The changing face of the
top 10 pharmaceutical companies
The beginning of the end for
innovative dominance

WHITE PAPER | ...
WHITE PAPER | VALUE BASED BUSINESS MODELS

So far, even with all of the tumultuous change in the pharmaceutical market
as ...
WHITE PAPER | VALUE BASED BUSINESS MODELS

market), the amount spent on four "mega mergers" in 2009-2010 alone equated to
...
WHI TE PAPER | VALUE BASED BUSI NESS MODELS

THE RI SE OF GENERI CS AND I NCREASED DI VERSI FI CATI ON
The last couple of ...
WHI TE PAPER | VALUE BASED BUSI NESS MODELS

The generics business continues to remain the core of Teva’s model with over ...
WHI TE PAPER | VALUE BASED BUSI NESS MODELS

WHAT DOES THI S MEAN FOR I NNOVATI ON?
So what does this mean for innovation?...
WHI TE PAPER | VALUE BASED BUSI NESS MODELS

FI GURE 6:

2002-2012: TOP 10 FASTEST GROWI NG CORPS BY NON-GENERI C REVENUE ...
WHI TE PAPER | VALUE BASED BUSI NESS MODELS

from 2002-2012, yet Actelion has experienced a 60% CAGR. HIV has seen a 12% C...
WHI TE PAPER | VALUE BASED BUSI NESS MODELS

3. Partnerships
R&D will continue to be hugely expensive and risky, and being...
WHI TE PAPER | VALUE BASED BUSI NESS MODELS

THE FUTURE OF THE TOP 10
Big pharma unsurprisingly view today’s pharmaceutica...
WHI TE PAPER | VALUE BASED BUSI NESS MODELS

protected prescription business. They will succeed not only through breadth o...
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The changing face of the top 10 pharma companies

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Rises in healthcare costs and small molecule genericisation, developments in specialty care models, and new priorities around innovation and buisness model sustainability are all posing critical questions for pharmaceutical companys - emerging models and historical players alike.
Can innovative players still succeed in this market? What does their future business model look like?
How can today's Top 10 companies fight back, while maintaining a strong balance sheet
and relevant portfolio.
Do protected, product development-focused, research-based business models have a future?
What new business models are poised
to enter the Top 10 in the next 10 years?

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The changing face of the top 10 pharma companies

