The recent spike of patent cliffs has made a huge dent in pharma sales revenue. To recoup the loss and sustain market position, pharma companies are in the race for new drugs. The hunt for the next blockbuster has shifted away from small molecules towards biologics. Biotech companies are leading the drug discovery efforts, especially the early stage. Faced with stagnating growth in the developed market, pharma companies have increasingly turned to emerging markets for new growth and profit opportunities.
Mergers & Acquisitions (M&A) and in-licensing partnerships are widely adopted by the pharma industry to enrich their product pipelines and strengthen their core competencies. Additionally, outsourcing is increasingly sought by pharma for their challenging projects to achieve quality results at low cost.
The global pharmaceutical market harvested a revenue of $989 billion in 2013 and was forecasted to reach $1.3 trillion in 2018 at a compound annual growth rate (CAGR) of 4%-7%.1 Despite this healthy growth, the market incumbents face a wide variety of challenges from a more diverse and globalized economy, stringent government regulations, downward price pressure, and increased demand for better healthcare. The industry is increasingly dependent on new therapeutic entities (NTEs) and technological innovations to address unmet medical needs, accelerate drug discovery, improve production, and reduce cost.
Different Business Strategies are Needed for Mature and Emerging Markets
In the field of drug discovery, large molecule biologics are in the limelight. The sales of several biologics have consistently made the top ten best-selling drugs: In 2014, eight of the ten best-selling drugs were biologics with a combined revenue of $70 billion, 84% of the combined revenue of the top ten drugs.2 IMS predicted that the biological markets would grasp 20% of global pharmaceutical market share by 2017.3 Current thinking among industry analysts is that branded biological products will not suffer huge revenue losses after patent expiration due to the difficulty in producing their generic versions (biosimilars). Additionally, tight complex regulations and high manufacturing costs present other hurdles for their generic rivals to clear. Consequently, pharma companies are in the chase for novel biological entities as their next blockbuster drug.
However, biologics are more complex and difficult to develop, characterize, and manufacture than traditional small molecules. Biological products are generally far less stable than small molecule drugs. Thus, they are more likely formulated as parenteral or injectable medications. There will be numerous challenges in every step of biological development; novel excipients, analytics, and technologies are needed to aid biological discovery, formulation, manufacture, quality control, and labeling and packaging. Under the constraints of time, cost, and quality, biopharmaceutical companies are increasingly seeking assistance from custom service providers who possess a full spectrum of technical expertise from discovery to commercial production, such as contract development and manufacturing organizations (CDMOs), contract research organizations (CROs), and related contract service organizations (CSOs).
At the global scale, outsourcing provides a solution for pharma companies seeking to enter a new market. Partnering with local CROs and CMOs has been proven successful in assisting foreign companies to achieve regulatory, manufacturing and marketing goals in the emerging market. This market, led by the BRIC countries (Brazil, Russia, India and China), is growing at nearly double the rate of the developed market, with a CAGR of 8%-11% vs 4%-7% during the period of 2013-2018. By 2016, the emerging market will account for 30% of the global pharmaceutical market share and it will reach $358-$388 billion in sales by 2018.1,4 Given its large population (70% of the world’s population), growing middle class, and increasing healthcare demands, it provides a rosy picture for growth and profit.
Nevertheless, entering an emerging market can be a tough business decision to make, because this market not only demands a unique set of products but also offers a rather different business environment than the developed market. In general, the mature market demands high quality, patient-centric, and specialty medicines, whereas the emerging market focuses on affordable drugs, making generics a better fit. In addition, many factors can shake the economic stability in these regions. We recently witnessed China tactically devaluating currency to maintain their main relative export advantage—cheaper labor, which contributes to lower manufacturing costs. Devaluation also means that imported products would be relatively more expensive, which could make imported medicines less desirable in this region.
Outsourcing Serves as a Bridge to Novel Technologies
To succeed in today’s competitive market, pharma companies not only must be active in developing new drugs, but also swift in adopting new technologies. In Nice Insight’s 2015 Annual Pharmaceutical and Biotechnology Outsourcing Survey, 62% of respondents (n=2,300) claimed that they have learned of new technological innovations for the biopharma industry in the past year that would benefit their company. The number clearly indicates the industry is constantly innovating and adapting.
Contract service providers are usually among early technology adopters. Using specialty CROs and CMOs can serve as a quicker way for pharma to access new technologies that benefit them when outsourcing. In Nice Insight’s outsourcing survey, the respondents ranked five areas where they would benefit from the increased technological innovations, with Quality Control being the number one area followed by R&D, Manufacturing, Distribution, and Labeling and Packaging. When taking cost and/or time savings into consideration, 62% of the respondents believe that Cloud-Based Data Management Services offer the greatest opportunities for CROs. Other areas CROs can find the greatest opportunities include: Use of Robotics Labs to Perform Routine Tests (50%), Web-Based Life Science Labs (44%), Mobile-Enabled Innovations for Recruiting and Communicating with Participants (38%), Mobile Technology for Remote Monitoring (38%), and Shared, Online Data Banks of Non-Proprietary Clinical Information (23%).
The aforementioned areas are mainly within the realm of cloud, information, and mobile technologies. These technologies offer unprecedented opportunities for pharmaceutical companies to communicate and share information internally, as well as reaching out to their audience in a more direct and visible manner. The Cloud-Based Data Management Services; Mobile-Enabled Innovations for Recruiting and Communicating with Participants; and Mobile Technology for Remote Monitoring are used for clinical trial management. The result pointed out a great need for innovations in managing clinical trials. With clinical trials accounting for the most expensive part of drug development, it is not surprising that the industry demands more efficient and cost-effective measures to conduct and manage the trials. The growing expenditure on clinical trials is largely due to increased size, complexity, and length of the trial.
