Pharma’s future has never looked more promising – or more ominous.     Major scientific, technological and socioeconomic c...
ContentsIntroduction	1Chapter 1	 The best of times, the worst of times	               2Chapter 2	 The mature markets: Maxi...
Many of the conditions that will determine what happens               in 2020 are already in place. But does that mean pha...
The best of times, the                                                         Inexpensive gene sequencing will let       ...
Big data’s big dividends   One industry marketer recently                                  and query technologies – the in...
Figure 2 	The global pharmaceutical market could be worth nearly $1.6 trillion by 2020                                    ...
Escalating demand for medicines                 eight-year drive to provide universal                        Poor scientif...
Regulators around the globe are also          Some instances? Russia started enforcing    The market’s getting much       ...
As the governments of the growth               Figure 5 	Pharma’s incurring bigger and more frequent financial penalties i...
The mature markets:                                                          Crushing burdens                             ...
Consumer power is increasing the                              Affordable care and its                      The law also en...
Tough talk in the EU,                        Above all, the mature economies are                          Pharma’s biologi...
The value dilemma                             Figure 3	 Pharma has an additional lever in the form of outcomes dataIn shor...
Maximising the molecule  So what, more specifically, can pharma        Reinforcing the power of the pill  companies do to ...
A number of medical technology firms            pharma’s walls. EMRs, electronic              But capturing patient-report...
Creating companion diagnostics for medicines that target                                                                a ...
What’s it worth?                               Maximising the molecule will involve                               To sum u...
Pharmageddon?                                                 Tighter economic                                            ...
The Greek government has also initiated       The Italian and Spanish governments are      Pharma’s efforts to curb the pr...
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
Étude de PwC «From vision to decision: Pharma 2020»
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Étude de PwC «From vision to decision: Pharma 2020»

  1. 1. Pharma’s future has never looked more promising – or more ominous. Major scientific, technological and socioeconomic changes will revive the industry’s fortunes in another decade, but capitalising on these trends will entail making crucial decisions firstFrom visionto decisionPharma 2020 www.pwc.com/pharma2020
  2. 2. ContentsIntroduction 1Chapter 1 The best of times, the worst of times 2Chapter 2 The mature markets: Maximising the molecule 8Chapter 3 The growth markets: Hot, cold, hard to get right 18Chapter 4 R&D: Beautiful hypotheses, ugly facts 24Chapter 5 Portfolio management: Choosing the best jam 32Chapter 6 Corporate culture: Culprit and cure? 38Chapter 7 Conclusion: From vision to decision 42References 43Key national indicators 48Acknowledgements 50Contacts 51
  3. 3. Many of the conditions that will determine what happens in 2020 are already in place. But does that mean pharma’s fate is sealed? Far from it!Introduction Major scientific and technological advances, coupled with sociodemographic • Cultural sclerosis The prevailing management culture, changes, increasing demand for medicines mental models and strategies on which and trade liberalisation, will revive the industry relies are the same ones pharma’s fortunes in another 10 years it’s traditionally relied on, even though and deliver dramatic improvements in they’ve been eclipsed by new ways patient care. But if the industry is to of doing business. prosper in the future, it must first make sure it has a future. Of course, many of the conditions that will determine what happens in 2020 We’ve outlined our vision of what lies are already in place. Most, if not all, ahead in previous Pharma 2020 papers. of the products that will be launched The theme of our latest paper is decisions: by then are already in the pipeline. the decisions pharma companies will Similarly, many of the senior executives need to make between now and the who will be at the helm have already end of the decade to capitalise on the been earmarked for high office or opportunities the next decade holds. appointed. And changing the culture of a large organisation can take years. We believe the industry faces three fundamental challenges: But does that mean pharma’s fate is sealed? Far from it! • ising customer expectations R The commercial environment is getting We believe there are various things harsher. Healthcare payers are companies can do both to increase imposing new cost constraints on their chances of reaching 2020 and to providers and are scrutinising the value ready themselves for more favourable of medicines more carefully. They want conditions thereafter. In the following new therapies that are clinically and pages, we’ll look at how to maximise economically better than the existing the value of new and existing medicines, alternatives, together with hard, develop business models for the growth real-world outcomes data to back any markets, improve scientific productivity claims about a medicine’s superiority. and reinvigorate the corporate culture. We’ll focus on the areas where the most • oor scientific productivity P important decisions must be made. Pharma’s output has flatlined for the past decade. Yet the processes it uses to discover and develop new products remain much the same. So there’s little reason to think its productivity will suddenly soar. From vision to decision 1
  4. 4. The best of times, the Inexpensive gene sequencing will let doctors diagnose and treat patients worst of times based on information about their individual genomes. And, by 2020, genetic testing will be part of mainstream medical practice in some countries. “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was Technological developments have also paved the way for electronic medical the epoch of belief, it was the epoch of incredulity….” record (EMR) systems that capture vast Charles Dickens quantities of outcomes data. Numerous healthcare providers in the mature and growth markets alike are building the necessary infrastructure. Meanwhile, The opening words to Charles Dickens’s with sophisticated data sharing, processing novel A Tale of Two Cities perfectly and mining techniques, scientists can encapsulate the situation pharma easily collaborate and make better sense finds itself in right now. The outlook of what they see. has never seemed more promising – or more ominous. In effect, two changes are taking place concurrently. Our technologies for The best of times collecting biological data are improving Let’s start with the good news: a rapidly by many orders of magnitude. Our strengthening scientific