  1. 1. The changing face of the top 10 pharmaceutical companies The beginning of the end for innovative dominance WHITE PAPER | VALUE BASED BUSINESS MODELS
  2. 2. WHITE PAPER | VALUE BASED BUSINESS MODELS So far, even with all of the tumultuous change in the pharmaceutical market as austerity bites and we ride peak small molecule genericisation, the names of the pharmaceutical companies at the top of the tree have been remarkably stable. However, under this apparent consistency is a plethora of activity that is changing the nature of major pharmaceutical companies – but is it enough? A CHANGING ENVIRONMENT: THE PHARMA RESPONSE The pharmaceutical environment of today differs considerably to that of only a decade ago. Key events shaping the market have been: * Rising healthcare costs leading to inevitable payer pressure in the pharmaceutical market, which coupled with the ongoing financial crisis has tipped the emphasis from slowing pharma spend growth to actually cutting pharma spend in many mature markets * Significant number of small molecule genericisation events in the primary care market, leading to the demise of many blockbusters: 12 out of the world’s leading 20 blockbuster products are small molecules which either have or will lose their protection by 2016.1 The remaining 8 products are all biologics, which even if they lose patent protection will probably maintain much of their sales at least for the next 5 years * The rise of specialty care, and as a subset of this, biologics, which combined with the previous trend, means the companies thriving in this new environment are more dependent on specialty care than primary care * A flattening off in the true number of blockbusters with fewer launches achieving blockbuster status Pharma has attempted to diversify over the last decade to compensate for many of the above events, shying away from pure innovation and moving into areas such as diagnostics and devices, generics and consumer health, to broaden their portfolios and strengthen their balance sheets in the run up to Loss of Exclusivity (LoE) of key blockbusters. There has also been a whole series of mega mergers and acquisitions over this decade (Sanofi-Aventis, Bayer-Schering, Pfizer-Wyeth, Roche-Genentech, Merck-Schering-Plough), leading to consolidation amongst the largest players. Yet despite this continuous deal making and apparent consolidation, the pharmaceutical industry remains remarkably fragmented. In comparison to the automotive industry which sees the Top 10 players account for 80% of global production,2 or the mobile phone market which sees the Top 10 players account for 66% global production,3 the Top 10 pharmaceutical companies have never managed to break the 50% market share threshold - their grip on the global pharma market has remained remarkably static over time, consistently around the 40% mark.4 This consistent global market share is equally true of the patent protected market, often thought of as the stronghold of big pharma. Although the Top 10 were disproportionately affected by the patent cliff (many attained their Top 10 ranking as a result of blockbusters which have been the source of the largest losses in the protected IMS HEALTH | THE CHANGING FACE OF THE TOP 10 PHARMACEUTICAL COMPANIES 2
  3. 3. WHITE PAPER | VALUE BASED BUSINESS MODELS market), the amount spent on four "mega mergers" in 2009-2010 alone equated to $200bn and despite this outlay, the Top 10 have only managed to retain share of the protected market, rather than increase share (figure 1). This thwarted consolidation goes hand in hand with another key event for the Top 10 in 2012: The arrival of Teva into the elite Top 10. Replacing Lilly as a Top 10 player, this makes Teva the first non-US or European based pharmaco, and the first pharmaco that did not start as a traditional R&D based company, to enter the Top 10 (figure 2). Teva therefore changes the face of the Top 10 pharmacos forever. Prior to Teva’s entry it was a given that all Top 10 companies 1) originated in the mature markets of US or Europe and 2) were primarily R&D driven – ie most of their sales came from protected products. Teva originates from Israel and has been primarily dependent upon unprotected products, although its protected portfolio is a key driver of profit and now accounts for 40% revenue. FIGURE 1: PROTECTED REVENUE OF TOP 10 FIRMS VS PROTECTED PHARMA MARKET* 350 330.5 169.5 172.8 Top 10 Players 156.6 157.7 Remaining Market 2007 Protected Market Sales, US$Bn 326.1 2012 52% 52% 300 250 200 150 100 50 0 Top 10 Share of Protected Market *2007 Top 10 includes Lilly; 2012 top 10 sees Lilly replaced by Teva Source: IMS Health MIDAS September 2012, Market Segmentation, Rx bound. FIGURE 2: