pharmaceutical revenues

Based on new regulations, increased costs of R & D, the expiration of dozens of patents, the lack of future ‘cash cows’, the new transparency rules and the value-based pricing, pharmaceutical companies need to brace themselves for very tough times: drugs will become more expensive, research might not come up with cures to treat currently ‘untreatable’ health-issues, and counterfeited drugs will impose great expenditure. What will happen to revenues of pharmaceutical companies, at a time when many patents are expiring and new regulations are being issued by the main drug agencies in Europe and USA?

I will focus on Europe, but we cannot forget that globalisation means that what happens in other markets around the world will have an impact on Europe too.

Between 2011 and 2013 many patents will expire, leaving several mega pharma industries with major revenue losses.

Morgan Stanley recently downgraded the entire group of European multinational pharmaceutical companies — AstraZeneca, Bayer, GlaxoSmithKline, Novartis, Novo Nordisk and Roche — in a report, titled “An Avalanche of Risk ? “Downgrading to Cautious.” The analysts wrote: “The operating environment for pharma is worsening rapidly.”

“This is panic time, this is truly panic time for the industry,” said Kenneth I. Kaitin, director of the Center for the Study of Drug Development at Tufts University in Medford, Mass. “I don’t think there’s a company out there that doesn’t realize they don’t have enough products in the pipeline or the portfolio, don’t have enough revenue to sustain their research and development.” (CBS News).

R & D costs will rise, mainly because of patent applications and the Clinical Trials Directive.

Drug approvals in the US and Europe have become subject to delays, rising requests for further clinical data, and greater chances of rejection. The result is an increase on R&D expenditures, in the hope of more approvable drug applications, despite hard financial pressures in the industry.

Directive 2001/20/EC, the so-called Clinical Trials Directive, is the major cause of administrative and regulatory constraints in several EU countries, raising the cost of academic clinical research and making it even impossible to conduct certain studies; one may add that patent applications are more complicated to complete and protect, leading the industry to exploit new active principles, instead of developing existing ones.

Transparency rules on promotional expenditure with healthcare stakeholders, set the end of the blockbuster drugs nostalgic days, and the vanishing of some of the related marketing procedures, which, notwithstanding the huge profits they generated, are definitely not accepted any longer. Europe is now in the spotlight with new regulations - for instance, the UK Bribery Act and forthcoming amendments to the Association of the British Pharmaceutical Industry (ABPI) code of conduct.

The concept of value-based price for drugs will affect variations among major markets such as France, Germany, Italy, and Spain, not forgetting its introduction in the United Kingdom.

And, what started as the “ Generics gold mine” is currently proving to be of little help; the spread of generic drugs is now a rule on many primary care markets in most European countries; one may argue that there is room for growth potential, in growing markets like China - which is emerging this year as the third-largest Pharmaceuticals market, but plans to cut hundreds of drug prices.

Generic drugs have another “price”, this one for patients – there will be less research, and if we couple it with all the revenue losses about to take place, it might present itself as threat in the not so long run.

Moving on to counterfeiting, “The 'Pharmaceutical Package', is the popular name for a series of measures proposed by the European Commission andcontains three important initiatives:

- a proposal for a directive on how to modernise Pharmacovigilance in order to improve medicine-safety;

- a proposal to improve patient safety by reducing the infiltration of counterfeit medicines into the supply chain; and

- a directive on the future direction of the supply of healthinformation to patients” (quoting EPFIA).

All measures are to be effective in two years time.

Counterfeiting proved the weakness of the Supply Chain ; the Directive also sets out provisions covering internet sales - however, the reality is that not only can those selling channels not be closed, but counterfeited lifesaving drugs can actually be found in the legitimate supply chain as well. This means additional costs as it will imply a new process of coding, a “pan-European system to provide unique serial numbers on each genuine medicine pack/ repack” (quoting EPFIA); but it goes further, because, together with new improvements on the supply chain, there is a need to implement new technologies regarding the cold chain.

This represents great expense to all pharmaceutical industries and pharmaceutical allies, to be met by partnership between manufacturers, logistics providers and wholesalers, to ensure simplicity throughout the cold chain process. Furthermore, each new change will have to bear the “green” stamp, towards a more sustainable environment, with the related additional charges.

The cold chain distribution is imperative: " Based on projected market growth rates, 7 of the top 10 global pharma products in 2014 will require cold-chain handling."(Pharmaceutical Commerce).

Speaking from my own expertise, I should mention that some Portuguese suppliers are true pioneers in this area.

New regulations are also targeting herbal drugs, most of which will be banned from Europe this year; in Portugal, since 2009, some herbal drugs have already been placed as “run out of stock”, although one could still buy them in Spain, just because they did not meet the required analytical standards for retesting, and the manufacturers did not want to make any extra investments - which now appears to have been a wise decision.

It’s clear that the pharmaceutical landscape will see some dramatic changes over the coming years. At Pharma IQ we will keep you posted.

Cristina Falcão

Lawyer (1992-current), and Pharmaceutical Manager /Chief Science Officer/ Change Manager (2003 – current)

Links to quotations: http://www.efpia.eu/content/default.asp?PageID=574 (EPFIA) http://www.pharmaceuticalcommerce.com/frontEnd/1420-biopharma_cold_chain_sourcebook_logistics_biishara_basta.html (Pharmaceutical Commerce) http://www.fiercepharma.com/story/hurricane-patent-losses-hitting-big-pharma/2011-03-07 (Morgan Stanley, “An Avalanche of Risk? “Downgrading to Cautious.”) http://www.cbsnews.com/stories/2011/03/10/business/main20041502.shtml (“This is panic time, this is truly panic time for the industry,” said Kenneth I. Kaitin)

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