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Who tops the pharma list?

Chris Ross, with the help of healthcare analysts GlobalData, takes a New Year look at the past, present and future of global pharma, and asks: what’s trending? 

Top Pharma List

The arrival of a new year is traditionally accompanied by common behaviours; retrospective reflection on years gone by, and prophetic, pragmatic planning for the twelve months that lie ahead. And, more often than not, we generally end up plotting transformational change that inevitably falls short of our aspirations. And whether you're a consumer or a corporate, it's always a similar story.

So what does 2014 have in store for global pharma? Commentators predict that there is unlikely to be a seismic shift in the industry's operational model – but more a continuation of the steady evolutionary journey the sector has been making for the past few years. But will this be enough – or does the industry need to change its approach?

The clues for the future are rooted in the past. Analysis of the industry's historic performance in 2012 - in PMLiVE's Top Pharma List - underlines how the shifting dynamics of the global healthcare market are driving the fortunes of the world's top pharmaceutical companies.

Organisations are under sustained pressure to reduce the cost of R&D while, at the same time, developing high-value, affordable innovations that can transform outcomes in areas of unmet patient need. This increased emphasis on value is forcing companies to examine their business models, their pipelines and their operations, and to explore new markets to drive growth. So, in true Dickensian fashion, what does the Ghost of Pharma Past tell us? And what will this mean for the Ghost of Pharma Yet to Come?

This article is based on data from PMLiVE's Top Pharma List

See the top 25 pharma companies by global revenues

See the top 10 pharma companies by US revenues

See the top 10 pharma companies by Japan revenues

See an infographic of pharma company performance in 2012

Diagnosis: patent sickness
Starting first with the past and the most recent full-year figures available, 2012 saw very little change in the public face of big pharma. The top 25 companies, by revenue, were dominated by the usual suspects, with Pfizer remaining at the head of the pack, and only Bristol-Myers Squibb (BMS) falling out of the top 10. But the 2012 performances of both BMS and Pfizer were indicative of a growing trend that continues to dominate the sector: patent loss. The biggest wave of patent expiries to hit the industry began in 2010 and, by 2012 had gathered real momentum. It remains one of the industry's biggest obstacles to growth.

Despite maintaining its lofty position as the world's biggest drug company, Pfizer actually suffered negative growth in 2012. Loss of exclusivity on some of its leading brands - not least Lipitor - contributed to an overall dip in revenue of more than $6.5bn from 2011. Lipitor sales fell from $9.6bn to $3.9bn, while patent expirations for Caduet (cardiovascular) and Viagra (erectile dysfunction) during the same period also had major ramifications. In fact, between March 2011 and May 2014, Pfizer will have lost exclusivity on nine major brands with combined 2011 sales of around $19bn.

BMS' departure from the 2012 top 10 was driven by the patent expiries of the hypertension drug, Avapro - which had 2011 sales of $2.2bn - and Plavix. The latter, an antiplatelet agent it co-marketed with Sanofi, enjoyed 2011 sales of $9.4bn - but, with Plavix accounting for more than a third of BMS revenues in 2010, the company's exposure to the loss was far greater than its French counterpart.

In fact, patent expiry was an industry-wide epidemic in 2011/12, with loss of exclusivity plaguing many of the sector's biggest companies. For example, patents for Seroquel (AstraZeneca - 2011 revenues of $5.8bn), Zyprexa (Eli Lily - $4.6bn) and Concerta (J&J - $1.3bn) had all expired by May 2012. By the end of 2012, Advair (GSK - $8.2bn), Singulair (Merck - $5.5bn) and Diovan (Novartis - $5.7bn) would be among many billion-dollar brands to lose exclusivity during the calendar year.

With many more to come, including - in the next 12 months expiries on Sanofi's Lantus (2012 sales of $6.5bn), Pfizer's Celebrex ($2.7bn) and AZ's Nexium ($3.9bn) - how are companies responding to the challenge and replenishing lost revenues? A wide range of approaches has emerged, but the most common include growth by acquisition or strategic alliance, geographical expansion into international and emerging markets, or diversifying to develop niche therapies, personalised medicines or biologics. There is even a trend towards developing drugs for orphan diseases.

The remedy: special treatment
Certainly, the protracted death of patents across the global sector has signalled the end of the blockbuster era, and stimulated an increased portfolio emphasis on the development of specialist drugs. This coincides with renewed global pressure on pricing and reimbursement, which is changing the paradigm of R&D and challenging companies to explore new models to develop genuinely innovative therapies. 

“Governments are under huge pressure to contain drug prices - with a major strategy being to increase generic prescribing,” says Joshua Owide, director of healthcare industry dynamics, GlobalData. “When a patent expires, generics will inevitably flood the market. But, more significantly, it also makes it harder for companies to demand premium level pricing with the new drugs coming through. Governments aren't willing to reimburse therapies that only offer a slight efficacy improvement over an existing brand or generic. As a result, pharmaceutical companies challenged with replacing high-grossing blockbuster therapies are facing difficult choices. Do they stay in the same therapy area and try to replace like-for-like, or do they diversify into faster-growing therapy areas such as oncology, immunology or diabetes?”

