Problems facing the pharmaceutical industry


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Problems facing the pharmaceutical industry by Giovanna Hsu, Kelly To, Ei May Htaik, Jonathan Lloyds and Kristina Rocha Mello (2013)

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Problems facing the pharmaceutical industry

  1. 1. Multi-Vision Consultancy Kristina Rocha Mello Giovanna Hsu Ei May Htaik Kelly To Jonathan Lloyd
  2. 2. Negative Implied Value of Growth Pharma 1.0: The Blockbuster Model • Blockbuster drug: Revenue>$1 billion per year • Traditional Blockbuster model:  High sunk cost i.e. Research & Development  Charge a high premium, as a reward  Patents provide a crucial period of exclusivity and protection J, Gordon et al, JP Morgan
  3. 3. Weakening Patent Protection
  4. 4. Weakening Patent protection Challenges • Widespread availability and issuance of generics Cheaper, due to absence of R&D costs • Increase in patents being challenged by 1. generic manufacturers Due to increase in demand for generics from cost constrained healthcare providers. 2. developing countries Struggle to afford the prices, and therefore exert pressure on pharmaceutical companies • There isn’t an inexhaustible supply of potential blockbusters to sustain revenue streams once existing patents expire.
  5. 5. GSK’s Patent strategy • Diversifying risk: Moving from blockbusters to markets with quicker, more certain revenue streams: Healthcare and biopharmaceutical: Oral care products (Sensodyne) UK energy drink (Lucosade) Nutritional Supplements (Horlicks) GSK Annual Report, 2011
  6. 6. • Entering new markets: Countering the impact of loss of patent by making their products more available in the less developed countries  flexible pricing model providing GSK patented drugs according to the countries ability to pay.  Kept at no more than 25% of original price
  7. 7. • Taking a closer interest in generic firms: Acquiring generic brands  establishing their own generic drugs • GSK: 2008- acquired 16% stake of South Africa – based Aspen 2009-licensing and selling agreement of Dr.Reddys generics 2009- acquisition of Bristol Myers Squibb (BMS) in Lebanon, Jordan, Syria, Libya and Yemen
  8. 8. • Licensing patent drugs to generic firms before its patent expire  Get royalties in exchange for know-hows -2002- GSK licensed Augmentin to three generic firms 6 months before it expired. • Using an open innovation strategy: Give access to patents they have no interest in researching on in exchange for royalties.
  9. 9. • Increasing efficiency and the in the time taken to develop a new innovation. GSK introduced in 2008 a restructuring program- Operational Excellence • Focus on brand alliance & heritage for existing medicines
  10. 10. Regulatory Challenges
  11. 11. Regulatory Challenges • Different Environments Have to satisfy a different set of regulations in each market Need for harmonization of regulatory requirements
  12. 12. • Changing Regulations  Stricter rules in US & EU  Patient Protection and Affordable Care Act (2010): Impacts: 1.Annual Fee 2.Generic Drug Approval 3.Advertisement Global Warming & Animal Rights Groups
  13. 13. Restructuring & Cost Savings • Operational Excellence restructuring program (2008) Aimed at delivering £2.8 bn in annual savings by end of 2014. Main focus areas: R&D, manufacturing and support functions Key points: 1. Redirect savings to expansions in emerging markets, vaccines and consumer healthcare. 2. Cover loss in sales to generics GSK Annual Report, 2011
  14. 14. • Core Business Services (2011) Standardization of support functions aimed at maximization of economies of scale and increased productivity.
  15. 15. Challenges Beyond the US Market
  16. 16. Group turnover by Geographic Regions USA 50% Europe 28% Rest of the World 22% 2001 USA 32% Europe 30% Emerging Markets 19% Asia Pacific, Japan and Others 19% 2011
  17. 17. Europe • Introduction of cost-benefit analysing stage to new drug approval process: NICE • Complexities in the approval and pricing procedures in individual countries 125 drugs approved by EMA (2009-2012):  50-60% available in Germany and the UK  30-40% available in Spain, France and Italy 10 sample drugs: • Impact of Eurozone crisis on sales and supply chain: €7 billion in 2010 and 2011 Country Price Highest Price Lowest Germany 7 0 Italy 2 3 UK 1 4 F. Reinaud, 2012
  18. 18. Emerging Markets • Diversity of the market – The wealth pyramid Differences due to existing structures  patient biology,  medical infrastructure,  patient access,  insurance coverage,  drug approval processes,  the presence of local competitors • Serious challenges to patent rights • Growth is not enough to offset the negative growth from the European region.
