The future of pharma may look pretty bleak over the next few years. The patent cliff has laid to waste blockbusters while too many drugs that were to replace them have withered on the Phase III trial vine. Productivity is low and pipelines are full of high-risk molecules with small potential markets. Big Pharma is getting the screws put to it by payers and emerging markets may not be the panacea many predict, but things look great.
PricewaterhouseCoopers acknowledges the pitfalls in its report, "From vision to decision: Pharma 2020." Still, with the drug market potentially growing to $1.6 trillion by 2020, it sees a "golden era of renewed productivity and prosperity" ahead. At least for the companies able to change their ways.
So what's a Pharma to do? In its 52-page report, PwC lays out its suggestions. At the top of the list is realizing that in mature markets, drugmakers are losing control of their ability to set the price of their drugs--at least on a cost plus basis. Payers and providers will have a set amount to spend and in that new payment world, pharma companies must demonstrate their drugs provide more value at the same price as the competition or the same value at less cost. Rather than the usual "clinical endpoints" the maker of an arthritis drug might offer up data that its use will mean fewer joint replacements and fewer hospitalizations over the lifecycle of the disease, explained PwC Partner Nick Davies, who leads the life sciences practice.
Davies said emerging markets will be another matter. Big populations will not necessarily translate into big profits. Each needs to be assessed individually in light of a drugmaker's expertise. Many countries will be unable to afford innovation and will rely on generics, with "the biggest domestic players in the BRIC economies" dominating the local generics scene, the report says. Drugmakers will need to determine if it is worth the investment to be able to make drugs that are specific to each market, Davies adds.
Davies demurred from naming any names, but the picture that PwC paints has played in IMAX sized examples in recent weeks. On the price side, Sanofi ($SNY) and Regeneron ($REGN) recently cut the price of their colorectal cancer drug Zaltrap in half after a public pillaring of its cost and effectiveness in The New York Times by three doctors at Memorial Sloan-Kettering Cancer Center. And the 5 Phase III failures in a row for Eli Lilly ($LLY) was one example of the cost of failing to be ruthless about junk in the pipeline.
Davies worries about companies having "the diversity of thought, the culture of innovation" to make the needed leaps in innovation. "We feel that the corporate culture in pharma is stale and has been in last 5 to 10 years," Davies said. Companies will need to determine if their leadership has what it takes.
PwC and Davies see a very bright future for the companies that have the right stuff. There are huge unmet medical needs in the world, he said, and Pharma is uniquely positioned to take those on. "Some companies won't make the right decisions and will fall by the wayside. Those that can are uniquely placed to do some great things for society and some great things for their investors."
- access the PwC report here
Special Reports: Top 15 drug patent losses for 2013 | The 2012 Biotech Graveyard