2012 isn't going to be the end of the world for the pharmaceutical industry, but it does mark the continuation of the patent cliff for many blockbuster brands and some companies are going to find it very hard going indeed in the future. The cliff that emerged in 2009 peaked in 2011 and 2012, with the expirations of patents for Arimidex, Lipitor, Zyprexa, Diovan, Plavix, Seroquel, Lexapro, Actos, and Singulair all taking place during this time. The expirations of these product patents depressed sales for their marketers. But industry experts are seeing brighter times ahead, with more product approvals and a global rebound in spending on medicines.
According to IMS Health’s Institute for Health Informatics, annual global spending on medicines will rise from $956 billion in 2011 to nearly $1.2 trillion in 2016, representing a compound annual growth rate of 3 percent to 6 percent. Growth in annual global spending is predicted to more than double by 2016 to as much as $70 billion, up from a $30 billion pace in 2012, driven by volume increases in emerging markets and an uptick in spending in developed nations.
Additionally, patent expiries, which will peak in 2012, as well as increased cost-containment actions by payers, will constrain branded medicine spending growth through 2016, at 0 percent to 3 percent. Developed markets are expected to experience their lowest annual growth this year, at less than 1 percent or $3 billion, and then rebound to $18 billion to $20 billion in annual growth in the 2014 to 2016 period.
“As health systems around the world grapple with macroeconomic pressures and the demand for expanded access and improved outcomes, medicines will play an even more vital role in patient care over the next five years,” says Murray Aitken, executive director, IMS Institute for Healthcare Informatics. “The trillion-dollar spending on medicines we forecast for 2016 represents a rebound in growth that will accentuate the challenges of access and affordability facing those who consume and pay for healthcare around the world.”
Despite the highest number of patent expiries in history, spending in the United States will grow by $35 billion to $45 billion over the next five years, representing an average annual growth rate of 1 percent to 4 percent, as newer medicines that address unmet needs are introduced and patient access expands in 2014 due to implementation of the Affordable Care Act.
Perhaps the hardest hit of the top pharmaceutical companies during this period is AstraZeneca. In the first half of 2012, the company’s sales dropped 15 percent as the patents for the cancer drug Arimidex and the antipsychotic Seroquel expired. The pain isn’t over yet for AstraZeneca, as about half of the company’s $33 billion in revenue is expected to be gone by 2016, including the heartburn drug Nexium and the cholesterol reducer Crestor. (For more information, see profile on page 34.)
As Arimidex and Seroquel sales were slipping away, the company also experienced several setbacks with highly anticipated drugs in its pipeline. For example, at the end of 2011, AstraZeneca announced that trials for TC-5214, an antidepressant, and olaparib, a cancer drug, did not meet their endpoints. By April 2012, Chief Executive David Brennan quit, rumored to be the victim of a shareholder-decreed shakeup of the top management levels.
One company that is claiming that it will emerge from the patent cliff period in a strong position is Sanofi. Chris Viehbacher, Sanofi’s CEO, believes that despite the losses of Plavix, the heart drug Avapro, and the cancer drug Eloxatin,the company can grow back its business. ““We’ll have one of the lowest exposures to patent expiry coming from that,” he says. “So it’ll be a challenging 2012, but most of us in management are now focused on growth post the patent cliff period.”
Mr. Viehbacher says in looking at the patent exposure for small-molecule drugs in Europe, the United States, and Japan, only 6 percent of Sanofi’s 2012 sales will be affected, making it one of the lowest exposures in the pharmaceutical industry. Meanwhile, Sanofi’s growth platforms are performing strongly and are expected to continue to do so in the future. (For more information, please see the profile on page 76.)
IMS Health says health systems in developed economies will experience slow growth in medicine spending. Spending on medicines in developed nations will increase by a total of $60 billion to $70 billion from 2011 to 2016, following an increase of $104 billion between 2006 and 2011.
