There has been a lot of news in the past few months that makes it very clear to anyone who has been paying attention that our world is changing quickly. This is certainly true in the biotechnology and pharmaceutical arenas.
A few days ago, Luke Timmerman reported on Steven Burrill's talk at Life Science Innovation Northwest in Xconomy. Perhaps the talk's overriding theme related to a paraphrase of a Darwin quote "that it isn't the strongest or smartest but the most adapatable that survive." Good advice for anyone in my book, something I would emphasize with my staff or kids even, but definitely a take home for those of us working in the biotech/pharma sphere.
Burrill made a few major points per Mr. Timmerman. Healthcare costs are unsustainable and there is an inherent conflict between demand for more access for all and lower cost. This disparity will drive change. The IPO funding mechanism has largely abandonned biotech at present as only 20 of the last 105 IPOs are trading above their initial share offering. Coupled with merger mania in Big Pharma as means to prop up short term earnings - we have another key change driver. The Regulators are making it tougher, not easier to get new drugs on the market and are under increased scrutiny to continue their "toughness" by events like Tysabri or Avandia. Profits are being taken out of drugs and Burrill predicts a shift from Rx (prescriptions) to Dx (diagnostics) with advent of personalized medicine.
Michael Rosen wrote an excellent article on the "deconstruction of big pharma" for Wisconsin Technology Network way back in Feb 2007 that outlines many of the observations voiced in Burrill's talk above (downsizing, funding, regulatory pressures, margin declines). It presaged the current R&D downsizing (loss of more than 70,000 R&D jobs in past 2 yrs) trend and movement of greater drug power to Indian Pharma, and to the generic producers like Teva (who is about to buy Germany's RatioPharm for $5 B) that will position the Company to better compete in the biosimilars market too.
Seeking Alpha reported on most recent IMS Health data estimates upping the number of "pharmerging" markets from the previous count of 7 to 17! This is a dramatic shift in a very short time. Estimates are that these 17 markets will account for $90 B in new growth from 2009-2013 accounting for fully 48% of new growth in pharmaceuticals. China is reported to be "in a league of its own" as an emerging market.
Similarly, as I reported in this blog on March 12th, India continues to grow as a very significant player in generics (already no. 3 producer in world) and is expected to grow from $8 B to more than $30 B by 2020. Indian pharma companies are also becoming increasing important as CRO's, CRAM's and CMO's (expected to grow in India from $1.2 B to $5 B in next 5 yrs) - and is one area absorbing shift of R&D downsizing from the West.
Also, from a previous blog on Feb 12th, I reported on interview with Carolyn Buck Luce, global pharma leader at Ernst & Young with regard to their report on Pharma 3.0. Carolyn spoke of changes that need to occur within the pharma industry with regard to movement from a product centric to customer centric model in particular to cope with big changes in healthcare economics.
"It's less about how my business model changes, and more about how my model fits into the business model of nontraditional players coming into the healthy model space. Those players are IT players, data information players, retailers, insurers, consumer products companies, telecommunications companies. The core of this industry has been innovation and it will stay innovation, but the bulk of the money and the effort has been in the innovation of the product pipeline. What we are seeing going forward is the need for innovation of the commercial model in order to be able to respond to the mega changes of healthcare reform globally"
All of this adds up to a load of change. The industry is going to go through a restructuring period - which is a normal course for all industries as they mature - to emerge with some new models to test. Clearly, the industry and markets will become more globally distributed with a big shift going to East and BRIC countries (and other emergents too). The role of internal R&D in Big Pharma will be modified. There will be more of a mix of in-house development and outsourcing. Generics will continue to blossum, and biosimilars will make it to market - even in US. It is inevitable and Big Pharma should look at strategies for taking advantage of their knowledge rather than any blocking maneuvers. Regulatory is going to have to play catch up and develop strategies to get drugs to market quicker without any compromise on product safety.
It is an exciting time and one that is fraught with opportunity.
Posted by Bruce Lehr March 18, 2010.