TOP 10 CORPORATIONS RANKINGS BASED ON SALES AT EX-MANF LEVELS, US$ TOP 10 CORPS 2002 TOP 10 CORPS 2007 TOP 10 CORPS 2012 1 1 Pfizer 1 Novartis 2 FOOTNOTE: As of 1st Jan 2013 Abbott’s split is complete and neither AbbVie or Abbott are forecast to be Top 10 players. We predict that Teva will rise to #9 and Lilly re-enter at #10 when sales data are compiled later this year. Sales include selected OTC values. Pfizer GlaxoSmithKline 2 GlaxoSmithKline 2 Pfizer 3 Merck & Co 3 Novartis 3 Merck & Co 4 Johnson & Johnson 4 Sanofi-Aventis 4 Sanofi 5 AstraZeneca 5 AstraZeneca 5 Roche 6 Novartis 6 Johnson & Johnson 6 AstraZeneca 7 Aventis 7 Roche 7 GlaxoSmithKline 8 Bristol-Myers Squibb 8 Merck & Co 8 Johnson & Johnson 9 Roche 9 Abbott 9 Abbott 10 Pharmacia Disappeared through M&A 10 Lilly 10 Teva Entry into Top 10 Source: IMS World Review, IMS Health MIDAS, June 2012. 2002 and 2007 are year end results whereas 2012 is MAT 09 2012. IMS HEALTH | THE CHANGING FACE OF THE TOP 10 PHARMACEUTICAL COMPANIES 3
  4. 4. WHI TE PAPER | VALUE BASED BUSI NESS MODELS THE RI SE OF GENERI CS AND I NCREASED DI VERSI FI CATI ON The last couple of years have seen the peak of small molecule genericisation events with the loss of exclusivity (LoE) of blockbusters such as Lipitor, Diovan, and Plavix. For the period 2011-2016 alone, almost $180bn sales (based on sales in 2011) are at risk from LoE events, with the biggest losses expected to have occurred in 2012. This LoE boom has naturally led to an increasing abundance of high-profile generics, at a time when austerity measures in mature markets such as Japan and Europe have led to an increased push for generics usage over off-patent brands, and even the introduction of INN prescribing in some countries. Add to this that in the high growth emerging markets where pharma companies are desperately looking for golden opportunities, typically >50% market value is derived from generic products, it is therefore of little surprise that generics are seen as an increasingly important part of many pharmaco’s portfolio (figure 3). FI GURE 3: TOP 10 CORPORATI ONS BASED ON SALES AT EX-MANF LEVELS US$ TOP 10 CORPS 2012 1 Novartis I ncludes Sandoz sales: The number 2 generics player globally, accounting for 16% of the Novartis group revenue in 2011. Strong biosimilars play. 2 Pfizer Entering biosimilars (development phase) in addition to generics play. 3 Merck & Co Entering biosimilars (development phase). 4 Sanofi 5 Roche I ncludes generics sales: Generics accounted for 5% overall group sales in 2011. Recently announced plans to develop biosimilar insulins. 6 AstraZeneca Generics play will be emerging markets focussed. 7 GlaxoSmithKline Generics play will be emerging markets focussed. 8 Johnson & Johnson 9 Abbott 10 I ncludes generics sales: “Established Pharmaceuticals” will account for 25% sales of the “new Abbott”. Teva Still strong focus in generics and biosimilars: The most international generics player.* Source: I MS MI DAS Sept 2012. *Based on being a Top 5 generics players in multiple regions globally. FI GURE 4: BUSI NESS AREA MATRI X 2002-2012 Company Pfizer Pharma ( SM) Animal Health Vaccines Biologics Bio-similars Consumer Health Devices Diagnostics Generics Nutrition I PO Jan 2013 Novartis Sanofi Announced 2013 Merck Alliance AZ GSK Roche J&J Abbott Teva Company active in 2002 and 2012 Company entered since 2002 Source: Annual Reports, I MS Company Profiles, Press Releases. I MS HEALTH | THE CHANGI NG FACE OF THE TOP 10 PHARMACEUTI CAL COMPANI ES Company exited since 2002 No presence
  5. 5. WHI TE PAPER | VALUE BASED BUSI NESS MODELS The generics business continues to remain the core of Teva’s model with over 50% of its revenue derived from this despite diversification into innovative pharmaceuticals, and more recently consumer health. With cost containment policies in mature markets and the generic dominance of emerging markets, the generics market is forecast to continue to see strong growth and if Teva can keep pace would certainly seem sufficient to see Teva continue to work its way higher up the Top 10 rankings and imply that a generics-lead heritage is no barrier to playing at the highest level. Teva is one of the most international generics players, holding a Top 5 ranking across many countries. However in contrast to the protected, innovative pharmaceutical market, the generics market globally is much more fragmented with very few truly international generics players. But large pharma and large generics corps have the advantage of being able to travel the “value-add” route: As the small molecule patent cliff starts to drop off and the focus switches to biologicals LoE, large pharma are at an advantage across all regions. Development of