2004 has been a turbulent year for big pharmaceutical firms. Concerns on account of VAT absorption by the Indian market and slow down in sales affected the pharma industry drastically. Besides, weakening pipelines of MNCs, blockbuster drug patent expirations and subsequent competition from pharmaceutical generics have become the order of the day for the Indian pharma industry.
On safety concerns, several drugs have faced regulatory issues, including a lack of efficacy in AstraZeneca's cancer drug Iressa during clinical trials, the withdrawal of Merck's arthritis drug Vioxx, and safety concerns over Pfizer's arthritis drug Celebrex and others in the Cox-2 inhibitor family. There has also been a drive from regulatory agencies in recent months for fuller disclosure of clinical trial data into the public domain. Companies, which have created critical mass on account of these segments, went to new product avenues in the place of established product withdrawals from the market.
On the global front, the pharma story got supplemented with several success stories, a particular highlight of the merger of Sanofi Synthelabo and Aventis to form the Sanofi-Aventis Group, now Europe's largest pharmaceutical company. And despite setbacks, the mature pharma market is expected to continue growing at a CAGR of 8.4% and could approach $1 trillion by 2011. Whereas on the Indian front the market is expected to achieve a size of USD 6.5 billion.
Some of the major challenges for pharma industry are going to be:
1. External pressures to maintain growth to continue
2. R&D efforts face bigger hurdles (advancing science, increasing costs, demanding regulatory environment)
3. Differentiated compounds, fulfilling unmet medical needs, are key to success
4. Marketing and selling costs and competitive forces are rising
5. Cost control pressures increasingly influence pricing and reimbursement.
Though there was much talk on the part of increasing convergence of the pharma and biotechnology sectors, the demand for biopharmaceuticals such as monoclonal antibodies, insulin and other vaccines proved to be dwindling as the market is caught up with the competition and price wars. On the international front, the biotechnology could see major 451 licensing deals between pharma and biotech companies by early December 2004, an increase of around 45% over 2003. This is being driven by a need for specifically targeted, active treatments for complex diseases in areas of unmet medical needs, which conventional pharmaceutical products have thus far not addressed. The trend is likely to continue into 2005, with pharma companies eager to invest in new sectors that are achieving high levels of venture capital and public funding, such as stem cell research.
Going forward, patent expirations of blockbuster drugs are driving a need for product line diversification, and the blockbuster drug model is giving way to personalized medicine. Pipeline diversification will be an essential strategy for the coming year, as improvements in diagnostic techniques give a greater understanding of diseases and demand equally effective therapeutic treatments. Likewise, firms are investigating the potential reformulation of existing products into new patentable formulations that show increased efficacy or reduced toxicity.
Another interesting is expiry of patents in blockbuster patents. Several companies that previously held key patents are moving in the direction of generics manufacturing. A further anticipated trend is an increase in outsourcing to specialized contract manufacturing organizations, as diversified product pipelines will require more specialized manufacturing facilities, which require high capital investment. As observed in recent years, a trend in outsourcing to countries such as India and China to reduce manufacturing costs will continue.
One more interesting industry feature is going to be in-licensing deals. It is expected that by 2010 in licensed product sales in pharma industry are going to equal with the internal products growth contribution.
The industry will face significant challenges in 2005, with a key challenge being identifying means of improving industry productivity. Unpromising research and development projects need to be terminated earlier in the clinical development process to improve overall productivity and reduce wasted investment. With recent safety concerns and high profile product withdrawals, there are also concerns that regulatory agencies will tighten up safety and efficacy testing requirements. A particular focus will be on the application of pharmacogenomic techniques to improve indications of safety, but the advent of such techniques in the long run will improve industry productivity as more pharmacogenomic data is collated.
Overall, the outlook for the pharma industry is favorable, provided the identified challenges are overcome, which should result in another successful year and continued industry growth. The way Indian pharma industry is now concentrating on global acquisitions, it's no wonder if we find a couple of Indian pharma MNCs in not so distant future.
- (The author is country head, Firstcall India Equity Advisors Private Limited, Mumbai)