base, growing technologies for synthesising and demand for medicines and the removal analysing that data are also becoming of former impediments to free trade. much cheaper and more efficient. Together, these advances will help A strengthening scientific base pharma break through some of the The scientific foundation on which barriers that have previously held it back pharma rests is improving exponentially, (see box, Big data’s big dividends).3 thanks to massive increases in processing power; advances in genetics and The progress we’ve already made genomics; and new data management in understanding breast cancer is tools. For the last half-century, computers a quintessential example. For many have been doubling in performance years scientists thought breast cancer and capacity every 18 months. This was a single disease. Then, in 1990, revolution has transformed biomedical researchers discovered the first gene research. In 2001, it cost US$95 million to be associated with hereditary breast to read an entire human genome.1 Today, cancer. Now they’ve succeeded in teasing two leading manufacturers are developing apart differences in DNA to identify machines that can do so for as little as 10 subtypes, each with a unique genetic $1,000 – in a matter of hours.2 fingerprint (see Figure 1).42 Pharma 2020
  5. 5. Big data’s big dividends One industry marketer recently and query technologies – the industry remarked: “Every patient experience will be able to develop more effective, now generates rivers of data which, if personalised medicines. It will also pooled intelligently, can trace a detailed be able to shift the focus from reaction portrait of a patient’s health and, when to prevention. aggregated with other patient data streams, can coalesce into deep Several companies have already reservoirs of knowledge about entire started exploiting this trend. Genomic disease states and patient populations.” research firm CardioDX analysed more This leap in our knowledge has transformed than 100 million gene samples to identify the prognosis for women with breast That’s the promise of ‘big data’, and the 23 primary predictive genes for cancer. The five-year relative survival rate the deluge is increasing all the time. coronary artery disease. It’s now has soared from 63% in the early 1960s We create about 2.5 million terabytes developed a test that can identify coronary to 90%, and most of the improvement has of data a day. Pervasive monitoring artery disease in its earliest stages. taken place in the last two decades.5 and ‘anywhere interface’ technologies that turn a rigid surface into an interface Meanwhile, US data and lab testing A better understanding of disease has with an electronic device will make it service company Medivo is mining produced new medicines, diagnostics easier still to collect huge quantities laboratory records for patient and and lines of research. Take Benlysta, of data on how patients respond to disease insights. It’s consolidated data one of the first treatments to come from different treatments. Combine that from more than 50 million patients in mapping the human genome and the with ubiquitous gene sequencing and a simple, easy-to-use system that helps first new therapy for lupus in 50 years. the why will begin to emerge. doctors see the patterns in a patient’s The researchers who discovered Benlysta disease, as well as the patient’s trawled through a library of human DNA Big data’s potential in pharmaceutical response to a given treatment. And hunting for genes whose function wasn’t RD is enormous. Armed with vast Sanofi recently tied up with pharmacy known, but whose characteristics suggested amounts of biological data and the benefits manager Medco Health they were linked to lupus – ignoring the tools to process it – cutting-edge Solutions to get ‘real-world’ insights conventional wisdom that you couldn’t use analytics, streaming, massively parallel into how different therapies compare a gene to find a new medicine without processing and domain-specific access when used in a normal clinical setting. understanding what the gene did.6 Figure 1 Our understanding of breast cancer is being transformed William Halstead realises that breast cancer spreads from a primary tumour and introduces radical mastectomy Investigators discover that tumours fuelled by oestrogen and progesterone behave differently. Herceptin, the first targeted treatment for women Tamoxifen, the first drug to block the activity of with HER2-positive breast cancer, is launched oestrogen, is launched Scientists sequence 42 tumours and identify several different subtypes The human genome is mapped in full 1940-60 1990 1994 2004 2012 20201894 1977 1998 2000 2003 Myraid Genetics DNA testing of isolates BRCA1 tumours reveals 10 different subtypes Mary Claire-King and her Genome Health launches colleagues at Berkeley prove the first genetic test for Researchers establish that 75% of the BRCA1 gene exists women with oestrogen breast cancers are fuelled by oestrogen receptor-positive breast and progesterone cancer Source: PwC From vision to decision 3
  6. 6. Figure 2 The global pharmaceutical market could be worth nearly $1.6 trillion by 2020 US$ billions 500 499 425 400 337 300 273 205 194 205 200 183 149 127 100 27 31 0 United States Canada EU-Big 5 Japan Growth ROW markets Sales in 2011 Sales in 2020 Source: Business Monitor International Notes: (1). All sales are expressed in US dollars at constant exchange rates; (2). The growth markets include, in descending order of size, China, Brazil, Russia, India, Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan and Vietnam. (3) EU-Big 5 is France, Germany, Italy, Spain and United Kingdom. Genomics isn’t the only field in which we’ve made great headway. Several stem Working out cell therapies have already reached the our wiring While there’s still a lot more to market and Canadian regulators recently approved the first stem cell medicine learn about the human body, manufactured for off-the-shelf use. Most diseases stem from disturbances in the way the medical researchers have made Developed by Osiris Therapeutics, molecular components in a human Prochymal is a treatment for acute huge strides in the past few graft-versus-host disease, using cell interact, rather than a single genetic abnormality. This years – and even better things mesenchymal stem cells derived from intracellular network is immensely the bone marrow of healthy adult donors.7 lie ahead complex. It has more than 100,000 different components – including With disciplines like epigenetics, we’re about 25,000 protein-encoding also beginning to understand the impact genes, 1,000 metabolites and an as of heritable biological elements that yet unknown number of distinct aren’t directly encoded in our DNA. And proteins and functional RNA with concepts like network medicine, molecules – all of which function we’re developing the means to understand interdependently. the molecular relationships between apparently distinct ‘pathophenotypes’ With network medicine, researchers (see box, Working out our wiring).8 aim to create ‘wiring diagrams’ of the cells whose breakdown causes a So, while there’s still a lot more to particular disease – much as vehicle learn about the human body, medical manufacturers create wiring researchers have made huge strides diagrams of a car’s electronics, so in the past few years – and even better that a mechanic can fix any faults. things lie ahead. By 2020, the financial Such diagrams will ultimately help and intellectual investment of the last pharma develop treatments that can 10 years should be starting to yield ‘fix’ the underlying components of big rewards. disease, as distinct from its symptoms.4 Pharma 2020
