Pharma’s evolution: From blockbusters and biologics to branded generics, medical devices and functional foods
Luca Crippa of Bayer Pharmaceuticals on the new opportunities for pharma in biologics, branded generics, medical devices and functional foods
By on Jun 6, 2011Between the late 18th and early 19th centuries, the chemical industry, particularly in Germany, introduced the first synthetic pharmaceutical products.
Aspirin and Prontosil (sulfamide) are two of the best known examples, both created on the banks of the Rhine by Bayer.
The pharmaceutical industry as we know it, however, was created only after World War II.
For 60 years, it has been responsible for innovations that have allowed us to take unprecedented leaps forward in terms of length and quality of life.
For 60 years, the pharma business model has been supported by increased access to healthcare in developed countries and by huge unfilled therapeutic needs, which led to the blockbuster model of high-volume sales.
As we all know, the blockbuster model is broken as patents start to expire.
Until recently, the introduction of new and improved molecules permitted the industry to bridge the patent cliff with new products.
In the last few years, though, increases in the cost and length of R&D, the rise of generics, and tightening of government reimbursement policies has caused a negative spiral that has led to less and less research in therapeutic areas where generics are already available.
New opportunities
Antibiotics are a case in point. Tighter reimbursement policies produce strong economic benefits for governments, but perhaps only for a short time.
Bacteria evolve and develop resistance. If a super-resistant bacterium causes an epidemic in 10 years, cost savings would be gone within a few months because new drugs would be needed anyway.
Moreover, it could well take too long to develop the necessary new products, which would lead to more illness and even higher costs.
These dynamics represent a challenge for the pharmaceutical industry.
But socioeconomic trends, such as increased life spans and increased access to treatments in developing countries, constitute a huge opportunity.
The strategies needed to capitalize on these opportunities are, however, different from those of the past.
The industry will have to evolve, in some cases in dramatic ways.
As in nature, there will be evolution through natural selection.
In a very short time, our dinosaurs—the blockbusters—will disappear. The asteroid that wipes them out will be the patent cliff. (For more on the death of blockbusters, see ‘Patent expiration: Innovate or die’.)
The disappearance of blockbusters will establish ideal conditions for the development of new species, which will be smaller but smarter and more efficient—biological products and branded generics.
Compared to blockbusters, the former have much smaller sales volumes and the latter have much smaller margins, but both have a greater ability to adapt and diversify.
The case for biologics
In developed countries, biological products will have a high potential for reimbursement and use.
Moreover, the fact that the efficacy of biopharmaceuticals is linked to the quality of production method constitutes a strong barrier to entry for low-quality generics.
Only big international groups will be able to guarantee quality generic copies, or biosimilars.
These dynamics will confer long-term sustainability to business models, providing the necessary foundation for ongoing R&D.
Roche, Novartis, Teva, Merck, Bristol, and other companies are strongly moving in this direction. (For more on the business case for biologics, see ‘Dr. Bates Talkback: How to mount an effective defense against generics’.)
This approach is very close to personalized medicine, the development of methods to identify the best products for certain categories of patients, such as the use of anti-tumor products in patients with certain genetic characteristics, of which Roche’s Herceptin is an example. (For more on personalized medicine, see ‘Personalized medicine: A kick-start for innovation?’.)
In developing countries, where the focus is on primary care therapies, as well as in “Latin” countries, including Italy and Spain, and other “high branded countries” like Switzerland, branded generics have a high potential for success.
In these countries, having a strong brand—Bayer, Astra Zeneca, Glaxo, or Pfizer, for example—constitutes a guarantee of quality and reliability compared to commodities generics produced by local companies, which sometimes have problems with quality and counterfeiting.
This type of business has lower margins and is driven by volume.
To be successful, critical mass, portfolio synergies, and the use of OTC-like strategies are very important.
Sanofi’s strategic acquisition of several generics companies as well as a large OTC producer and Genzyme signal that a diversified model of biologics and branded generics/OTC could be the way forward.
TEVA’s and Sandoz/Novartis’ investments in biosimilars, branded generics, and OTC are other signs. (For more on biosimilars, see ‘Forecasting the future of biosimilars’.)
Diversify, diversify, diversify
Diversification can go even further, perhaps toward OTC, functional food, and medical devices.
The medical devices sector presents many unexploited synergies with the pharmaceutical industry.
Boston Scientific’s defibrillators, Medtronic’s catheters, St. Jude’s pacemakers, or Stryker’s spine implants would fit perfectly in a wider portfolio strategy of a healthcare company with a strong presence in cardiology or anticoagulation.
Conversely, the pharma industry’s expertise in market access, global stakeholder management, and partnering with pharmacies and distributors could benefit the medical devices industry, which up to now has evolved in a highly protected and isolated environment.
These new environmental conditions will promote the appearance of completely new species, like the functional food industry.
Danone and Nestle are already heavily investing in this area.
Governments increasingly expect people to play a more active role in keeping healthy, and they expect them to cover part of the bill for better health.
Empowered patients have more access to information and make more healthcare decisions on their own.
This is ideal for new products like yogurt with natural lipid-lowering agents, milk with omega 3s, or other functional food products.
Functional food could be an area for strong brands; the sector has lower margins than pharma’s patent-protected products but much higher margins compared to the conventional food industry.
An important variable is deregulation and the fact that the borderline between functional food and drug is not clear.
Governments may look into the sector as it gains popularity.
Despite the challenges—or maybe because of them—pharma will become a better business: more diversified, less hectic, and more oriented toward the long term.
Luca Crippa is head of global marketing Aspirin Cardio at Bayer Pharmaceuticals in Berlin. He is soon to take up a new role as country head of BayerPharmaceuticals in Croatia. He is happy to discuss these topics further and can be contacted trough LinkedIn. He recently presented on these new dynamics at the SFE and Commercial Excellence meeting in Dusseldorf.
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