Changing dynamics in the pharma and biotech industries

The pharma and biotech industries are currently in a stateof transition. One of the biggest challenges and reasons for this transition isdue to the patent cliff approaching this industry, and it started with thepatent expiration of Pfizer Inc.'s Lipitor in November 2011. This has resultedin increased generic and biosimilar competition.

The pharma and biotech industries are expected to increaseto approximately $1.092 trillion by 2015. Current market leaders include Pfizer,Novartis AG, Merck & Co. Inc., Sanofi and Roche. The therapeutic areascurrently dominating the pharma and biotech industry include central nervoussystem, oncology, cardiovascular and antibiotics/antivirals. However, areassuch as cardiology, central nervous system conditions and respiratory drugsales are expected to decline throughout the forecast period due to patentexpiration of top participants.

In 2011, Pfizer was at the top of the pharma and biotechleader 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 strategicacquisition of King Pharmaceuticals for $3.6 billion in 2010 was key in providingthe company with a broader portfolio and pipeline, especially in the area ofpain, to make up for potential losses to generic competition. However, Pfizerlost exclusivity to a number of products due to patent expiration; thisincludes Lipitor, the top product in terms of sales in the United States in2011.

Novartis ranked number two for pharma/biotech sales in 2011.A large contributing factor to Novartis' success in 2011 can be attributed toits product approval and launches, including Gilenya for multiple sclerosis andthe Arcapta inhaler for chronic obstructive pulmonary disorder. Novartis'generic arm, Sandoz, also contributed greatly to 2011 revenue, especially withits 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 in2011. 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 newbrand-name drugs that have recently entered the market have blockbusterpotential, including Pradaxa (for atrial fibrillation), Gilenya (for multiplesclerosis) and Victoza (for type 2 diabetes). In addition, more emphasis willcontinue to be placed on complex disease areas where there remains a largeunmet need. For example, there have been a number of advances in the oncologyindustry, including new technologies such as next-generation sequencing andcompanion diagnostics that are contributing to its overall growth.

Antibiotics/antivirals will also continue to be a large focus for pharma andbiotech companies, especially in emerging markets. Other industry driversinclude the launch and growth of biologics and continued expansion in"pharmerging" markets.

"Pharmerging" markets is one area with growth opportunity inthe pharma and biotech market due to high unmet needs for treatment, greatergovernment investment in healthcare and potential for growth in contractmarkets 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 growthcenters in the face of a myriad of serious challenges. Overall, companies arelooking to align with areas of growth opportunity as well as new businessstrategy and product development paradigms. For instance, pharma and biotechcompanies are increasingly forming partnerships in areas such as research anddevelopment (R&D) and manufacturing to contract research and contractmanufacturing outsourcing companies.

Merck, Roche, Sanofi, Novartis, Bristol-Myers Squibb Co., GlaxoSmithKlinePLC (GSK) and Pfizer are examples of large pharmaceutical giants that haveconsolidated from multiple companies to one. For example, from 1980 to 2010, 34individual companies consolidated to become seven large pharmaceuticalcompanies. GSK is on the top with one of the largest mergers withGlaxoWellcome's 2000 acquisition of SmithKline Beecham, which was valued at $74billion. Other large acquisitions included Sanofi-Synthelabo's $65.5 billionacquisition 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 AGin 2006. Pharma and biotech consolidation has resulted in portfolio prioritization,reductions in R&D and fewer drug approvals.

Another area with growth opportunity includes personalizedmedicine. Pharma is now focusing its attention on diseases that are much morecomplex to treat. The days of pharma companies placing big bets on a fewmolecules/blockbusters and focusing on easy-to-treat conditions are over. Thishas 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, manypharma companies are concentrating on a few core competencies and focusing onspecific specialties; this may require exiting certain areas of R&D andcutting drug development costs. In order to bring biologics to the market thatcan treat the more complex diseases, pharma companies will need to have acomprehensive understanding of genetic makeup, how the body works andpathophysiology of diseases. This requires greater use of new technologies aswell as collaborations between industry, academia, regulators, payers andproviders.

Pharma/biotech companies such as Roche are trying to maketheir therapeutics as targeted as possible by bringing together in-vitro diagnostics and drugs. Therehave been a number of advances in molecular profiling technologies, includingproteomic profiling, metabolomic analysis and genetic testing, which may allowfor a greater degree of personalized medicine than what is currently available.

Another growth opportunity in the pharma and biotechindustry includes the development, commercialization and/or acquisitions ofgenerics or biosimilars. Due to the patent cliff, many pharma/biotech companiesare choosing to become a generic participant versus competing with genericmanufacturers. Sanofi is one example of a big pharma company that has enteredinto many strategic alliances recently with generic companies to combat thisissue. The global generic pharmaceuticals market was estimated to be $123.9billion 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 protectionbetween 2010 and 2017, unfolding immense opportunities for generic companies.

Other trends include outsourcing and M&As. Outsourcinghas been shown to be cost effective for sales and marketing, administration,manufacturing and R&D. In addition, new models such as open innovation (thesharing of internal and external ideas to advance the development of atechnology) 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 outsideexpertise and expand pipelines.

Jennifer Brice isFrost & Sullivan's Life Sciences global program manager. Her industryexpertise includes a strong network of key opinion leaders and seniorexecutives within the pharmaceutical and biotechnology segments. Jennifer alsohas an experience base covering a broad range of sectors within the life-sciencesspace, including infectious diseases, biosimilars, rheumatology/inflammatorydiseases and ophthalmology. She earned her bachelor of science degree fromRamapo College and her mini-MBA from Rutgers University.