Navigating the Turbulent Path to Sustainability

Changing times
These are exciting but uncertain times for the pharmaceutical industry. Impending loss of patent protection on current blockbuster drugs is expected to drain more than $20 billion in revenue annually from the industry over the next few years. Increased regulatory pressures are slowing new drug approvals, with drug safety prominently front and center. Drug companies today are awash in massive amounts of data both within and outside of the organization. The new 2007 FDAAA has placed phase IV clinical trials just over the horizon. In anticipation of leaner times ahead, companies are aggressively trimming costs in attempts to improve efficiency.

Not all doom and gloom
Despite these pressures, the opportunity for long-term sustainable profitability in the pharmaceutical industry remains a viable concept. Several promising new therapeutic approaches, RNA interference and stem cells, for example, are early in development and have potential to deliver new powerful treatments and cures to patients with major unmet needs over the long term.

Anticipated market growth for emerging blockbusters, including Merck’s Gardasil and Biogen Idec/Elan’s Tysabri, provides evidence that it may be somewhat premature to completely discard the blockbuster model from current long term strategic planning. In addition, although window of opportunity for so called ‘orphan’ blockbusters has yet to be determined, drugs in this category also appear to have the potential for blockbuster or near-blockbuster revenues, at least over the near to mid-term.

With few other obvious investment growth areas on the horizon, venture capital funding for the early to mid-stage biotechnology companies appears robust and should provide increased support for emerging technology innovation and new therapeutic area solutions. Growing state and regional funds in pursuit of high paying jobs will also fuel emerging life science innovation. With pharmaceutical coffers full from current blockbuster revenues, also expect continued growth in M&A activities at premium pricing in pursuit of promising late stage pipeline opportunities for near to mid-term revenue growth.

Casting a wide net
Recognizing the need to fill pipeline gaps, the pharmaceutical industry is actively pursuing new blockbuster drugs from all available sources. A number of academic collaborations were announced in the last year, including both traditional early discovery research and applied efforts to innovate current manufacturing processes. Collaboration and licensing efforts with biotechnology companies are increasing to gain early footholds on promising biotechnology innovations. And finally, all major pharmaceutical companies are aggressively pursuing major M&A efforts in hopes of capturing innovative and/or synergistic technology platforms and late stage drug candidates.

Towards a sustainable future
It is abundantly clear that the current state of the pharmaceutical industry is unsustainable over the long term. The need to incorporate the rapid growth of biological knowledge into therapeutic solutions combined with the glacial rate of regulatory processes means that companies must be especially agile in leveraging current drug development and approval processes to effectively drive new drug approvals over the near term. With little need during previous good times to run tight operations, the industry is looking closely today at processes across the value chain to ensure that they are delivering effective value to the organization. In many cases, they are also scrutinizing efforts to determine whether the efforts might be more effectively performed by someone else.

Overall, the health industry is actively responding to the increasing pressure to improve its efficiency and effectiveness in delivering therapeutic solutions to the marketplace. Unsustainable healthcare cost growth, an aging US baby boomer population likely to require increasing chronic disease management, growing regulatory requirements and oversight, and increasing consumer participation in driving and demanding new therapeutic solutions are changing how the entire health industry will operate in the future. Recognizing the dominant underlying pressures and direct market drivers will be key to ensuring that companies will survive the impending turbulence that is expected to transform the industry.

In this increasingly interconnected health ecosystem, future efforts will also need to seamlessly interact with healthcare providers, payers and ultimately consumers. Current embryonic efforts in pharmaceutical marketing and sales to directly access healthcare payers are an early indication of this increased interconnectivity, a trend that will only grow. Access to and reimbursement of new therapeutic innovations at value pricing will be key to industry growth, processes that will become increasingly more complex as quantitative performance metrics become increasingly available to anyone interested.

Research director Dr. Alan Louie is charged with spearheading Health Industry Insights’ research service on the emerging opportunity for personalized health. In addition, he leads the company’s research efforts focusing on technology and information technology (IT) innovations in drug discovery.