Regarding clinical information, there is a growing demand for increased clinical trial data transparency and sharing of information. In Europe, the European Medicines Agency (EMA) started to publish clinical reports contained in new marketing-authorization applications (MAA) submitted on or after January 1, 2015 once a request has been made.5 The Agency also allows a third party to request the release of clinical documents held by the Agency. Internationally, the AllTrials initiative was launched in early 2013, aimed at making full clinical study reports from all clinical trials available to the public. So far, the initiative has been signed by 610 organizations, including big pharma company Glaxo- SmithKline (GSK).6 With these movements, it is foreseeable that more valuable clinical data will be available online in the near future. Therefore, opportunities will arise for CROs to help pharma-biotech companies navigate large, complex amounts of information facilitating their drug development.
In the hunt for new drugs, biotech companies have become the vanguard in identifying promising new drug candidates, especially in preclinical and earlystage clinical development.
Biotech Leads the Drug Discovery and M&A Flow
In the hunt for new drugs, biotech companies have become the vanguard in identifying promising new drug candidates, especially in preclinical and earlystage clinical development. According to Dr. William Haseltine, chairman and CEO of Human Genome Sciences, “(Today) about 40 percent to 45 percent of all drugs in human clinical trials originated in biotechnology,” where “productivity is about tenfold greater in the discovery and development process than in the large pharma.”7 Biotech’s success in leading drug discovery is largely attributed to the advancement in our understanding of biology and disease and the accessibility of novel technologies, such as high-throughput screening (HTS), automation, and molecular modeling and simulation. In addition, biotech companies are much quicker and more efficient in adopting new technologies, conducting research, and making business decisions with limited resources.
Recognizing biotech’s efficiency in drug discovery, the large pharma companies increasingly seek to acquire or in-license late-stage drug candidates from the biotechs to minimize drug discovery risk, enrich product pipelines, and strengthen core competencies In recent years, the industry has experienced a surging wave of mergers and acquisitions: 2015 probably will set a new record for M&A deals, as $221 billion worth of transactions have already been completed in the first half of the year.8 The M&A deal or in-licensing/partnership is generally viewed as a complementary combination of biotech’s technical expertise and big pharma’s commercialization expertise.
Furthermore, the trend of consolidation is sweeping every corner of the pharmaceutical industry, including the generics market. Last July, Teva, the world’s largest generic drug manufacturer, announced its purchase of Allergan’s generic business for $40.5 billion. After completing the deal in 2016, Teva will control greater than a 20% share of the global generics market and rank among the top ten global pharmaceutical companies.9,10 In addition to generating an expected annual savings of $1.4 billion, this acquisition will allow Teva to rapidly expand its Abbreviated New Drug Applications (ANDAs) from 130 to 320, including 110 first-to-file ANDAs.10 Moreover, the inclusion of Allergan’s generics R&D pipeline will facilitate Teva shifting its product portfolio to high-margin, complex generics.
Today, innovation is occurring in every aspect of the pharmaceutical value chain and constantly transforming drug discovery, development, and commercialization. The momentum of consolidation, outsourcing, and the growing emerging market will continue in the upcoming years. Lastly, a strategically selected outsourcing partner can successfully help pharma companies gain technical expertise, achieve quality at low cost, and enter a new market.
- Global Outlook for Medicines Through 2018, IMS Institute for Healthcare Informatics, 2014 http://www.imshealth.com/portal/site/imshealth/menuitem.762a961826aad98f53c753c71ad8c22a/?vgnextoid=266e05267aea9410VgnVCM10000076192ca2RCRD
- Nisen M., The Best Selling Prescription Drugs in The World Last Year, 2015 http://qz.com/349929/best-sellingdrugs-in-the-world/
- The Global Use of Medicines: Outlook through 2017, IMS Institute for Healthcare Informatics, 2013 http://www.imshealth.com/deployedfiles/imshealth/Global/Content/Corporate/IMS%20Health%20Institute/ Reports/Global_Use_of_Meds_Outlook_2017/IIHI_Global_Use_of_Meds_Report_2013.pdf
- The Global Use of Medicines: Outlook Through 2016, IMS Institute for Healthcare Informatics, 2012 http://www.imshealth.com/deployedfiles/ims/Global/Content/Insights/IMS%20Institute%20for%20Healthcare%20 Informatics/Global%20Use%20of%20Meds%202011/Medicines_Outlook_Through_2016_Report.pdf
- European Medicines Agency Policy on Publication of Clinical Data for Medicinal Products for Human Use, 2014 http://www.ema.europa.eu/docs/en_GB/document_library/Other/2014/10/WC500174796.pdf
- AllTrials. August 2015. Accessed at: http://www.alltrials.net/
- Gwynne P. and Heebner G., Recent Developments in Drug Discovery: Improvements in Efficiency, Science, 2015 http://www.sciencemag.org/site/products/ddbt_0207_Final.xhtml
- Wieczner J., The Real Reasons for The Pharma Merger Boom, Fortune, 2015 http://fortune.com/2015/07/28/whypharma- mergers-are-booming/
- Kumar S., Teva Buys Allergan: 3 Reasons Why It’s a Blockbuster Deal, Fortune, 2015 http://fortune.com/2015/07/27/ teva-buys-allergan-mergers-and-acquisitions-consolidation-botoxcopaxone- healthcare/
- Patrick M., Teva Announces Its Acquisition of Allergan Generics, Market Realist, August 2015 http://marketrealist.com/2015/08/teva-announces-acquisitionallergan- generics/