In Europe, growth will be in the -1 to 2 percent range due to significant austerity programs and healthcare cost-containment initiatives. The Japanese market for medicines is forecast to grow 1 percent to 4 percent annually through 2016, slightly lower than the rate during the prior five years and reflecting biennial price cuts scheduled for 2012, 2014, and 2016. Overall, patent expiries in developed markets will yield a five-year “patent dividend” of $106 billion, reflecting reduced brand spending of $127 billion offset by $21 billion in higher generics spending
Health systems in emerging markets will nearly double their medicine spending in five years. Annual spending on medicines in the emerging markets will increase from $194 billion in 2011 to $345 billion to $375 billion by 2016, or $91 in drug spending per capita. The increase will be driven by rising incomes, continued low cost for drugs, and government-sponsored programs designed to increase access to treatments – by limiting patients’ exposure to costs and encouraging greater use of medicines. Generics and other products, including over-the-counter medicines, diagnostics, and non-therapeutics, will account for approximately 83 percent of the increase.
Even with all of this increased healthcare spending, pharma manufacturers will see minimal growth in their branded products through 2016. The market for branded medicines will experience flat to 3 percent annual growth through 2016 to $615-$645 billion, up from $596 billion in 2011. In the major developed markets, branded medicine growth will be severely constrained at only $10 billion over the five-year period due to patent expiries, increased cost-containment actions by payers, and modest spending on newly launched products. The pharmerging markets are expected to contribute $25 billion to $30 billion in branded product growth over the same period. Off-invoice discounts and rebates will offset about $5 billion of global branded medicine growth.
The big winners of the industry will be manufacturers of small molecule generics, which will be experience accelerating growth. Global generic spending is expected to increase from $242 billion in 2011 to $400 billion to $430 billion by 2016, fueled by volume growth in pharmerging markets and the ongoing transition to generics in developed nations. The impact of patent expiries primarily will be felt in the United States. In Europe, limited savings from expiring patents are prompting policy shifts to encourage greater use of generics and lower reimbursement for these products.
Med Ad News’ 2012 Company of the Year, Teva Pharmaceutical Industries Ltd., exemplifies the power of generics. Teva leads the world in total prescriptions filled, thanks to its gigantic portfolio of generic products, which also leads the world – but it also boasts two blockbuster branded products, with others possibly on the way. Teva has held the leading generic position in the United States for almost a decade, and is the leading generic drug company in Europe, where the company boasts a balanced presence throughout the region. In addition, the company has significantly increased its presence in its “rest of the world” markets. Teva is now the third leading generics company in Japan and has experienced significant growth in Russia and Latin America.
In 2011, about 56 percent of Teva’s revenue was generated from generic pharmaceuticals, including active pharmaceutical ingredients sold to third parties, and about 35 percent from branded products, which include Copaxone for multiple sclerosis, Azilect for Parkinson’s disease, the company’s respiratory and women’s health products, and products from the newly-acquired Cephalon portfolio. With the acquisition of Cephalon in late 2011, Teva’s branded portfolio was expanded to include, most significantly, Provigil for excessive sleepiness associated with narcolepsy, obstructive sleep apnea, and shift work disorder, and Treanda for chronic lymphocytic leukemia and indolent B-cell non-Hodgkin’s lymphoma that has progressed during or within six months of treatment with rituximab or a rituximab-containing regimen. The company’s remaining revenue was generated from its joint venture with P&G and other activities such as its Hungarian and Israeli distribution services to third parties. Company leaders expect the branded share of Teva’s revenue to increase markedly in 2012 due to the effects of the Cephalon acquisition.
According to Jeremy Levin, Teva’s new CEO, the true differentiator between pharma companies is how well companies adapt to change. “Over the last five years, Teva has faced significant changes in the differences in the markets it serves,” he says. “These changes necessitate changes in the way we operate. Other large companies focus on developing and marketing medicines at higher prices with higher margins for smaller subsets of patients with significant diseases. Teva has a nearly unique circumstance in that our patients are in 120 countries, our portfolio consists of over 1300 medicines, and our cultural diversity is unparalleled. This sets the stage for us to develop solutions to take advantage of the market evolution adapted to our particular circumstances.”
One way Teva is shaping itself to the changes in the pharmaceutical industry is by establishing one R&D division for the entire company, combining generic with branded R&D. “We deploy common technologies and remove an artificial barrier in the industry that implies there is ‘innovation’ only on one side of the business,” Mr. Levin says. “We believe that through our focus on the patient and unmet medical need, in R&D we can achieve greater success for our patients.”