biosimilars is both exceedingly costly and time consuming relative to the development of small molecule generics. As a result players have to be in the biosimilars game for the long haul and many smaller generics companies simply cannot afford the investment. Big pharma and the truly international generics players such as Teva and Sandoz have seized the moment investing heavily in this space in recent years, with the hope of high returns. The rise in importance of generics is just one example of an alternative to the small molecule protected business that is attractive to pharma. As demonstrated in figure 4 there is today a wider range of mainstream business models in the pharmaceutical industry than ever before (generics, devices, diagnostics, consumer health). It used to be very clear that the protected small molecule segment of the industry was more attractive than other business areas, being larger, growing faster, and returning higher profit margins than anything else. This is no longer the case. Generics are growing much faster than the protected sector and are a much larger slice of the pharmaceutical market than ever before; consumer medicine also is growing faster than protected pharma. Payer pressure on protected medicines, together with smaller patient populations, larger and longer clinical trial requirements and slower uptake means that protected medicines are not as profitable as previously, reducing the gap between the profitability of protected medicines and other areas of pharma (although a gap still exists). A combination of growth moving to other pharmaceutical sectors, significant increases in the size of other sectors, and a smaller gap between the profitability of the different sectors means that there is now a greater range of potential business models that big pharma might consider to drive future revenue. There is today a wider range of mainstream business models in the pharmaceutical industry than ever before, covering generics, biosimilars, devices, diagnostics, consumer health and animal health. I MS HEALTH | THE CHANGI NG FACE OF THE TOP 10 PHARMACEUTI CAL COMPANI ES
  6. 6. WHI TE PAPER | VALUE BASED BUSI NESS MODELS WHAT DOES THI S MEAN FOR I NNOVATI ON? So what does this mean for innovation? Can innovative players still succeed, and in the cost-constrained environment of today will payers still reward innovation? Only four products launched globally since 2009 have passed the $1bn threshold traditionally used to define the “blockbuster”. These are Victoza (launched 2009), Gilenya and Prolia (launched 2010), and Incivek (launched 2011).5 Only one of these four blockbuster successes is the product of development of a Top 10 pharmaco (Novartis’s Gilenya). Furthermore these products demonstrate the shift towards specialty care that is being seen in today’s pharmaceutical market. Aside from vaccines, IMS predicts the only remaining fast growing area of primary care is diabetes, where significant unmet need still exists and where payers are willing to reward innovation in the hope of lessening long-term care costs by failing to act soon enough (figure 5). FI GURE 5: FORECAST LEADI NG THERAPY CLASSES I N 2016 20 Global CAGR 2012-2016:3-6% Speciality 18 Autoimmune Traditional 16 MS Spending CAGR 2007-2011 14 Antidiabetics 12 Angiotensin I I 10 8 Asthma/ COPD I mmunostimulants Contraceptives Narcotic Analgesics Platelet Aggr I nhib 4 Vaccines Oncologics Antipsychotics 6 Global CAGR 2007-2011: 6.0% Antivirals excl HI V Cephalosporins 2 Lipid Regs 0 Anti-Epileptics Anti-Ulcerants -2 -4 -10 I mmunostimulants HI V Antivirals -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Source: I MS I nstitute for Healthcare I nformatics; April 2012. The shift towards specialty care has in many ways acted to level the playing field between mid-size pharma and large-pharma, since in so many specialty therapy areas patients are being segmented into smaller, more targeted, populations. This is most notable when looking at the fastest growing players in the innovative space over the last decade. Restricting the market to non-generics and current Top 50 players, we looked at how many places pharmacos had moved up the rankings over the last decade (figure 6 overleaf). Vertex, who are the makers of Incivek (noted above as one of only four blockbusters to have launched since 2009), has come from nowhere to enter the pharma Top 50 off the back of just that one product – a product that is on track to be one of the most successful launches in contemporary history. Incivek is for the treatment of Hepatitis C, a therapy area renowned for its continuing unmet need and market potential. But what makes the success of Incivek even more impressive is that it launched only 10 days apart from Victrelis, Merck and Co’s product for the same disease genotype. Here we see a small biotech with a first launch, taking on the might of big pharma and coming out on top, in what could be described as a “David vs Goliath” type battle. I MS HEALTH | THE CHANGI NG FACE OF THE TOP 10 PHARMACEUTI CAL COMPANI ES