  7. 7. Escalating demand for medicines eight-year drive to provide universal Poor scientific productivityThat’s not all. The global pharmaceutical coverage.19 And India’s National Take the vexed issue of the industry’smarket is growing steadily, with sales Rural Health Mission has achieved scientific productivity. Although thereaching $1.08 trillion in 2011 – a considerable progress in the 6½ years number of new medicines reaching theyear-on-year increase of 7.8%. The since it was launched, although much market picked up in 2011, pharma’smature economies proved very sluggish, still remains to be done.20 annual output has effectively flatlinedbut the growth economies were another for the past 10 years (see Figure 3).matter. Sales in the BRIC countries In short, there are more people – and(Brazil, China, India and Russia) rose more sick or elderly people – in the world Developing new medicines is becomingby 22.6%, while sales in the other 13 today than ever before. More people an increasingly expensive business, too,growth countries (the ‘fast followers’, have access to affordable healthcare although precisely how expensive is theas we call them) rose by 7.2%.9 than ever before. And, by 2020, access subject of fierce debate. In 2006, the to healthcare may well be regarded Tufts Center for the Study of DrugIf this pattern continues, the market everywhere as a basic human right. Development put average costs perfor medicines could be worth nearly molecule at $1.24-1.32 billion.22 Various$1.6 trillion by 2020 (see Figure 2).10 Trade liberalisation commentators have since challengedIndeed, it could be worth even more. Many of the historical barriers to free these figures, claiming that the real costDemand for pharma’s products is rising trade have also been removed, bringing is anything from $75 million to $4dramatically, as the global population a period of unprecedented growth in billion, although most people leanincreases, ages and becomes more global trade. Between 2001 and 2011, towards the higher end of the range.23sedentary. In 2010, there were an the total value of merchandise exportestimated 6.9 billion people. By 2020, flows (excluding services) soared from Tighter regulationthere will be more than 7.6 billion.11 And, $6.2 trillion to $18.2 trillion in current The regulatory environment isif present trends are any guide, many of US dollars.21 simultaneously getting more rigorous.them will have health problems. The European Medicines Agency (EMA) In some respects, then, pharma’s never recently introduced a new, three-prongedMore than 30% of the population won’t had it so good. The tools to develop approach to the management of adverseget enough physical exercise;12 more than remarkable new medicines are reactions.24 And the Food and Drug20% will be overweight or obese;13 and materialising, demand for its products Administration (FDA) is building anmore than 13% will be 60 or older.14 is escalating and trade is getting easier. active surveillance system called SentinelThese are all factors that increase the risk to oversee the safety of all medicines onof developing heart disease, diabetes and The worst of times the US market.25cancer. The number of people reaching Yet pharma also faces some enormousreally old age is also mounting, and the obstacles. Innovation has declined, theprevalence of dementia doubles every regulations are becoming more onerousfive years after the age of 65.15 Hence the and market conditions are gettingWorld Health Organisation’s prediction harsher, as healthcare costs everywherethat, by 2020, non-communicable keep rising.diseases will account for 44 milliondeaths a year, 15% more than in 2010.16 Figure 3 Pharma’s scientific productivity has flatlined for a full decadeThe global incidence of infectiousdiseases is increasing as well. That’s partly Number of products approvedbecause some diseases have becomedrug-resistant. But over the past few 40decades new pathogens such as HIV and 35 7MRSA have emerged. And old scourges 30 6like pertussis have reared their heads 8 14 11 10 15again. In fact, the number of cases of 25 11 10pertussis in the US is now higher than 20 9 10 11at any time since the early 1970s.17 15Meanwhile, many of the growth economies 10are improving access to healthcare. 5Brazil’s introducing mobile clinics for 27 24 17 21 31 18 18 16 21 19 15 24 0rural communities.18 China’s on track 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011with a US$125 billion programme toextend health insurance cover to more New molecular entities Biologicsthan 90% of the population by the end Source: EvaluatePharma, ‘World Preview 2018’ (June 2012)of 2012. Mexico has just completed an From vision to decision 5
  8. 8. Regulators around the globe are also Some instances? Russia started enforcing The market’s getting much collaborating more closely, so a product mark-up limits on imported medicines in that’s rejected in one region is more April 2010.28 India announced plans to tougher, with tighter likely to be rejected in others. In late control the prices of 400 essential regulation, harsher price 2010, for example, the EMA pulled products in November 2011.29 And diabetes drug Avandia, while the FDA Turkey has upped the discount on controls and greater imposed strict restrictions on its use, and treatments reimbursed through its social government scrutiny, all the two agencies swapped notes before security system.30 reaching a decision.26 trends that will grow Many governments are also clamping More difficult market conditions down on dubious promotional practices. Things are even tougher on the The US authorities have been marketing and sales front. The ‘patent particularly active. Between 2000 and cliff’ is one major factor; between 2012 mid-2012, the industry paid more than and 2018, generic erosion will wipe $30 billion to settle 226 violations, about $148 billion off pharma’s revenues including off-label marketing and (see Figure 4). Harsher price controls are overcharging of taxpayer-funded health another. Most of the mature economies programmes like Medicaid – and the already use direct and indirect price penalties have been steadily escalating controls, as we noted in ‘Pharma 2020: (see Figure 5).31 Taxing times ahead’.27 But conditions are getting more difficult in the growth The US is by no means alone, though; economies as well. 24 countries have now introduced laws or codes of conduct requiring that pharma companies disclose any interactions with Figure 4 Big Pharma’s earnings are tumbling over the patent cliff healthcare professionals who are also customers.32 And a recent analysis of the Securities and Exchange filings made by Expected sales losses (US$ billions) the top companies shows that eight face 35 33 charges of corruption in foreign markets.33 30 25 21 21 20 19 19 18 17 15 10 5 0 2012 2013 2014 2015 2016 2017 2018 Sources: EvaluatePharma, ‘World Preview 2018’ (June 2012) Note: Estimate of losses based on top 500 pharmaceutical and biotech companies.6 Pharma 2020
