New drug development , the core to success in the pharmaceutical industry has lately become extremely prohibitive because of economic, scientific and regulatory reasons. Major pharmaceutical companies are employing mixed business models, targeted and focused to the geography and therapeutic areas concerned. Drying pipelines and at risk revenues have fuelled mergers and acquisitions making patent quality all the more important.
In the current scenario there is considerable learning and opportunity available for the emerging research based pharmaceutical companies which may strategize their moves to cope and make the most of the Big Pharma’s fear of falling off the patent cliff.
With the loss of exclusivity on blockbuster drugs, many pharma giants are struggling to find remedies to cope with the industry-wide patent cliff. Research based drug firms are making efforts not just to bolster their drug pipelines but also to reduce costs and enter the untapped niche segment of the industry. Rare diseases and orphan drugs are also giving in-roads to the big pharma firms to replace the revenues coming from single blockbuster drugs with the revenues from orphan drugs. Though orphan drugs cater to a smaller section of the population as compared to the blockbuster drugs, they offer better prospects to the pharma companies for regulatory assurances and generic entry barriers. The Big Pharma is opting for strategies to cut costs, increase revenues and product diversification especially towards biologics where the generic competition is relatively safer.
Survival of non-research based pharma companies in such an environment is a challenging task. The pharmaceutical industry around the globe is going through unprecedented changes because of the fast approaching patent cliff and no potential replacement of the blockbuster drugs. The so called “empty pipeline syndrome” is prevailing in the pharmaceutical industry except relatively in oncology, even where the hope and hype is being debated.
Industry is faced with a large number of patent expirations till 2013. An expected total sale loss of 18 per cent equalling roughly $137 billion is expected if no measures are taken by the big pharma. According to evaluatepharma.com a $63 billion loss in revenues is expected by the Big Pharma in 2012 alone, due to patent expiration on different drugs. Before getting started with the various ways to cope against the patent cliff backdrop, let’s first understand the reason behind no potential replacements for the blockbuster drugs coming off patent.
Empty pipeline syndrome
Coming up with revolutionary drugs and major breakthrough costs great deal of time and money to a pharma company. Research in pharmaceutical industry usually goes through three stages: identifying the target and competent molecule to treat a particular disease, testing it to prove its safety and efficacy, and finally the production stage for marketing and selling. The probability of a favourable translatability score decides the fate of the company. Few factors that have led the industry to this stage include:
Long & risky research:
Developing a new chemical entity to treat a disease involves a lot of time with limited success against an investment of more than $one billion. Scientifically, it is difficult and resource - intensive to develop a superior product for the same therapeutic indication where a highly efficacious blockbuster drug has gone off patent. The long time period of clinical trials, regulatory approvals and patent grants are inevitable delays before introducing it in the market and reaping benefits. Pharma companies do not often get to launch their patent protected blockbuster drugs in the respective markets before almost half of the patent validity period has elapsed. Even of these, only a few return the cost of development before patent expiry. In short, research - based pharma companies do make significant investment in research but often fail to convince investors who seek less risky investments and fast revenue generation business models.
Insufficient funding and survival in the industry:
It is said that the blockbusters finance the search of more breakthroughs to keep the innovation engine running. However, clinical development is not adequately funded. MSMEs often go either for investors or partner with major pharma companies to bring the molecule to the market. However, in the present scenario where the loss of patent protection is abridging the revenues of the big pharma, their main focus is survival. Success in innovation has gone secondary in the new environment as the companies are now focusing on increasing the sales of the existing products, which can be done by putting in more money in the marketing budget to gain the
market share.
In the present scenario, the big pharma companies are left with no other option but to relatively depend on the small to mid-sized pharmaceutical and biotech companies with no burden of size and having research productivity to feed the needs of the bigger marketing giants.
Fast approaching patent cliff
So, in the wake of no potential replacements, these pharma companies have been forced to adapt and diversify their spectrum to cope with the patent cliff, which includes:
Entering the niche segment: To counter the impact of patent cliff, a few pharma companies have started zeroing in on the untapped segments to enter to and carve a niche in them. For instance, biologics, personalized medicine and so on.
Pharmaceutical products generally receive a patent exclusivity for 20 years from the date of molecular discovery leaving an approximately eight to 14 years of exclusive market rights.
Outside the US, especially in the European Union , there are guidelines for biosimilars but again the approval process is lengthy and difficult, inherently impeding the entry of generic competition for the innovator firms.