  7. 7. WHI TE PAPER | VALUE BASED BUSI NESS MODELS FI GURE 6: 2002-2012: TOP 10 FASTEST GROWI NG CORPS BY NON-GENERI C REVENUE TO BECOME PART OF GLOBAL TOP 50* FASTEST GROWI NG 2002-2012 1 RANK I N 2002 RANK I N 2012 JUMP I N RANKI NGS - 42 n/ a Vertex 2 Actelion 322 50 272 3 Reckitt Benckiser 156 43 113 4 Celgene 103 31 72 5 Gilead 59 16 43 6 Endo HS 61 37 24 7 Shire 42 24 18 8 Otsuka 31 18 13 9 Allergan 39 32 7 Roche 10 4 6 10 Source: I MS Health MI DAS MAT, Sept 2012. Market Segmentation. *Rx and Non Generics only. Methodology – Highest movement in rankings in 10 years to be part of 2012 top 50 companies by revenue. Vertex engaged prescribers and patients in a strong disease awareness campaign throughout the development cycle and instead of relying on a large conventional sales force, Vertex focused on MSLs, HCP education, and patient communities. In this way Vertex managed to overcome the inevitably larger promotional budget that Merck had at their disposal (figure 7). Outside of the US, J&J are marketing the product as Incivo. MI D-SI ZE VS LARGE PHARMA: VERTEX VS MERCK & CO, US MARKET Apr-12 May-12 Mar-12 Feb-12 Jan-12 Dec-11 $600 Oct-11 $800 Nov-11 $1,100 Sep-11 Millions $1,200 Jul-11 $1,400 NBRx Volume Aug-11 1,400 1,200 1,000 800 600 400 200 0 Jun-11 Cumulative Sales $1,600 May-11 FI GURE 7: 10,000 $400 8,000 $200 6,000 I ncivek Apr-12 May-12 Feb-12 Mar-12 Jan-12 Dec-11 Oct-11 Nov-11 Sep-11 Jul-11 Aug-11 Jun-11 May-11 $0 Victrelis Source: I MS Sales & Prescription Data, US data only. NBRx are new to brand prescriptions, TRx are total prescriptions. 4,000 2,000 0 TRx Volume I ncivek TRx Victrelis TRx In addition to Vertex, within the fastest growing Top 10 we also see companies such as Actelion, Celgene, Gilead, Shire. These are companies which have remained committed to a particular specialist-led therapy area, be it CV, Oncology, HIV, ADHD. Specialty pharma has seen strong growth rates over the last decade and this is true of the areas in which these companies play. But not only has the therapy area seen strong growth, each of these companies has out-performed its market as a whole. For example the “other cardiovasculars” market into which PAH is classified, has seen a 32% CAGR I MS HEALTH | THE CHANGI NG FACE OF THE TOP 10 PHARMACEUTI CAL COMPANI ES
  8. 8. WHI TE PAPER | VALUE BASED BUSI NESS MODELS from 2002-2012, yet Actelion has experienced a 60% CAGR. HIV has seen a 12% CAGR, yet Gilead grew at 40% over the last decade. Any diversification has been limited and complementary. Gilead has made a play in the HCV space, and indeed is widely forecast to become a dominant player in that field too, but HCV is still an anti-viral treatment so they are staying within their area of expertise. For those who remain unconvinced that smaller companies cannot take on the might of big pharma despite the very recent Vertex vs Merck example, remember that when Gilead entered the HIV antivirals market, GSK and BMS between them held a 75% market share – a distant cry to Gilead’s dominance today. So how can the Top 10 pharma companies fight back in this innovative space? The reduction in the productivity of R&D, both with respect to the number of NCEs and their yield in terms of early sales, peak sales and overall lifetime sales, at the same time as R&D costs have continued to rise, mean that large pharma need to adapt a radical rather than an incremental approach to innovation (figure 8). FI GURE 8: FORMULA FOR SUCCESSFUL I NNOVATI ON 1. Identif y areas to play = Diversif ication f rom key TA expertise is complementar y & f ocussed like f astest growing + Innovation is f ocussed in high retur n therapy areas 2. R & D = R&D process is designed cost-ef fectively to allow balanced emerging/ mature NCE sales by enabling volume play + R&D process is shared and de-r isked through partnerships and alliances 3. Identif y un-met need = Identif iable patient population f or whom t reatment will wor k + Payers agree with targeted unmet need + Appropr iate outcomes data collected and f ir m plan f or RW E We believe that the imperatives of an innovative model are as follows: 1. Focus There is an increasing difference of opinion as to what “innovation” means to key stakeholders. Unmet need still exists, but profitable unmet need is now focused on fewer areas, being much more dependent on what payers will consider as true unmet need and what they consider to be adequately satisfied with low cost generics. This “payer unmet need” is a subset of all clinical unmet need. What we see from the fastest growing innovative companies is a focus on specialty medicine in areas of high unmet need, strong relationships with both payers and patients, with limited diversification from these core areas of expertise. 