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Changing dynamics in the pharma and biotech industries
November 2012
by Jennifer Brice  |  Email the author

The pharma and biotech industries are currently in a state of transition. One of the biggest challenges and reasons for this transition is due to the patent cliff approaching this industry, and it started with the patent expiration of Pfizer Inc.'s Lipitor in November 2011. This has resulted in increased generic and biosimilar competition.   
The pharma and biotech industries are expected to increase to approximately $1.092 trillion by 2015. Current market leaders include Pfizer, Novartis AG, Merck & Co. Inc., Sanofi and Roche. The therapeutic areas currently dominating the pharma and biotech industry include central nervous system, oncology, cardiovascular and antibiotics/antivirals. However, areas such as cardiology, central nervous system conditions and respiratory drug sales are expected to decline throughout the forecast period due to patent expiration of top participants.  
In 2011, Pfizer was at the top of the pharma and biotech leader board as a result of sales from a number of blockbuster products, including Lipitor, Norvasc, Celebrex, Lyrica, Viagra, Prevnar, Enbrel, Zyvox, Selzentry, Toviaz, Advil, Centrum and Robitussin. Pfizer's strategic acquisition of King Pharmaceuticals for $3.6 billion in 2010 was key in providing the company with a broader portfolio and pipeline, especially in the area of pain, to make up for potential losses to generic competition. However, Pfizer lost exclusivity to a number of products due to patent expiration; this includes Lipitor, the top product in terms of sales in the United States in 2011.  
Novartis ranked number two for pharma/biotech sales in 2011. A large contributing factor to Novartis' success in 2011 can be attributed to its product approval and launches, including Gilenya for multiple sclerosis and the Arcapta inhaler for chronic obstructive pulmonary disorder. Novartis' generic arm, Sandoz, also contributed greatly to 2011 revenue, especially with its anticoagulant, enoxaparin, which garnered more than $1 billion in sales. Novartis also completed its acquisition of Alcon in 2010.   
In 2011, Merck was ranked third for pharma/biotech sales in 2011. Highlights for the company included U.S. and EU approval for Victrelis (for the treatment of hepatitis C) and its combination diabetes drug, Juvisync.  
Despite the occurrence of patent expirations, several new brand-name drugs that have recently entered the market have blockbuster potential, including Pradaxa (for atrial fibrillation), Gilenya (for multiple sclerosis) and Victoza (for type 2 diabetes). In addition, more emphasis will continue to be placed on complex disease areas where there remains a large unmet need. For example, there have been a number of advances in the oncology industry, including new technologies such as next-generation sequencing and companion diagnostics that are contributing to its overall growth.
Antibiotics/antivirals will also continue to be a large focus for pharma and biotech companies, especially in emerging markets. Other industry drivers include the launch and growth of biologics and continued expansion in "pharmerging" markets. "Pharmerging" markets is one area with growth opportunity in the pharma and biotech market due to high unmet needs for treatment, greater government investment in healthcare and potential for growth in contract markets such as contract research and manufacturing organizations. Examples of "pharmerging" markets include China, Brazil, Russia and India.  
Reorganization, mergers and acquisitions (M&As), consolidation and portfolio changes are being evaluated to maintain growth centers in the face of a myriad of serious challenges. Overall, companies are looking to align with areas of growth opportunity as well as new business strategy and product development paradigms. For instance, pharma and biotech companies are increasingly forming partnerships in areas such as research and development (R&D) and manufacturing to contract research and contract manufacturing outsourcing companies.  
Merck, Roche, Sanofi, Novartis, Bristol-Myers Squibb Co., GlaxoSmithKline PLC (GSK) and Pfizer are examples of large pharmaceutical giants that have consolidated from multiple companies to one. For example, from 1980 to 2010, 34 individual companies consolidated to become seven large pharmaceutical companies. GSK is on the top with one of the largest mergers with GlaxoWellcome's 2000 acquisition of SmithKline Beecham, which was valued at $74 billion. Other large acquisitions included Sanofi-Synthelabo's $65.5 billion acquisition of Aventis in 2004, Merck's acquisition of Schering-Plough for $41.1 billion in 2009 and Bayer AG's $21.5 billion acquisition of Schering AG in 2006. Pharma and biotech consolidation has resulted in portfolio prioritization, reductions in R&D and fewer drug approvals.  
Another area with growth opportunity includes personalized medicine. Pharma is now focusing its attention on diseases that are much more complex to treat. The days of pharma companies placing big bets on a few molecules/blockbusters and focusing on easy-to-treat conditions are over. This has resulted in fewer drug approvals.   
For instance, in 2007, the U.S. Food and Drug Administration (FDA) approved only 19 new molecular entities and biologics. As a result, many pharma companies are concentrating on a few core competencies and focusing on specific specialties; this may require exiting certain areas of R&D and cutting drug development costs. In order to bring biologics to the market that can treat the more complex diseases, pharma companies will need to have a comprehensive understanding of genetic makeup, how the body works and pathophysiology of diseases. This requires greater use of new technologies as well as collaborations between industry, academia, regulators, payers and providers.
Pharma/biotech companies such as Roche are trying to make their therapeutics as targeted as possible by bringing together in-vitro diagnostics and drugs. There have been a number of advances in molecular profiling technologies, including proteomic profiling, metabolomic analysis and genetic testing, which may allow for a greater degree of personalized medicine than what is currently available.  
Another growth opportunity in the pharma and biotech industry includes the development, commercialization and/or acquisitions of generics or biosimilars. Due to the patent cliff, many pharma/biotech companies are choosing to become a generic participant versus competing with generic manufacturers. Sanofi is one example of a big pharma company that has entered into many strategic alliances recently with generic companies to combat this issue. The global generic pharmaceuticals market was estimated to be $123.9 billion in 2010, growing at a compound annual growth rate of of 9.3 percent. Blockbuster drugs worth approximately $150 billion are due to lost patent protection between 2010 and 2017, unfolding immense opportunities for generic companies.  
Other trends include outsourcing and M&As. Outsourcing has been shown to be cost effective for sales and marketing, administration, manufacturing and R&D. In addition, new models such as open innovation (the sharing of internal and external ideas to advance the development of a technology) are being implemented. 
Pharma/biotech companies are still conducting R&D in- house; however, the addition of open innovation is becoming an industry norm to collect outside expertise and expand pipelines.  
Jennifer Brice is Frost & Sullivan's Life Sciences global program manager. Her industry expertise includes a strong network of key opinion leaders and senior executives within the pharmaceutical and biotechnology segments. Jennifer also has an experience base covering a broad range of sectors within the life-sciences space, including infectious diseases, biosimilars, rheumatology/inflammatory diseases and ophthalmology. She earned her bachelor of science degree from Ramapo College and her mini-MBA from Rutgers University.  



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