Undoubtedly, the primary care business model is diminishing. The development of new drug targets in historically strong indications such as CNS and cardiovascular is no longer as attainable as it was a decade ago. With outcome data in these areas already robust, innovation has become limited as companies struggle to identify targets capable of transforming patient care.

“Companies are increasingly focusing on niche indications for diseases where survival rates need to improve,” says Joshua. “Whereas CNS and cardiovascular only offer opportunity for marginal gain, there is still much work to be done in areas like oncology. Here, companies are taking more innovative approaches to improving quality of life and increasing life expectancy. Organisations are developing highly targeted therapies that can be associated with a compound diagnostic in their specific disease area – and taking a more personalised approach to medicine. Pfizer's Xalkori is just one example of this.”

Alongside oncology, treatments for immunology and metabolic diseases rank among the fastest-growing therapeutic classifications. This has driven solid growth for the major players in these areas. For example, Sanofi (by $1.5bn), Merck ($1.1bn) and Novo Nordisk ($800m) each grew their metabolic portfolios in 2012, while AbbVie ($1.4bn) and J&J ($1.1bn) significantly increased their immunology sales. The latter category grew impressively right across the board.

The trend towards biologics also gathered pace in 2012, and has subsequently shown no signs of relenting. In fact, each of the top 15 companies in this area increased their biologics revenues in 2012 - with Roche yielding an impressive $27.26bn, outperforming its closest competitor, Amgen, by more than 50 per cent. Significantly, over half of the top 10 best-selling drugs in 2012 were biologics, including all of the top 3 (Humira, Remicade and Enbrel).

“The shift towards biologics has not happened overnight – and we are still seeing rapid growth in this area, with the likes of Humira showing billion-dollar growth year-on-year,” says Joshua. “The opportunity in these markets remains significant - and as such, companies right across the board, including biotechnology, are seeking to exploit this area. These products are aligned with the needs of the global healthcare market, and represent a significant leap in treatment outcomes in many aggressive indications. As a result, their ability to command a premium price holds great appeal.”

Old and emerging strategies
Beyond therapeutic diversification, companies are also reviewing their infrastructure and international presence to facilitate growth. The most headline-grabbing has been the industry's increasing focus on expanding into emerging markets, with the developing economies in regions such as the BRIC nations attracting the attention of numerous multinationals. As the healthcare landscapes in the developing nations mature, big pharma's investment will most likely do much to stimulate growth, but what of its performance in established, traditional markets?

Companies increasingly focus on niche indications for diseases where survival rates need to improve

The US market remains the world's biggest and, as many of pharma's blockbuster brands fall over the patent cliff, performance in North America will be volatile. Despite tough conditions, however, the top-performers in the US held up remarkably well in 2012. While Pfizer suffered a $4bn fall in US revenues, the vast majority of the top 10 enjoyed stable or increased revenues – with only AZ (-$2.5bn) and Lilly (-$870m) experiencing significant negative growth.

However, in Japan - the second largest pharmaceutical market in the world - big pharma's progress has been less emphatic. Only one company from the top 10 global pharma companies makes the listing for the top performers in Japan in 2012 – Roche – with only a further three from the global top 20: Astellas, Takeda and Daiichi Sankyo. So where are the big names, and how long will it be before they exploit this huge market?

International expansion, whether in traditional or emerging markets, is of course a long-term commitment, with ROI unlikely to be realised overnight. The same also applies to strategic alliances, partnerships and M&A activity, where integration can often stifle growth in the short-term. The era of the mega-mergers has, for now at least, departed - but there remains little let up in the volume of smaller deals.

Growth by acquisition is still a common strategy for many companies, and despite the long-term wait for ROI, has, in some cases, proven to be a highly successful approach in replenishing lost revenues and diversifying portfolios. For example, Sanofi's 2011 acquisition of Genzyme gave it access to an impressive orphan drug portfolio and helped the company diversify its business model. Likewise, big pharma companies are increasingly acquiring or partnering with biotech companies to access their late-stage pipeline and accelerate growth.

The future
The Ghost of Pharma Yet to Come is likely to see renewed efforts from pharmaceutical companies to optimise technological advances such as biologics, and to develop personalised medicines in niche areas of unmet patient need. But, as the data from 2012 shows, the clues for tomorrow were planted yesterday. As global healthcare budgets reduce and demand for care grows, the development of cost-effective innovations that bring a step-change in health outcomes remains the industry's biggest priority. It was ever thus. As market conditions change, healthcare dynamics evolve and technologies progress, innovation will always be pharma's ever-trending story. 

See the top 25 pharma companies by global revenues

See the top 10 pharma companies by US revenues

See the top 10 pharma companies by Japan revenues

See an infographic of pharma company performance in 2012

Article by
Chris Ross

journalist specialising in the pharmaceutical industry and healthcare

21st January 2014

Article by
Chris Ross

journalist specialising in the pharmaceutical industry and healthcare

21st January 2014

From: Sales

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