Another winner in the future as envisioned by IMS Health will be biotech companies and large pharma companies with concentrations in biotech research, as biologics manufacturers will benefit from expanding market opportunity. IMS Health says biologics are expected to account for about 17 percent of total global spending on medicines by 2016, as important clinical advances continue to emerge from research. Seven of the top 10 global medicines by spending will be biologics within five years. Adoption of biosimilars as low-cost alternatives to the original biologic medicines will remain limited, as biologics remain protected by patents or market exclusivity in many countries.
The biotech pipeline is crowded with a new wave of possible billion-dollar brands and one-of-a-kind products expected to gain regulatory approval in 2012 or 2013. 2012 kicked off with FDA approval of a long-awaited diabetes drug, Amylin Pharmaceuticals Inc.’s Bydureon. This is the first once-weekly treatment for type 2 diabetes. Bydureon is an injectable, extended-release form of Amylin’s older and market-successful diabetes product Byetta, which is injected twice per day. Byetta and Bydureon have the same active chemical, exenatide. Bydureon is designed to help the body produce more insulin, which can reduce high blood-sugar levels. Some industry analysts have projected that Bydureon annual sales could approach $2 billion before 2020, though the drug will compete in a crowded marketplace with other new medicines on the horizon.
Another potential blockbuster medicine approved by FDA in January 2012 was Erivedge. The drug’s first approval was for the treatment of adults with metastatic basal cell carcinoma, or with locally advanced basal cell carcinoma that has recurred following surgery or who are not candidates for surgery, and who are not candidates for radiation. The first-in-class hedgehog-pathway inhibitor is part of a development program between the biotech companies Curis Inc and Roche/Genentech Inc. Some analysts expect the drug to exceed $1 billion in yearly sales for advanced basal cell carcinoma alone. Erivedge is also being developed in Phase II trials for operable basal cell carcinoma and is undergoing studies for other indications. (For more information about Roche and Erivedge, please see page 73.)
Several of the top pharmaceutical and biotech companies have acquired other biotech companies to shore up their biologics pipelines. Sanofi completed the acquisition of Genzyme and Teva purchased Cephalon in 2011.
GlaxoSmithKline (see profile on page 42) made an unsolicited bid for Human Genome Sciences Inc. in April 2012. Human Genome Sciences capitulated in July, agreeing that GlaxoSmithKline could buy the company for $3.6 billion. Human Genome Sciences markets the drug Benlysta with GlaxoSmithKline. Approved in March 2011, Benlysta is the first new drug in 56 years to treat lupus. The drug is a monoclonal antibody that inhibits B-cell activating factor. Analysts expect the drug to exceed $2.2 billion in sales by 2014. At the time of the acquisition, Human Genome Sciences was working on two other products with GlaxoSmithKline, the heart disease drug darapladib and the diabetes drug albiglutide. GlaxoSmithKline filed for approval of albiglutide in July 2012. The drug is an injectable GLP-1 inhibitor in the same class as Bydureon and Byetta.
AstraZeneca agreed in April to acquire Ardea Biosciences for $1.26 billion. The acquisition was completed in June, making the company a wholly owned subsidiary of AstraZeneca. The Ardea acquisition brought the drug lesinurad, which is in Phase III development as a potential treatment for the management of hyperuricemia in gout patients.
Amgen Inc. in April 2012 announced its acquisition of Kai Pharmaceuticals. Amgen, of Thousand Oaks, Calif., generated 2011 revenue of $15.58 billion. Privately held Kai is located in South San Francisco. The purchase price is $315 million in cash. Kai’s lead product candidate is KAI-4169, which is undergoing Phase II studies. The novel agent is being initially studied for treating secondary hyperparathyroidism in patients with chronic kidney disease who are on dialysis.
In January 2012, Amgen agreed to purchase the biotech entity Micromet Inc. for $11 per share in cash. The deal valued Micromet at $1.16 billion. Founded in Germany, Micromet’s R&D center is located in Munich. The company’s headquarters is based in Rockville, Md. The acquisition includes blinatumomab, a bispecific T cell engager antibody in Phase II trials for acute lymphoblastic leukemia. Blinatumomab is additionally being studied for treating non-Hodgkin’s lymphoma. The drug compound may have uses for other hematologic malignancies. (For more about Amgen, see profile on page 28.)