  9. 9. As the governments of the growth Figure 5 Pharma’s incurring bigger and more frequent financial penalties in the USeconomies invest more public funds inhealthcare, the regulators become moreproactive and patients become more Number of settlements Total penalties (US$ millions)demanding, pharma will come under 50 8,000even closer scrutiny. The way it conducts 7,000clinical trials, the partnerships it forms 40 6,000with payers and providers, its tenderingand contracting strategies, pricing 30 5,000agreements and digital marketing, how 4,000it handles patient safety – all will attract 20 3,000more attention. 2,000 10Soaring healthcare costs 1,000Yet, serious as these issues are, there’s 0 0arguably an even bigger hurdle facing 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012pharma: namely, the rising healthcarebill. Healthcare expenditure as a Settlements Financial penaltiespercentage of gross domestic product Source: Public Citizen(GDP) is climbing in countries in every Note: Figures for 2012 cover period up to 18 July 2012.income bracket, and it’s climbing moststeeply in the mature markets where theindustry has historically made most of its Figure 6 Healthcare’s consuming a larger share of GDP in rich and poor countries alikemoney (see Figure 6).This trend is unsustainable, but the only Healthcare expenditure as % GDPway to reverse it is by altering our 16 15.5concept of healthcare itself. Instead of 14 13.9focusing on the treatment of disease, we 12.7 12need to focus on curing – or, better still, 10.9 9.6 10.1preventing – it. And pharma has a crucial 10role to play in making the transition. 8 6.2 5.7 5.9 6 5.4 5.4Two key challenges 5.0 5.3 5.9 6.2So where does the industry now stand? 4 4.1 4.0 4.8It’s proved remarkably resilient, given 2the many problems it’s dealing with. 0But, in essence, it faces two overarching 1995 2000 2005 2010 2015E 2020Echallenges. Tomorrow’s challenge is todevelop new medicines that can prevent High income Middle income Low incomeor cure currently incurable diseases. Source: World Bank and PwC analysisToday’s challenge is to get to tomorrow– and that’s a tall order in itself.Fortunately, there are a number of stepssenior executives can take to help theircompanies reach 2020 and ready themfor the opportunities the next decadebrings. But some of these steps will entailmaking very difficult decisions. From vision to decision 7
  10. 10. The mature markets: Crushing burdens Financial pressures have played a part Maximising the molecule in hardening healthcare payers’ policies. The mature markets have experienced enormous turmoil in the past five years – and though fiscal stimuli have “A thing is worth only as much as it can be sold for.” produced a fragile recovery in the Publilius Syrus strongest economies, the situation is still dire in the GIIPS countries (see Pharmageddon? on page 16). Crushing demographic and epidemiological factors have compounded these economic woes. More than There are big differences within the three-quarters of all Americans are mature markets and over the past few overweight or obese. Obesity is also a big years the differences have been growing. problem in the rest of the mature markets, In this chapter we’ll focus on pharma’s with the exception of Japan. But Japan prospects in Canada, France, Germany, has other troubles; by 2020, 34% of the Japan, the UK and US, and the decisions population will be 60 or older. (See involved in maximising returns in these our list of key national indicators on markets. We’ll also touch on the situation page 48.) in Greece, Ireland, Italy, Portugal and Spain (the GIIPS economies), where the Age and obesity are both associated with issue is not so much how to increase more illness and, sure enough, the sales as how to reconcile conflicting prevalence of diseases like diabetes has ethical and commercial responsibilities. soared.34 The US has been hit especially hard. Some 11.3% of adults – rising to Collectively, Canada, France, Germany, 26.9% of those aged 65-plus – have Japan, the UK and US still generate 59% diabetes. Another 35% – rising to 50% of of the industry’s total revenues (see those aged 65-plus – have prediabetes.35 Figure 1). But they’re becoming more In fact, diabetes now accounts for about difficult places in which to prosper for one in every 10 healthcare dollars.36 one key reason. They’re all demanding But the US isn’t alone. The prevalence better outcomes as a precondition for of diabetes has been creeping up in paying for new medicines – a change we Europe, too.37 expect to result in new regulatory requirements by 2020.8 Pharma 2020
  11. 11. Consumer power is increasing the Affordable care and its The law also encourages healthcarechallenge. Patients in the mature implications professionals to band together ineconomies have higher expectations than Consider the recent healthcare reforms in accountable care organisations (ACOs)ever before. They want medicines for the US. The Affordable Care Act aims to to deliver better, more coordinatedconditions previous generations simply improve access to healthcare by bringing care, help prevent disease and reduceendured. They want medicines that work another 30 million citizens within the unnecessary hospital admissions. Thosefor them. And they only have to turn to insurance net.40 It also aims, among that offer a superior service and cut coststhe Internet to find out what’s available other things, to reduce out-of-pocket will be allowed to keep some of the– or, indeed, to broadcast their opinions: expenses on pharmaceuticals, which money they’ve saved – an incentive that’s16% of US adults in one recent survey should enhance patient compliance. generated considerable interest. To date,said they post reviews of the treatments 65 ACOs have been set up and thethey take on social media sites.38 The act includes various provisions number’s expected to double over the intended to offset the cost of the coming 12 months.42These financial, demographic and social changes, some of which will fallpressures are driving up healthcare on pharma’s shoulders. We estimate These changes will inevitably exposeexpenditure dramatically. So it’s easy to that these provisions will reduce the medicines to much greater scrutiny.see why healthcare payers and providers industry’s revenues from branded When healthcare providers are paid forin the mature countries are doing all medicines by $112 billion over the the value they create, they’ll apply thethey can to curb the bill. Their resources next decade (excluding the effect of same criterion to the therapies theyare finite – and they’re particularly keen introducing a biosimilars pathway). prescribe. In fact, they’re already startingto address the so-called HONDAs Assuming a modest increase in sales to do so. Four-fifths of the US health(Hypertensive, Obese, Non-compliant, from expanded insurance coverage, insurers we polled in a recent survey nowDiabetic Asthmatics) who account for an the net loss will be about $97 billion.41 require evidence of cost savings or a clearestimated 70% of healthcare costs.39 clinical benefit to include new products But the new law has far wider in their formularies. 