With ‘blockbuster’ patents expiring and the branded drugs market slowing Victoria Buyer reveals the special relationship set to reinvigorate pharma’s winning formulae.
In 2011 the brand is king. In the words of Amazon founder and retail billionaire Jeff Bezos: “A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well.” Put in a pharma context, “doing the hard things” translates into innovation – developing a product that meets previously unmet needs, or doing it better than competitors. But as the proportion of unchartered territory in the pharma world dwindles, sustaining innovation will demand lateral thinking, creativity and, a fresh approach to collaboration.
Big pharma relies on the ability to develop a succession of original solutions to the world’s physiological ills and quickly establish brand loyalty before patents run out. Evidence has shown this approach pays and blockbusters in the drug stakes, Pfizer’s cholesterol drug Lipitor and the anti-clotting medication Plavix from sanofi aventis, both generated collective sales of more than £13 billion.
But 2011’s ‘patent cliff’ is fast approaching as some of the biggest brands come off patent and generic alternatives waiting in the wings will enter the market. With Lipitor’s patent due to expire in June this year, with a looming predicted loss of $10 billion per year and Plavix following close behind in 2011, the two medication mega-brands are challenged to go back to the drawing board and come up with the next big thing to sustain profits, share values and brand equity.
For now, branded drugs remain on top, but trend-watchers agree it’s unlikely to last. Datamonitor reported in January this year that growth in the UK branded drugs market would slow to just 1.3% between now and 2015, in contrast with a 7.1% CAGR between ’03 and ’09. Datamonitor analyst Simon King hit the nail on the head: “The difficulty in developing new products, particularly those that can generate sufficient sales to compensate for blockbuster expiries, has compounded this problem [of patent expiry].”
The declining cost: value ratio associated with developing new drugs is evident, with the world’s big drug brands reducing investment in R&D – highlighted by Pfizer’s announcement to close its R&D facility in Sandwich. To some extent, pharma’s success is also the cause of the current challenge. In a crowded area of the market where choice abounds, regulators can crack down on new and ‘popular’ drugs’ side effects, safe in the knowledge that prescribers have an alternative. Pharma has successfully mined the lucrative ‘easy wins’ in new product development (NPD) – those drugs designed for broad use to treat common, less life-threatening conditions, but arguably more susceptible to recalls. In contrast, ‘niche’ drugs, which are prescribed to treat less common and/or more serious conditions, come with specific restrictions on their use.
This puts in place greater control and arguably meets a more critical medical need, making recalls less likely. As a result of the rising cost of innovation in the competitive mainstream market and a higher risk of recall with blockbuster drugs, the old adage ‘speculate to accumulate’ is becoming less appealing to the executive board.
The need for a niche
Much as in the FMCG world, a bespoke approach will rule in pharma in the coming years. Specials are enjoying a steady increase in sales volume, a trend set to continue as the ageing population grows. Commonly, swallowing difficulties, which are widespread among the elderly, are the reason behind patients’ need for specials. With the population living longer on average, thanks to the sophistication of drugs at our disposal, the specials market is one to watch. Interestingly, the success of mainstream pharma is ensuring the longevity of its unlicensed ‘little sister’ sector.
But as the population’s lifespan grows, how can the pharma industry secure its own longevity? One solution is to form development partnerships. Targeted collaboration with other links in the supply chain such as specials manufacturers to develop a niche offering will help boost pharma’s financial health twofold; put simply, it’s a way of making more and spending less.
Why reinvent the wheel?
With the R&D investment strangling returns in some therapeutic areas such as cardiology, which requires extensive clinical trials, developing a brand new drug independently will become less and less financially viable. However, reformulating existing drugs to change the delivery system, even before the patent elapses, offers pharma firms an opportunity to innovate without reinventing the wheel. It’s a trend that has proven both lucrative and effective by increasing compliance, such as with the development of nicotine patches as opposed to gum or tablets.
The specials industry is built on taking clinically effective branded products and ‘adjusting’ the format or formulation for patients for whom ‘one size fits all’ doesn’t work. While much of specials manufacturing is bespoke, there are clear trends that mainstream pharma companies could capitalise on. For instance, Quantum Pharmaceutical receives an average of 32 requests per month for Lipitor Oral suspension Atorvastatin, a demand that could be satisfied by pharma and specials manufacturers working in partnership. Clearly, demand for unlicensed or niche medicines is driven first and foremost by a clinical need diagnosed by an approved medical practitioner. However, patient choice also plays a role as compliance becomes more and more crucial.
Sharing risk and reward
Even reformulating a branded product to create a liquid equivalent incurs a heavy R&D cost. But pharma manufacturers have the option of collaborating with a specials manufacturer or supplier who is already familiar with the process. This would make R&D more economical and increase speed to market, and with the prospect of a commercial incentive such as an exclusive supplier agreement in return. In essence, the opportunity exists for a specials manufacturer to reformulate a licensed product on behalf of the brand owner, before passing it back to the brand to extend its licence.
Cutting the cost of creativity
In the past few years, exclusivity has been the order of the day for pharma companies looking to distribute their products. In 2007, Pfizer opted to supply its products only via Unichem, creating a ripple of discontent among customers who were concerned about the risk of product shortages and the threat of monopolistic price hikes.
Although considered anti-competitive by many, the perks for Pfizer were clear; major savings on distribution and export costs by dealing with a single wholesaler, a reduction in re-wholesaling that could dilute standards of service and brand value. Above all, the promise of a one-stop shop offering customers seamless service, easy ordering and traceability.
Well connected specials suppliers like Quantum Pharmaceutical offer an equally attractive proposition for manufacturers looking to simplify their supply chain without impacting accessibility. Partnering with unlicensed medicine manufacturers is an as-yet untapped opportunity for pharma to take advantage of long standing loyalty from pharmacists and ensure a personal, trackable and single source of supply.
There are few parallels to be found between pharma and the ailing public sector, but the impetus to save is common to both. With 11 out of 43 branded pharma companies predicted to experience negative growth in the next four years, the motivation to trim the fat is clear. And for pharma and the public sector alike, sticking to what they do best and outsourcing the rest is a proven formula for increased profitability.
In the pharma context, compounding products in small quantities is both costly – in terms of maintaining the required aseptic facilities – and time consuming, be it for the purpose of clinical trial activity, or in order to change a formulation for improved efficacy when gaining licence to use a patented product off-label. Specials suppliers however, are designed specifically to small batches of product, and so offer pharma companies a cost-effective alternative to doing this all in-house.
A winning formula
The NPD cycle is a roller coaster ride for the pharma industry. But gone are the days when lows were automatically followed by highs. Pfizer and Roche each have two products in the top-sellers leader board, but how long can the same formula continue to create strong returns?
Continued innovation is only sustainable if brands are willing to diversify and establish development partners to add value and gain every drop of success from each innovation. Rather than being on the outside looking in, the unlicensed medicine industry is an untapped asset for pharma as it adapts to the new NPD agenda. Strategic collaboration is the route to creating tomorrow’s blockbuster drug and securing brands’ continued success.
Victoria Buyer is the Commercial Director for Quantum Pharmaceutical, a UK-based firm supplying pharmacies, chemists, dispensing doctors and hospitals with tailor-made medicines to meet individual needs.