2. Nimble and flexible The days of being driven for a decade or more by a single blockbuster product are over. As demonstrated above only four products launched in the last three years have reached blockbuster status, and blockbusters will be fewer and further between going forward. Companies need to adapt to smaller patient populations and be able to move quickly to advance discoveries in a minimal timeframe at lower costs to compensate for potentially lower overall revenues from individual products. They also need to be able to successfully launch a larger number of products in a shorter time-frame, something that even Top 10 companies have, historically, found challenging. I MS HEALTH | THE CHANGI NG FACE OF THE TOP 10 PHARMACEUTI CAL COMPANI ES
  9. 9. WHI TE PAPER | VALUE BASED BUSI NESS MODELS 3. Partnerships R&D will continue to be hugely expensive and risky, and being more focused and nimble means companies cannot do everything. Partnerships allow companies to be more flexible. Partnerships are not a new concept in pharma, although they have typically been most prolific in specialty medicine as we see big pharma partnering with small-mid size pharma to finalise development and commercialization. Going forward, as fewer companies invest in primary care due to the ongoing small molecule genericisation, we feel that significant developments in this arena will only come about through partnerships to lessen risk. Even in diabetes, the fastest growing area of primary care, partnerships are becoming a dominant force as Lilly/BI and BMS/AZ work together to try and win in the market. 4. Expanding geographic footprint At present although growth in mature markets is essentially flat vs the high growth emerging markets, over 80% of NCE sales come from the mature eight markets. The top 20 original brands in emerging markets are all older products, the majority of which had a first launch 11-20 years ago. Getting the price-volume balance right in these emerging markets is essential to success for big pharma - they have to be able to make innovation pay in pharmerging markets because it is under such pressure in the large developed markets. To be able to refocus on innovation and succeed in this new environment, large pharma needs to emulate the focus and entrepreneurial environment of the fastest growing companies. By splitting its business into proprietary pharmaceuticals and “everything else” Abbott has gone down this path. Pfizer’s share price hit a high in 2012 when Goldman Sachs sparked rumour of a break-up back into core pharma and other pieces, away from the diversified behemoth of present. In addition in the Jan 2013 call to investors, Ian Read mentioned again the possibility of a break up. We believe that the innovative requirements of the future means that going forward there will be fewer large pharma companies that are “true nuts and bolts” R&D firms than today, and that as a result there will be fewer truly innovative firms in the Top 10 pharma rankings in the future. There is of course, an additional hurdle for successful pharma players to overcome; it’s no longer just about the payer and physician. On a global basis we see health insurance schemes, and government schemes, trying to push responsibility for healthcare onto the patient. This is not only in the form of prevention (weight loss, smoking cessation, healthy living) but also in the form of adherence. In Germany for example, there are incentives/bonuses in the private insurance schemes for adhering to treatment plans, participation in special care plans etc. This actually provides pharma with a great opportunity to increase adherence to medication and improve outcomes measures. Pharma therefore has opportunities to both educate and engage with the patient. This leads quite naturally into the realm of digital devices and social media. Large pharma has developed a range of tools here including apps for iPhone/iPad which act as “diaries” or “tracking alerts” reminding patients to take their medication and track their progress. There are also initiatives such as games for younger patients where they are rewarded with points for good adherence. Pharma could undoubtedly go much further with this. Looking at consumer centric companies such as Amazon could teach pharma the principles of a “one stop shop” offering. Amazon offers an integrated platform to purchase multiple goods/services and customized advertising based on the consumer’s profile and previous purchases. Could pharma emulate this service-oriented patient centric approach? I MS HEALTH | THE CHANGI NG FACE OF THE TOP 10 PHARMACEUTI CAL COMPANI ES