16% have also ramifications – and the biggest of all, entered into outcomes-based contracts perhaps, is value-based purchasing. with pharma companies, while another From 2013, all hospitals serving 33% expect to do so within three years.43 Medicare patients with the most common conditions will be paid for the quality of So the Affordable Care Act will have the care, rather than the quantity of a huge impact on pharma. Historically, services, they supply. The same concept drugmakers have sold their products will be extended to other healthcare by the unit at prices they themselves providers over the next few years. have set, with discounts for volume buyers. But with the shift from unit pricing to value-based purchasing, it’sFigure 1 markets generate three-fifths of pharma’s revenues from prescription Six what customers think – not what the products manufacturer thinks – that matters most. New products will be priced on the basis Percentage of sales in 2011 of the value buyers accord them. And the pharma company’s relationship with the healthcare community won’t stop when the deal’s signed; it will continue for the United States 31 duration of the patient’s treatment. ROW 41 12 Japan 2 4 5 5 Canada United Kingdom Germany FranceSource: Business Monitor International From vision to decision 9
  12. 12. Tough talk in the EU, Above all, the mature economies are Pharma’s biologics bet Canada and Japan encouraging generic prescribing – and But what’s pharma been doing? It’s been The other mature economies have also some have been doing so for many years. concentrating on biologics for cancer been reforming their healthcare systems, Indeed, as of 2009, the French social and rare diseases. Nearly 30% of the as we predicted in ‘Pharma 2020: The health insurance system even offers 7,891 molecules currently in clinical vision’. And, like the US, they’re taking doctors individual guidance on rational testing cover cancer and autoimmune a much harder stance. prescribing.50 Such initiatives have had conditions.52 An estimated 460 a pronounced effect on prescribing medicines for rare disorders are also in In 2010, the German Bundestag passed patterns. Generic spending in the mature trials, although there’s some overlap the AMNOG health bill, under which all markets is forecast to rise by $35-40 between the two areas (see Figure 2).53 new therapies must be independently billion over the next five years, with 60% assessed against a comparator within of the increase coming from greater Most such treatments cost far more than 12 months of reaching the market and utilisation of existing generics.51 chemical molecules. In the UK, for priced in line with the improvement example, the average price of a biologic they offer.44 The UK will also introduce So the message healthcare payers in the is about £9,500 ($14,750) per patient compulsory, value-based pricing of all mature markets are sending out is loud per year, compared with £450 ($700) for new drugs in 2014.45 Both these systems and clear: give us new medicines that are a conventional therapy.54 Prices are even mark a major departure from previous clinically and economically better than higher in the US and some products for practice; in the past, economic what’s already available – medicines that rare diseases cost hundreds of thousands evaluation of medicines in the EU has decrease mortality or morbidity, make of dollars. been used to determine whether to the care pathway more efficient or reimburse them – not to set prices. reduce the total resources a patient consumes. And give us hard, real-world Meanwhile, health researchers in data to back up your claims. Canada are investigating the idea of a pan-national body to negotiate drug prices, thereby reducing the inequities Figure 2 There are 460 therapies for rare diseases in the pipeline between provinces with more and less buying power. They’re also examining the feasibility of performing real-time Number of drugs evaluations of medicines.46 Autoimmune disorders 18 Blood disorders 12 Japan is exploring yet other options, Cancer 107 including the expansion of its scheme for re-pricing medicines whose sales Cancer-related conditions 10 are much higher than expected.47 Cancer, blood 79 It also imposed a 1.26% cut in prices Cancer, skin 31 (using total healthcare expenditure Cardiovascular diseases 6 as its base) in April 2012.48 And the Eye disorders 11 Ministry of Health, Labour and Welfare Gastrointestinal disorders 10 is considering whether to introduce health technology assessments.49 Genetic disorders 67 Growth disorders 5 Further changes are afoot. Several Infectious diseases 31 countries have introduced fixed, Neurological disorders 37 all-inclusive hospital tariffs for the Respiratory disorders 14 treatment of specific diseases, with Transplantation 20 penalties for emergency re-admissions. And many healthcare payers are looking Other 37 for opportunities to reduce costs by 0 20 40 60 80 100 120 moving the point of care from the hospital to the doctor’s office or patient’s home. Source: PhRMA10 Pharma 2020
  13. 13. The value dilemma Figure 3 Pharma has an additional lever in the form of outcomes dataIn short, the mature markets have beenevolving economically, demographicallyand structurally, but pharma hasn’t kept Outcomes impactabreast of the changes. It’s continuedto pursue its old ‘get more, pay more’approach, even though the mature Marketing and salesmarkets are running out of money and RD Patentsome of the medicines it’s developed productivity extension Costsarguably provide little extra value. $0What healthcare payers want, bycontrast, is more value for the samemoney or the same value for less. Andthey can afford to play a waiting game. RD (12-13 years) Marketing and sales (7-8 years)As a growing number of treatments comeoff patent, they’ll soon be able to buy thesame medicines at lower prices anyway. Source: PwCSo pharma’s contributed to the position The outcomes lever marketing and sales. Rather thanin which it finds itself. And any company There are other implications, too. In the focusing on commercial potential, forthat wants to reach 2020 will either have past, pharma had four ‘profit’ levers: example, the RD function will have toto offer more value without charging RD productivity, cost cutting, marketing focus on creating value for customersmore or prove unequivocally that it can and extension of the period of market when it decides which medicines toremove costs from another part of the exclusivity. Most businesses relied progress through the pipeline. It will alsohealthcare system to make room for the mainly on marketing, but this lever has have to collect proof of that value, usinghigher prices it’s charging. become much less effective now that real-world outcomes data. payers and providers scrutinise outcomesMoreover, since many of the medicines so