Mumbai: Top drug makers will continue to record less than 5% revenue growth in developed markets such as the US, Europe and Japan, which make up 88% of the world’s drug sales, in the next five years.
Aggressive competition: Carolyn Buck-Luce of Ernst and Young.
The emerging markets in Asia and countries such as Brazil and Russia are now the key focus for these companies as they guarantee at least low double-digit growth, but to expand the market, they need to look for acquisitions and adopt collaborative practices, said Carolyn Buck-Luce, global pharmaceutical sector leader of consultancy firm Ernst and Young Llp.
In the past half a decade, big pharmaceutical firms haven’t developed any new blockbuster drugs, the lifeblood for them.
Indeed, drugs such as Lipitor and Advair had been delivering multi-billion dollar sales every year to the largest drug maker in the world by sales, Pfizer Inc., and British drug maker GlaxoSmithKline Plc, but there is no sign of any new blockbusters in the global research and development pipeline, Buck-Luce said. Edited excerpts:
Can you explain the changes that the big drug makers are witnessing in global markets?
The pharmaceuticals and healthcare markets around the world are now going through a series of changes, including the consumer perception about healthcare, changed approach in research and development. This follows the disappearance of the blockbuster era, increased medical awareness of patients triggered by the Internet revolution, changes in the healthcare policies of governments and competition from generic and “me-too” drugs, among others.
This has led to ultra-specialization in therapeutic areas, service-oriented approach of pharmaceutical companies in marketing their products, entry of large molecules or biopharmaceuticals in place of chemistry-based small molecules and personalized medication.
While these are internal pressures that the pharmaceutical companies are currently going through, the changes in government policies on healthcare and the aggressive competition from the off-patent and parallel product companies have put external pressure on pricing and profitability in the market.
What is the ideal strategy to sustain the growth?
The key question before big pharmaceutical companies is whether you become a super-speciality player to win over the competition or create the broader product portfolio to cater to all markets and all therapeutic segments. Macroeconomic factors such as increasing geriatric population, major shift towards middle-class economy have also changed the traditional approach of pharmaceutical companies.
A synchronized approach (is required) to take care of whole requirements of patients by specializing in therapeutic segments. This will require not only innovative products but also other healthcare services such as diagnostics, personalized medication, synergy with biopharmaceutical areas and wider healthcare network.
The change in scientific perception as far as healthcare is concerned, and an already narrowed new drug pipeline of these companies, will also force them to be innovative on marketing.
Will the new trend squeeze profitability of big drug makers?
Certainly, yes. The growth of these companies in the developed markets such as the US and Europe in the Western world and also Japan, the largest pharmaceutical markets in the world that were key to their growth, will remain lower single digit, less than 5%, to be precise.
At the same time, these companies have already turned their radar on emerging markets such as Russia, Brazil, India and other Far Eastern countries, where they expect a double-digit growth. Hence, the new strategies of these pharma biggies definitely include picking up opportunities in these markets, both organically and inorganically.
What will be the impact of the new healthcare Bill in the US, the largest pharmaceutical market in the world?
The Bill needs to be cleared by the Senate, which is currently debating on it. The key proposal—universal coverage of medical insurance—will add another 40 million people who are not insured so far by healthcare coverage. This sounds good for those pharma companies across the world who cater to the US market. But there will be high pressure on pricing and, hence, the profitability will purely depend on the capability of these companies on how cost-effective they can be in the market.
Currently, 60% of the US market is served by generic players.