  10. 10. WHI TE PAPER | VALUE BASED BUSI NESS MODELS THE FUTURE OF THE TOP 10 Big pharma unsurprisingly view today’s pharmaceutical market environment as highly challenging, which it is. But how much is the perception of an adverse environment a product of reliance on a single model of focus on R&D, on protected products, and on the mature markets? IMS believes that today’s prescription medicine environment is the most diverse ever in terms of geography, stakeholders, product offering opportunities, pricing/value choices and commercial model options that the industry has ever experienced, giving the big players in the prescription medicines industry more opportunities and options than they have ever had before to become or to remain a Top 10 player. We believe Teva is just the first of a number of players who will be in the Top 10 with a substantially different model to the traditional Top 10 player. We believe that going forward the top of the pharmaceutical industry will see more focussed, nimble, innovation led players, but, unlike today, that will not be the only model. There will also be payer focused (low cost) players and even consumer led players. There will be a starker choice between size and growth, and profitability, than there has been and many of the current Top 10 pharmaco’s will be smaller than they were in the 1990s and 2000s. 1. The dominance of the protected product dependent, research based model in the Top 10 will be broken over the next 5-10 years. It will no longer be the case that 100% of the world’s largest prescription medicines companies are described as R&D led and mature market dependent. We say this since not only has Teva already entered the Top 10 and Sandoz contributes so much to Novartis sales, but also because Andrew Witty has talked about GSK moving away from “white pills and western markets”6 2. There will still be innovation focused companies, and they may even be the majority of the Top 10 companies, but these innovation led companies will be very different to the traditional model. Instead of being small molecule, primary care focused, addressing large patient populations and largely competing with each other, they will become largely specialty driven, with a portfolio which includes biologics, focussing on smaller patient populations, and competing on a much more level playing field with the small to medium sized companies that have been the success story in terms of growth and launches over the last few years. 3. The innovation focused companies will still be big, but absolute size in the protected prescription market will fall. This will be because more new protected agents will be for smaller patient populations (whether biomarker or payer defined). The logical response of companies wishing to follow the innovative route and maintain size is to launch a larger number of smaller products, and to launch them successfully in a wider group of countries, including emerging markets. That in itself brings challenges – companies have historically not been good at consistently rolling out large numbers of excellent launches in a shorter timeframe, even if their R&D manages to develop large numbers of quality NCEs. Some companies, inevitably, will fail to rise to this challenge. They will see the innovative portion of their sales reduce considerably and will be reliant on nonprotected prescription businesses (even non prescription businesses) going forward. 4. The non-innovation led companies in the Top 10 will undoubtedly include one or more companies for whom the unprotected segment is of great importance. Teva is the first; it may not be the only one. Companies with this model can still have an innovative sector (Teva does) but it won’t be the only driver of the company’s growth and sales. These companies, to succeed, will be internationalising the unprotected business, which historically has been much more fragmented than the I MS HEALTH | THE CHANGI NG FACE OF THE TOP 10 PHARMACEUTI CAL COMPANI ES