carefully. No matter how many sales Similarly, rather than using unit pricesin the industry’s pipeline went into reps a company fields or how many and sales volumes to produce budgetsdevelopment before these market forces samples it hands out, if a new treatment and forecasts, the health economicswere so strong, some products may be doesn’t offer more value than competing function will have to use outcomes-basedincapable of meeting healthcare payers’ therapies, healthcare payers in the modelling and make sure that investorsexpectations. It takes at least a decade to mature markets simply won’t buy it. understand the approach it’s adopting.develop a new drug and only six months It will also have to set up systems capableto change a clinical pathway. A lot of That said, the industry now has another of managing an intricate network ofcompanies may thus have to slash their lever in the form of outcomes data. contingency payments and rebates.portfolios at very short notice. Instead of ‘creating awareness’, it can demonstrate the worth of its products The marketing and sales function will with real-world evidence of lower have to make even bigger adjustments. mortality and morbidity rates or savings It will have to grapple with rigorous in total healthcare costs (see Figure 3). scientific data and complex economic studies, as well as developing the skills But pulling the ‘outcomes lever’ will to negotiate with healthcare payers require major changes, and three equipped to perform their own functions will be particularly deeply sophisticated analyses. affected: RD, health economics and From vision to decision 11
  14. 14. Maximising the molecule So what, more specifically, can pharma Reinforcing the power of the pill companies do to ‘maximise the molecule’? We’ll look at four ways to create more With ingestible microchips embedded now incorporated the game into value for customers: plugging ‘leaks’ in drugs, doctors will soon be able to physiotherapy programmes. in the healthcare system; collecting tell whether patients are taking their real-world evidence of a medicine’s medicines as prescribed. Proteus But other companies have used the effectiveness; measuring how patients Digital Health’s chips are one of same idea. HopeLab has launched feel; and developing companion several new technologies that aim a video game designed to foster a diagnostics for specialist therapies. to improve compliance. Other devices positive attitude in young cancer in the pipeline include implants that sufferers. Players can use a variety of Plug leaks in the wirelessly inject drugs at pre-specified ‘weapons’ to zap malignant cells, with healthcare system times and sensors that send a patient’s 20 levels each providing information Since healthcare payers want better electrocardiogram to a smart phone. about different treatments and the clinical and economic outcomes, one importance of adhering to them. Bayer logical place to start is by analysing the Mobile health applications also hold has also created a blood glucose care pathway to identify where the huge promise. mHealth apps store monitoring system that can be plugged outcomes from existing treatments Happtique has, for example, launched into a Nintendo. Didget aims to teach are impaired. Our research shows that, a pilot programme that lets doctors children with diabetes how to manage in the US alone, roughly $210 billion prescribe apps as part of an overall their disease by rewarding them for a year is wasted on overuse or misuse healthcare package. mHealth will testing themselves regularly with new of medicines and procedures. Care for revolutionise healthcare in at least two scenarios and characters. conditions that could be corrected respects. It will encourage patients to through lifestyle changes costs another take responsibility for their own health Health video games merge the worlds $303-493 billion a year.55 and provide a means of measuring key of healthcare and entertainment. More health parameters in a comprehensive, sophisticated biomonitoring devices The first step is to map out the different continuous fashion. and mHealth apps will produce further stages in the pathway for a given disease convergence. Fast-forward and – from the stage at which the patient is Remote monitoring devices and biosensors will eventually be able to at risk to the stage at which the disease mHealth will eliminate some of the record everything we eat and drink, is no longer controllable through obstacles to non-compliance. The as well as the amount of exercise we medication. The next step is to find the ‘gamification’ of healthcare has a take. They’ll track the number of places in the care pathway where value different end: encouraging people to calories we consume, remind us to is lost, because of the patient’s behaviour lead a healthier lifestyle by making it go to the gym and warn us when we or failings in the healthcare system. fun. Nintendo’s Wii Fit video game is open the refrigerator for that diet- Many of these leaks occur at transition probably the best-known example of blowing snack. points in the care pathway, where there’s this approach. Several hospitals have unnecessary duplication and waste. Once a company has pinpointed the leaks, it can identify the sort of interventions that might help and where they’re required. This might include screening for a disease while it’s still in the asymptomatic stage, offering dietary advice, reducing a drug’s dosing frequency, providing reminders or, indeed, many other things (see box, Reinforcing the power of the pill).5612 Pharma 2020
  15. 15. A number of medical technology firms pharma’s walls. EMRs, electronic But capturing patient-reported outcomesare already exploring new ways of prescribing data, patient compliance in clinical trials requires a lot of upfrontcreating added value, as we noted in data and the like are important pieces planning, particularly when new‘Owning the disease’.57 A few pharma of the jigsaw puzzle. measurement tools must be developedcompanies have started doing likewise. and validated first. So it’s essential toIn June 2010, for example, Pfizer The industry will also have to convince start early in the process. It’s alsolaunched a vascular health check service healthcare payers of the reliability of its important to capture the patientin British pharmacies.58 Similarly, data and that could be an uphill struggle. perspective from as many sources asGlaxoSmithKline (GSK) has linked up Only 5% of the US health insurers we possible. Social media can be a richwith specialist technology provider recently surveyed are very confident of source of information here – and theMedTrust Online to offer an iPhone the quality of the economic data pharma number of people using such outlets willapp that lets US oncologists search companies provide, and only 7% are very only increase. In the US, for example,for clinical trials by cancer type and confident of the quality of the information 83% of Internet users aged 18-29 useautomatically identifies the trial centres they receive on a drug’s comparative social networking sites, compared withnearest their patients.59 effectiveness.61 just 33% of those aged 65-plus.64Meanwhile, Boehringer