Research and development in pharmaceutical and biotechnology is moving towards personalized medicine. Personalized medicine has the potential to intertwine the pharma-biotech and diagnostic industry making patents more difficult to be copied easily by generic players as the resources available with one generic firm may be insufficient in replicating the therapeutic regimen. Landmark developments like the completion of the human genome project and the ongoing human microbiome project are seen as the main drivers in believing that consolidated efforts in this arena may be a sustaining factor for the Big Pharma.
Even though such personalized products will benefit a small segment of the patient population and each subset of patients will potentially have a different treatment, the higher success rates will drive a higher price, may not be always in reach of common man.
Evidently, given the high risk and more return over investment, one should make sure to focus largely on the limited competition products as the regulatory barriers of trials, approvals and manufacturing are more stringent than the normal generics.
Mergers and acquisitions: Carving a niche is nonetheless a part of the multi-pronged strategy of the pharma companies that have either plans of mergers or already have acquired facilities or brands or companies to ensure their growth and sustainability.
Amongst the many blockbuster deals which have happened recently, Pfizer's acquisition of Wyeth for $68 billion, Merk's acquisition of Schering-Plough for $41billion and Roche's acquisition of Genentech for $46 billion are seen as efforts of the Big Pharma to increase sales through diversification in their portfolio of products as well as pipelines. Roche's acquisition of Genentech is an effort of Roche for making a stronger presence in the biologic market with acquiring strong patents developed by Genentech.
Indian pharmaceutical company, Dr. Reddy's Laboratories, recently acquired the GSK's US Penicillin manufacturing facility to increase its presence in the antibacterial segment. Similarly, Sanofi acquired Genzyme to gain access to the rare disease market and to reduce the impact of generic competition, all for survival.
Cost cutting programmes: Most of the major pharmaceutical companies recently launched cost cutting initiatives to decrease the strain on profits. This has included decreasing sales force employees, consolidating manufacturing units and other miscellaneous cuts. Pfizer and Merk recently targeted a cost cutting in the range of $ 4 billion and $5.5 billion in reductions. Bristol-Myers Squibb and GlaxoSmithKline made similar cost cuttings recently in an anticipation of the losses due to expiring patents.
Choosing orphan drugs over blockbusters: Talking about rare diseases, there are many pharma companies who are looking up at the rare diseases and orphan drugs segments for long term benefits. Orphan drugs although cater to a smaller population but their wider range of applicability make them a potential replacement for the off patent blockbuster drugs. Incentives have been available in this drug segment since the enactment of the United States Orphan Drugs Act 1983. However the big pharma is looking at this segment only now for a fear of falling off the cliff in the mainstream blockbuster segment. Many smaller biotech have already proven this segment as equally profitable. This segment has rewards like extra patent protections, higher pricing and a streamlined review process by FDA.
Pfizer, GlaxoSmithKline, Novartis and Eli Lilly have recently set up stand-alone units dedicated entirely for developing and commercializing therapies for rare diseases.
Increasing the R&D productivity: Research and development is definitely the highest cost for the pharmaceutical manufacturers and the compound attrition is high to the extent that only one molecule for every 5000 reaches from the bench to the bed side. GBI Research, a global business intelligence company has estimated that approximately 55 per cent of the entire pharma's late stage pipeline is made up of life cycle management (LCM) projects.
Silver lining to patent cliff
Undoubtedly, patent cliff and the ‘dry pipeline syndrome’ have made the Big Pharma look for other competitive options. On the other hand, the global pharmaceutical market continues to grow as the demand for better healthcare is constantly on the rise. Patients and medical fraternity are still hunting for better solutions to cater to the rising healthcare problems.
With significant focus on research, smaller pharma companies are fuelling innovations. Patent cliff and dry drug pipeline of the big pharmaceuticals can prove to be a win-win situation for both the smaller and the Big Pharma companies. Though SMEs do have innovative drug pipeline , they lack proper funding to take it to development stages. This can be a good opportunity for the Big Pharma to identify such companies and tie up with them to develop sustainable blockbuster drugs and gain significant market share.
Besides this, many companies have started setting up their R&D base in emerging economies where the availability of talent and operations are at much reasonable cost than developed economies. The indispensable role of MSMEs would play in driving the future R&D sentiments of emerging economies like India with long-term vision of being innovation driven companies, meticulously crafting the balanced and healthy research product pipeline by working on the ignored medical emergencies such as antimicrobial resistance, targeted drug delivery. Technological advancement is all the more important at this juncture.
The author is JMD & Director-Research, Venus Remedies Ltd