  11. 11. WHI TE PAPER | VALUE BASED BUSI NESS MODELS protected prescription business. They will succeed not only through breadth of geographic expansion but also by their innovativeness in offering a value portfolio – including “supergenerics”, biosimilars and other value adds to protect against the lowest cost generic competition and also to raise margins. The new Abbott will derive about 25% of its sales from branded generics, with ~50% of those sales coming from emerging markets.7 This is a great example of what was a largely innovative company focussing on growing their back catalogue and acquired generic businesses in emerging markets – which is the ideal environment. 5. It is also possible in the next five to ten years that completely new business models start to emerge and are successful enough to maintain or drive companies into the Top 10. We noted above the rise of the patient as a stakeholder with a voice and an opinion in healthcare. All prescription medicine players, whether protected or unprotected, have to take note of this and respond. But just as there is an opportunity for companies whose primary focus is the prescriber (the innovative protected companies) and the payer (the unprotected prescription companies), perhaps there is also a role for a company that has as its focus the patient/consumer. Since a primary focus here would be a new entrant it is not yet clear exactly what the core of this model might be – it could be from OTC consumer medicines, or potentially from “lifestyle” prescription products paid for out of pocket. It could even be from the very recent but burgeoning area of medical apps (which can even be prescribable), or a combination of all these three, so long as the company in question is state of the art in their ability to understand and communicate with the consumer. What is clear is that the Top 10 of the next 5-10 years will have diversity of business model, primary customer and geography as key features. Completely new approaches have a better chance of succeeding in this new environment than was ever the case before. We also believe that the Top 10 will hold an even smaller share of the pharmaceutical market going forwards, and become even more fragmented than at present. One has to hypothesize that if the Top 10 didn’t manage to break the 50% market share threshold in the era of $bn blockbusters, they are unlikely to achieve this in the lower revenue era of the future. The pharmaceutical industry has historically been highly conservative, and that default mode is not going to be an asset in the next few years – out of the box thinking and a willingness to discard many of the fondly held beliefs of the past will be the crucial asset. REFERENCES: 1 IMS Blockbusters White Paper 2 Zacks Equity Research Auto Industry Outlook and Review - October 2012, http://www.zacks.com/stock/news/84881/autoindustry-outlook-and-review-october-2012 3 Gartner News Room Aug 2012: Worldwide sales of mobile phones, http://www.gartner.com/newsroom/id/2120015 4 IMS MIDAS September 2012, IMS World Review IMS MIDAS September 2012 The Telegraph and other press articles, 2009/2010, http://www.telegraph.co.uk/finance/newsbysector/pharmaceutical sandchemicals/7158658/GSK-seeks-to-abandon-white-pill-andWestern-markets-strategy.html 7 Abbott Presentation to JP Morgan Health Conference Jan 2012 5 6 AUTHORS: Carolyn Gauntlett, Senior Consultant, Thought Leadership, CGauntlett@ uk.imshealth.com Sarah Rickwood, Director Thought Leadership, SRickwood@ uk.imshealth.com info@ imshealth.com +44 (0)20 3075 5888 www.imshealth.com I MS HEALTH | THE CHANGI NG FACE OF THE TOP 10 PHARMACEUTI CAL COMPANI ES
  12. 12. I MS HEALTH® EUROPE & WORLDWI DE 210 Pentonville Road London N1 6JY United Kingdom Tel: +44 (0)20 3075 5888 THE AMERI CAS I MS Health 200 Campus Drive Collegeville, PA 19426 USA Tel: +1 610 244-200 ASI A-PACI FI C 10 Hoe Chiang Road Keppel Towers # 23-01/ 02 Singapore 089315 Tel: 65-6227-3006 JAPAN Toranomon Towers Office 4-1-28 Toranomon, Minato-ku Tokyo 105-0001 Japan Tel: 81-3-5425-9000 For all office locations, visit: www.imshealth.com/ locations ABOUT I MS I MS Health is a leading worldwide provider of information, technology, and services dedicated to making healthcare perform better. With a global technology infrastructure and unique combination of real-world evidence, advanced analytics and proprietary software platforms, I MS Health connects knowledge across all aspects of healthcare to help clients improve patient outcomes and operate more efficiently. The company’s expert resources draw on data from nearly 100,000 suppliers, and on insights from 39 billion healthcare transactions processed annually, to serve more than 5,000 healthcare clients globally. Customers include pharmaceutical, medical device and consumer health manufacturers and distributors, providers, payers, government agencies, policymakers, researchers and the financial community. Additional information is available at www.imshealth.com ©2013 I MS Health I ncorporated and its affiliates. All rights reserved. Trademarks are registered in the United States and in various other countries. T10PHARMWP0213

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