Ingelheim is There are several things the industry Online patient groups and blogs providepiloting a digital health management can do to foster trust. For instance, an opportunity to listen to patientsservice for patients with diabetes. It it can sponsor independent research talking openly about their experiences.combines a personalised action plan on the cost-effectiveness of its products Several firms have already set upand digital coaching with wireless or get independent verification of its disease-specific communities and sellmonitoring to measure the impact of data. It can also agree on a set of the insights they collect. With newbehavioural changes.60 But many more common measures for assessing clinical technologies for processing naturalopportunities for stopping the leaks and and economic value to reduce the language and analysing unstructuredenhancing outcomes exist. administrative burden on its customers. data, it’s also getting easier for pharma companies to monitor the digitalCollect real-world evidence Measure the feel factor grapevine themselves.of value It’s not just clinical and economicWe’ve talked about maximising outcomes that count, though. Nearly That said, it’s imperative the industrymolecules that are already on the market. a third of the quality measures initially secure proper patient consent and treatWhat about those that are still in the used for value-based purchasing of all such data responsibly. Privacy andpipeline? With value-based purchasing, healthcare services in the US rest on security violations can cause seriousit’s imperative to collect the sort of patient satisfaction.62 So healthcare reputational damage, in addition toinformation healthcare payers want – providers will have to take account of other problems like the loss of vitaland traditional randomised controlled how patients feel. clinical data. Yet our research shows thattrials don’t capture that data. They’re nearly three-quarters of US healthcaredesigned to measure the safety and The number of pharma companies organisations (including pharmaefficacy of a new medicine in carefully that measure the patient experience companies) use health data for secondarymanaged conditions, not how well it is still very small. But Incyte’s recent purposes other than those for which itworks in the real world. use of patient-reported outcomes with was collected, and less than half have myelofibrosis drug Jakafi shows just how put robust safeguards in place.65We’ll discuss the sort of trials that provide valuable a tool it can be. The FDA statedevidence of a medicine’s economic value that it was a vital element in the decisionin more detail in chapter 4. But, among to approve Jakafi and, unusually, letother things, they entail setting up a the company include information aboutreal-world data infrastructure. Most symptom relief on the packaging.companies will have to collaborate with Incyte’s efforts have been recognisedother organisations to do this, since in the marketplace, too. Jakafi sells formuch of the information that’s needed to $84,000 a year in the US – compareddevelop medicines with a better clinical with the $40,000-60,000 it wasand economic profile lies outside originally expected to fetch.63 From vision to decision 13
  16. 16. Creating companion diagnostics for medicines that target a specific disease subtype lets doctors maximise the value of those medicines themselves Develop companion diagnostics The FDA has also signalled that it would for specialist medicines like to see more specialist medicines Another way companies can maximise paired with companion diagnostics and the molecules they’re developing is to sometimes accelerates the review create companion diagnostics that let process for such products. But when the doctors maximise the value of those ‘carrot’ doesn’t work, it’s ready to wield molecules themselves. There’s no point the stick. In 2010, the agency refused to in prescribing therapies that target one approve leukaemia treatment Omapro disease subtype for patients who suffer without a diagnostic to identify the from another, as healthcare payers target patient base.66 recognise. And they’re prepared to reward innovations that help them direct NICE rejected melanoma therapy Yervoy precious resources more effectively. for reimbursement on the same grounds (see Table 1). in 2011.67 So failing to develop a diagnostic test for a costly treatment that’s aimed at a tiny patient population Table 1 Targeted medicines with companion diagnostics generate high revenues may damage its prospects of commercial because they work so well for specific patient segments success. Indeed, we think that, by 2020, companion diagnostics will be mandatory Population for approval of all such medicines. Annualised testing positive cost per for biomarker Projected sales Product Indication patient in US Biomarker (%) (2012-2018) Erbitux Colorectal, head $84,000 EGFR+ 37.5 $13.42 billion neck cancer KRAS-wt Herceptin + Breast cancer $124,800 HER-2+ 25 $49.96 billion Perjeta Tarceva Non-small cell $52,800 EGFR+ 10-15 $10.8 billion lung cancer Xalkori Non-small cell $115,200 ALK+ 4-7 $4.76 billion lung cancer Zelboraf Melanoma $112,800 BRAF+ 13.5 $4.25 billion Sources: EvaluatePharma and The Pink Sheet Note: Projected sales are cumulative and global.14 Pharma 2020
  17. 17. What’s it worth? Maximising the molecule will involve To sum up, the message healthcare major decisions about which diseases payers in the mature markets are sending to concentrate on, which medicines to is clear: they want more value for their pursue, what data to collect and how money, they’re measuring the value best to plug leaks in the healthcare they get more carefully and they’re not system. The vast majority of companies prepared to pay thousands of dollars for will also need to revise their budgeting medicines that offer only incremental and forecasting processes, billing and improvements in outcomes. Their payment systems and the way they go pockets aren’t deep enough. to market. But what healthcare payers mean by Most importantly of all, they’ll need to ‘value’ is also becoming clearer, as the keep the big picture in mind at all times.Healthcare payers in the Treatments that prevent disease, cure pricing and reimbursement processesmature markets want more they use become more transparent. otherwise incurable diseases, reduce the And the scope for helping them make overall use of resources and let patientsvalue for their money and stay as productive as possible for as long savings is huge. Thus far, pharma’sthey’re measuring the value focused on the roughly 15% of the as possible: these are the sort of health budget that goes on medicines.68 medicines governments and healththey get much more carefully insurers in the mature markets will buy. That leaves another 85% from which it can generate revenues by reducing consumption of more costly medical And, in the end, as the Roman writer services. If it succeeds in doing this – and Publilius Syrus once noted, “A thing is in surmounting sociopolitical opposition worth only as much as it can be sold for.” to the rebalancing of the mix – we think So it’s what payers, providers and its share of healthcare expenditure in patients value that will determine the the mature economies could rise to 20% value pharma creates for its shareholders. by 2020. From vision to decision 15
