. The surviving entity is named Actavis Inc. Watson ranked No. 33 on last year’s list.
Any top 50 companies that are in the process of being acquired – but the acquisition has not been completed as of this publication’s press time – are included in this year’s listing.
Revenue: In tables that rank by revenue, each company is positioned according to worldwide revenue — either by healthcare or consolidated group, depending on the chart. The revenue figures include net sales of healthcare products, and potentially interest, dividends, and other income when provided. Sales from discontinued operations have been included when they were available. In the percent-change column, the figures in parentheses indicate a loss.
Earnings: This number represents the net-income figure that appears in the income statement, after taxes and after nonrecurring and extraordinary charges. The net-income figure is based on the consolidated sales of the group. Figures in parentheses indicate a loss.
Earnings per share: The number for earnings per common share is taken directly from company financial statements. This figure, based on consolidated results of the group, is adjusted for stock splits and stock dividends. Med Ad News editors used the diluted EPS figure when provided. Figures in parentheses indicate a loss.
Research and development: In the chart that ranks each top 50 company according to the research and development expenditure of healthcare products, the numbers were provided by the companies. Also provided is each company’s total R&D expenditure (consolidated) for all businesses. For some of the Japanese companies, the healthcare R&D was not provided and thus the consolidated figure was used in its place; in these instances, the difference between the healthcare and consolidated R&D was not a large amount.
Assets: This number represents the company’s year-end total assets.
Shareholders’ equity: This number represents total shareholders’ equity at year-end as reported in the company’s balance-sheet statement, and is for the group.
Employees: This number represents the total number of employees for the year.
Market capitalization: The information that appears in this chart shows the market capitalization of companies. The information came from Yahoo! Finance, Google Finance, and other sources and reflects company market capitalization during the period of Sept. 19-26, 2013.
Exchange rates: For non-U.S. companies reporting in foreign currency, Med Ad News editors used exchange rates to convert income-statement and balance-sheet figures to U.S. dollars. The conversions have been made for the purpose of convenience and comparison only. Med Ad News editors used average exchange rates to calculate income-statement figures and balance-statement figures. The exchange rates are based on data made available by the U.S. Federal Reserve Board (federalreserve.gov) and certain company documents. Unless otherwise indicated, the editors used the average 2012 exchange rates. So that the percent change in financial-statement and balance-sheet information reflects the actual increase or decrease in the company’s home-country currency, the editors used a constant rate of exchange for 2012 and 2011. This reflects the increase or decrease actually reported by the non-U.S. company. The same exchange rate was used for the income-statement and the balance-sheet figures.
For the companies that report in euros, Med Ad News translated U.S. dollar amounts from euros at the rate of €1.00 to $1.2859, the average rate of exchange in 2012. The top 50 companies that reported in euros were: Bayer, BoehringerIngelheim, Grifols, Merck KGaA, Sanofi, Stada, and UCB.
For the companies that report in yen, Med Ad News translated U.S. dollar amounts from yen at the March 2013 rate of ¥94.77 to $1.00, except for Chugai and Kyowa Hakko Kirin, whose numbers were translated at the 2012 average rate of ¥79.82 to $1.00. The top 50 companies that reported in yen were: Astellas, Chugai, Daiichi Sankyo, Dainippon Sumitomo, Eisai, Kyowa Hakko Kirin, Mitsubishi Tanabe, Otsuka, Shionogi, Taisho, and Takeda.
For the company that reports in pounds sterling, Med Ad News translated U.S. dollar amounts from pounds sterling at the rate of £1.00 to $1.5853, the average rate of exchange in 2012. The top 50 company that reported in pounds sterling was GlaxoSmithKline.
For the companies that report in Swiss francs, Med Ad News translated U.S. dollar amounts from francs at the rate of SFr0.9377 to $1.00, the average rate of exchange in 2012. The top 50 companies that reported in Swiss francs were Actelion and Roche.
For the companies that report in Danish kroner, Med Ad News translated U.S. dollar amounts from the kroner at the rate of DKr5.7922 to $1.00, the average rate of exchange in 2012. The top 50 companies that reported in Danish kroners were Novo Nordisk and H. Lundbeck.
For the companies that report in Indian rupees, Med Ad News translated U.S. dollar amounts from the rupee at the rate of Rs53.37 to $1.00 (the average rate of exchange in 2012) for Ranbaxy and Rs54.4229 to $1.00 (the average rate of exchange in March 2013) for Sun Pharmaceutical Industries.
For the company that reported in Swedish kronor, Med Ad News translated U.S. dollar amounts from the kronor at the rate of SKr6.7721 to $1.00, the average rate of exchange in 2012. The top 50 company that reported in Swedish kronors was Meda.
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