  19. 19. GSK’s strategy • Asia Pacific, Japan, and Emerging Markets (APJEM) R&D group (2009).  Branded generics – Dividing the R&D process between GSK and Dr Reddy’s Laboratories in India  Intra-regional business development – partnership with Amgen to take over the complete process of development of denosumab in emerging markets  And local regional development – medical need or commercial opportunity • Contribution of emerging markets to overall sales and growth • Expansion of Japanese business:  Sales in GSK grew by 14% to 2 billion  4 new compounds approved
  20. 20. Challenges in Research & Development
  21. 21. Challenges in Research & Development • Pipeline Patients expiring Insufficient drugs to fill current pipeline Pressure for scientist developed • Shifting R&D towards new innovation Change in focus to developing new drugs Exhausted incrementally modified drugs (IME) • Time lag to an output gap Average of 10-15 years to develop new drugs from discovery to approval Increase in average R&D cost $800m - $1bn due to many failure of drugs during clinical trials Rigorous testing for safety and effectiveness
  22. 22. • Drug Discovery: From molecules that can become a drug to core diseases or illnesses • Preclinical Trials: Lab and animal testing to determine if drug is safe enough for humans • Clinical Trials  Phase 1: Perform human testing on small group of volunteers  Phase 2: Test on small group of patients  Phase 3: Test on large group of patience for safety and efficiency
  23. 23. NumberofApplicationfiledandApproveddrugsFor NMEs Year 2001-2010 465.pdf • Application is not increasing  Finding drugs for chronic disease is complex  insufficient Knowledge or understanding new diseases Lack of Innovation 0 5 10 15 20 25 30 35 40 1 2 3 4 5 6 7 8 9 10 Application Filed Approved Drugs
  24. 24. • Focus on delivering product of value and best science to the R&D organisation • Collaboration with Academia and external organisation that support GSK strategies • Deliver new drugs in current pipeline and maintain productivity • Maintaining investors appetite through positive IRR GSK’s Strategy
  25. 25. GSK’s Strategy •Collaboration with academies Increasing GSK knowledge base enhancing the ability to discover Bringing in the best minds to stimulate innovation and entrepreneurship and speed drug discovery collaborated with University of Cambridge to develop treatment for liver diseases
  26. 26. GSK’s strategy • Externalisation GSK acquires Cellzome to enhance science capabilities and bring medicines into patient faster Cellzome technology provided GSK with screening capability: Identify compounds with drug targets Reduce attrition rate in early phases of development Cutting cost of failures
  27. 27. New Entrants: Changing The Market
  28. 28. New Entrants: Changing the Market • Biotech companies provide the scientific breakthroughs. • Venture Capitalists provide the financial backing • Rational Drug Design. • They make the medical ‘keys’ to fit the biological ‘locks.’ • Amgen, shares appreciated 16,000% since 1983 IPO • They are increasingly holding the rights to the most marketable drugs. • Challenge for existing pharmaceutical firms is how to benefit from these advances and accrue a share of the revenue.
  29. 29. Strategy: Collaboration and Control • Amgen: worlds largest independent Biotech company • Collaboration with GSK on commercializing antibody denosumab. Amgen: USA and Canada Joint commercialization: Europe, Australia, New Zealand and Mexico GSK: China, Brazil, India, South Korea • $120m + royalties to Amgen in return for shared profits in Europe and full sales rights in emerging markets. • “Bring denosumab to patients ... more effectively than if we commercialized the drug globally on our own” – Amgen • “A strong addition to our biopharmaceuticals portfolio” - GSK
  30. 30. New Entrants: Healthcare Technology • Investments by non-pharmaceutical companies in healthcare technology (apps, internet) are massively outpacing those of pharmaceutical companies.  Patient empowerment  Data driven  Outcome focused approach • Pharmaceutical companies should be indispensable in providing content with their unique knowledge. • But e-companies are quick growers and quick learners. • Challenge for pharmaceutical companies is in staying relevant and ensuring their products and knowledge are being shared.
  31. 31. • Strategy: Collaborate as a third party (2010). • 1 of 137 oncology apps on iTunes. • MedTrust Online, with GSK input. • Locates clinical trials close to the patients location. • “Capture, organize, analyse, integrate and present the most up to date medical facts from a vast array of sources.” – MedTrust • “Provide simple yet highly effective information-based solutions to the cancer community” – GSK
  32. 32. • Control: First party technological products (2011) . • Pharmaceutical companies investment in healthcare technology rose 78% in 2011. • Leading iTunes Pollen app is produced by GSK. • Offers pollen information, forecasts, and medical routines to end users. • Directs users to Piriton, GSK’s allergy relief medicine. • This strategy provides revenue streams and ensures no other firm claims this segment.