  18. 18. Pharmageddon? Tighter economic governance The financial problems in the GIIPS Under EU law, national governments are economies have already had a significant responsible for setting health policy and impact on pharma. The European organising and financing healthcare, so Federation of Pharmaceutical Industries the EU’s health initiatives are generally and Associations (EFPIA) estimates that confined to promoting cross-border price cuts and discounts in all five cooperation and setting health and markets reduced the industry’s revenues safety standards. But, with strict fiscal by more than €7 billion ($8.8 billion) in rules enshrined in the EU treaties and 2010 and 2011. But, with other countries European Fiscal Compact, as well as demanding similar discounts, the stringent bailout terms for the member indirect cost was much higher.69 states that have accepted help from the EU and International Monetary Fund The next few years also look bleak. (IMF), EU economic governance poses The governments of the GIIPS states are an increasingly important constraint tightening their budgets, and expenditure on healthcare. on healthcare – including prescription medicines – is a prime target. Opposition Portugal, for example, is currently from the voting public, industry implementing the terms of an EU/IMF advocates and subnational governments rescue package under which the in some countries may temper these government is required to enact efforts. Even so, pharmaceutical sales in legislation to rationalise the use of the five GIIPS economies are expected to health services and reduce overall public fall to $65.4 billion by 2020, down from spending on medicines. So it’s likely to $81.3 billion in 2011 (see Figure 1). issue new cost-saving provisions. One option is to halve the prices of drugs whose patents expire.70 The next annual review of drug prices, due in early 2013, may well bring additional cuts. Figure 1 By 2020, pharma’s revenues will be lower in four of the five GIIPS markets US$ billions 40 34.6 35 30 29.0 28.0 25 19.2 20 15 9.3 10 8.5 6.2 5.1 5 3.2 3.6 0 Greece Ireland Italy Portugal Spain Sales in 2011 Projected sales in 2020 Source: Business Monitor International Note: All sales are expressed in US dollars at constant exchange rates.16 Pharma 2020
  19. 19. The Greek government has also initiated The Italian and Spanish governments are Pharma’s efforts to curb the practicevarious healthcare reforms, including both at loggerheads with the regional have been repeatedly stymied, evena restrictive reimbursement list, under administrations, which manage most though most studies show that it’s theits two EU/IMF Memorandums of public healthcare spending. In Italy, this middlemen – not healthcare payers –Understanding.71 Other cost-saving is partly because the Cabinet hopes to who benefit most. But resistance maymeasures may involve the promotion of conclude a health pact with the country’s finally be softening. In May 2012, thegenerics. In March 2012, for example, regional governments in mid-November European Commission launched anthe Italian government passed a that will probably reduce the amount of investigation into the parallel trade of‘liberalisation’ law strengthening the money transferred to them.78 The pharmaceuticals. It’s reported to berules on the use of generic alternatives.72 Cabinet will also set new standard cost considering whether the industry isAnd, in July 2012, the Irish Minister for measurements to allow for more efficient justified in arguing for differential pricingHealth introduced a draft bill permitting healthcare budgeting and lay out a of drugs bought for re-exportation.85automatic generic substitution which, timeline for adoption by the end ofif passed, could cut the country’s 2012.79 Its recent spending review A tightrope to walkexpenditure on medicines by €50 billion includes other measures to limit public The key issue pharma companies tradinga year.73 spending on medicines and medical in the GIIPS economies face, then, is how devices, force suppliers to return part best to balance the needs of patientsMounting debts of their compensation when hospitals with their own commercial imperatives.Price cuts and generic erosion aren’t the run over budget and impose deeper That entails making some hard decisionsindustry’s only grounds for concern, discounts on pharmaceuticals.80 about whether to impose more rigorousthough. Ireland apart, all the GIIPS payment terms, whether to restrict thecountries have deferred payment of their Patients will be expected to pick up a products they supply and whether tomedicines bills, with an estimated bigger share of their medical expenses serve patients via different channels,€12-15 billion owing by the end of 2011.74 in the coming years, too. Italy and thereby giving patients access to the Spain are both trying to reduce costs treatments they require without goingThe problem started in Greece, where by shifting more of the burden of through bankrupt public hospitals.the hospitals racked up debts of about pharmaceutical expenditure to private€7 billion in the latter part of the last payers. For example, the Spanish Health It also entails coping with considerabledecade. Many of those bills remain Ministry recently eliminated over 400 uncertainty. As the Eurozone crisisunpaid, and the Greek government drugs from its reimbursement lists.81 unfolds, prolonged austerity and marketrecently passed a law stipulating that And, in April 2012, it introduced pressure may contribute to publicif the country exceeded its annual co-payments on medicines for pensioners, discontent and political instability.medicines budget, the industry would be as well as raising co-payments for Changes in government in the GIIPSrequired to pay for any overspending.75 everyone in the workforce, with countries and elsewhere haven’t increases tied to income levels.82 generally resulted in the reversal ofThe contagion subsequently spread austerity measures and structural reformto Italy, Portugal and Spain. Grey trading policies thus far. But it remains to beMacroeconomics research group The financial plight of the GIIPS seen whether voters will continue toPrometeia reports that Italy’s local health economies has had one last change of tolerate austerity in the longer term.authorities took an average 262 days to particular significance for pharma: thepay their medicines bills in 2011, while increase in re-exportation of medicinespayment delays in Portugal rose from from lower- priced to higher-priced375 days to 453 days.76 The Spanish countries. In 2009, the ‘grey’ market forhealth system was in an even worse prescription drugs in Europe was worthposition until June 2012, when the about €5.2 billion a year (at ex-factorygovernment set aside €17 billion to cover prices).83 But EFPIA reports that there’srising debts in the autonomous regions.77 been a marked rise in parallel trading in recent months.84 From vision to decision 17

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