As every company continues to review its R&D organization, some will be reaping the results of tactics that aimed to anticipate the patent cliff. IMS Health predicts that global launches for new molecular entities will rebound during the next five years, as 32 to 37 new molecular entities are expected to be launched per year through 2016. Between 2011 to 2016, 160 to 185 new molecular entities are expected to launch, compared with 142 between 2007 and 2011. Experts predict that these will include drugs to treat Alzheimer’s, autoimmune diseases, diabetes, and a number of cancer and orphan diseases. Treatments for global priority diseases, such as malaria, tuberculosis, and neglected diseases, are expected to improve, although gaps will remain.
But with pipelines thin throughout the industry, several companies have revamped their R&D organizations. For example, AstraZeneca announced a new program in February that executives said would “create a simpler and more innovative R&D organization with a lower and more flexible cost base.” One of the areas bearing the cuts is the neuroscience therapy area. As a result, AstraZeneca created a “virtual” neuroscience Innovative Medicines unit made up of a small team of around 40 to 50 AstraZeneca scientists conducting discovery and development externally, through a network of partners in academia and industry globally. The team is based in major neuroscience hubs – Boston in the United States and Cambridge in the United Kingdom.
One of the first actions of Ian Read when he took over as CEO of Pfizer Inc. in 2010 was to refocus the company’s R&D organization. The company’s global R&D team was centralized under the leadership of Dr. Mikael Dolsten and an accelerated R&D strategy was introduced, focusing on neuroscience; cardiovascular, metabolic, and endocrine diseases; oncology; inflammation and immunology; and vaccines.
Early in 2011, Pfizer announced 1,100 job cuts at Groton laboratories in Connecticut to lower the company’s R&D expenses by up to $2.9 billion. In June 2011, the company announced another $1 billion in cost reductions by 2012, most of which would target management positions. Over the past few years, tens of thousands of positions have been eliminated at Pfizer, including about 20,000 related to the Wyeth acquisition, according to published reports. “We expect that in five years many of our late-stage clinical trial starts will reflect a precision medicine R&D approach,” Mr. Read says.
Some experts believe that revamping R&D organizations is not enough, and say for pipelines to improve, companies will have to cooperate and share noncompetitive data in early stage research. By sharing this data, researchers will be able to avoid repeating the pitfalls experienced by others in looking at the same problems.
In its annual report on the biotech industry, “Beyond Borders,” Ernst & Young experts came up with the concept of “holistic open learning networks,” or HOLnets, where academia, nonprofit groups, and industry can pool and share information.
In September 2012, Abbott, AstraZeneca, Boehringer Ingelheim, Bristol-Myers Squibb, Eli Lilly and Co., GlaxoSmithKline, Johnson & Johnson, Pfizer, Roche, and Sanofi announced that they are unveiling TransCelerate BioPharma Inc. The initiative is designed to identify and resolve common issues that can delay R&D.
By participating in TransCelerate, each of these companies will combine financial and other resources, such as personnel, to work out industry-wide challenges in a team work atmosphere. Members of TransCelerate have pinpointed clinical study execution as the initiative’s initial focus area. Five projects have been selected by the group for funding and development. These areas include development of a shared user interface for investigator site portals, mutual recognition of study site qualification and training, development of risk-based site monitoring approach and standards, development of clinical data standards, and establishment of a comparator drug supply model. TransCelerate was incorporated in early August 2012 and was expected to file for non-profit status in the fall. The board of directors includes R&D heads of the 10 member companies. Membership in TransCelerate is open to all pharmaceutical and biotechnology companies who can contribute to and benefit from these shared solutions. TransCelerate’s headquarters will be located in Philadelphia, Pa.
Glen Giovannetti, Ernst & Young Global Biotechnology, Leader, told the industry blog Pharmalot that the announcement is encouraging because it is unique.
“We haven’t seen one quite like this before where 10 pharmaceutical companies paired up of sort of their own volition in a way,” he says. “They join other consortia. This seems to be more of a real commitment of their resources and their effort. I think it’s great. They’re going to concentrate on getting some standardization around the clinical trial process. Perhaps more important in the long term, how data is gathered and assembled it really could move toward greater standardization of data so that trial results downstream could be more easily pooled and shared and investigated for insights.”