  33. 33. The Changing Market • Pharma 1.0 - Blockbuster Industry was a ‘rewarding place to play.’  High barriers to entry; the reward of high revenue streams. • Pharma 2.0 - Changed the industry from within  Age of weakening patent protection, regulation, the need to enter emerging markets, and challenges in research and development. • Pharma 3.0 – The digital environment  GSK need to ensure they remain relevant and secure a prime place in these new product and information channels.
  34. 34. References Patent Protection: •Ehrhardt, M (spring 2012), Five steps towards a revitalized pharmaceutical supply chain, Chain.pdf Pinset Mansons (October, 2001),Threat to international patent protection: the pharmaceutical industry's perspective, •GlaxoSmithLine (2011), Horlicks •The Pharmaletter (October 16, 2006) GSK to buy CNS Inc for $566 million, •My news desk (Nov 07, 2012)UK energy drinks market dominated by GSK's Lucozade brand, gsk-s-lucozade-brand-810651 •Industry week (Dec. 13, 2010) Drugmaker GSK Buys Sports Specialist Maxinutrition, Company is expanding its consumer healthcare business clusters/drugmaker-gsk-buys-sports-specialist-maxinutrition •Pilmmer,G (June15, 2009) GSK in generic drug alliance Glaxosmithkline (July 02, 2009) GSK further extends its product portfolio in the Middle East and North Africa, •GlaxoSmithKleine (July 02, 2009) GSK further extends its product portfolio in the Middle East and North Africa ( the-middle-east-and-north-africa.html •Chandon,P.(2003) Innovative marketing strategies after patent expiry: The case of GSK’s antibiotic Clamoxyl in France 7th August. International journal of medical marketing vol 4 174-177 pg 75 • Supply-Chain.pdf
  35. 35. Introduction: J.Gordon et al, (November 5, 2012), GlaxoSmithKline Plc, JP Morgan. Regulation: •Baines, Donald.A, Problems Facing the Pharmaceutical Industry and Approaches to Ensure Long Term Viability, at redir=1& dustry+challenges&source=web&cd=2&ved=0CDYQFjAB&url=http%3A%2F%2Frepository.upenn.e du%2Fcgi%2Fviewcontent.cgi%3Farticle%3D1032%26context%3Dod_theses_msod&ei=96WnUNu RO-W00QXKwoHgAw&usg=AFQjCNFqI7pkpnhSgOh3zpNfLPiAztvfzQ#search •Morgan Lewis (April 15, 2010), Healthcare Reform Law: Impact on Pharmaceutical Manufacturers, •Joice Tait, Pressures for Changes in the Pharmaceutical Industry, available at: pdf Karim, Nicha (June 20, 2012) Challenges and Opportunities for Pharma Industries, available at • sod&sei-redir=1&refe •
  36. 36. Beyond the US: •Evolving R&D for Emerging Markets, June 2010, Nature Reviews Drug Discovery 9, 417-420, Box 1. •F. Reinaud, June 2012, Time to Market for New Pharmaceuticals Increasing in Europe While Prices Continue Downward Pressure, pharmaceuticals-increasing-in-europe-while-prices-continue-downward-pressure-2/ •J Whalen and S. Stovall, June 2012, Drug Firms Urge Price Action, The Wall Street Journal Online, •Cancer Research UK, questions/how-are-drugs-licensed-in-the-uk •H. Parmar, Pharmaceutical direct-to-consumer advertising in Europe, Pharmacerutical Field, Europe Research and Development: • knowledge-Intellectual-Property-Right.pdf • • • • thKline-to-buy-Cellzome-for-61m.html •
  37. 37. New Entrants: Changing the Market: •Pharmaceutical industry rapidly expanding partnerships with new entrants in health care space, Ernst & Young, 15th Feb 2011, rapidly-expanding-partnerships-with-new-entrants-in-health-care-space •A Recent History Of The Pharmaceutical Industry - Based On All Five Forces, Venture Navigator, August 2007, •Roche seals $47bn Genentech deal, BBC, March 2009, •Amgen to Collaborate With GlaxoSmithKline to Commercialize Denosumab in Europe for Postmenopausal Osteoporosis (PMO), Amgen, July 2009, •MedTrust Online app, available at trials/id376117391?mt=8 •GlaxoSmithKline and MedTrust Online Team to Provide Cancer Doctors Better Mobile Access to Clinical Cancer Trials, MedTrust Online, http://medtrust- •GSK Piri Pollen app, available at pollen/id433740845?mt=8