France is Europe’s biggest importer and exporter of medical devices. However, current reforms are driving cost reduction and efficiencies. Medtech Business in association with Espicom takes a look at the French market for medical technologies.

France is one of the top five medical device markets in the world, accounting for around 3.9% of the global market.* Within Europe, the market ranks behind Germany and is a similar size to that of the UK.

The country has a well-developed healthcare system, combining public hospitals with commercial clinics that are the main providers of elective surgical treatment. While the public sector is the largest purchaser of most diagnostic and therapeutic equipment, the private sector is the dominant purchaser of surgical equipment and supplies.

The high level of healthcare expenditure (11.8% of GDP) and the substantial health deficit are major concerns that have prompted various reform programmes aimed at curtailing costs and improving efficiency in the healthcare system. For this reason, the medical market is only likely to see moderate growth, rising from US$8.3 billion in 2011 to US$9.8 billion by 2016.

Despite several high-profile investment programmes, France continues to lag behind its European neighbours in some high-technology fields, most notably imaging and radiotherapy equipment. A second five-year cancer plan has now been launched which aims to increase the numbers of scanners.

With flagging domestic production in several sectors the French medical device market is increasingly reliant upon imports, which now account for around 80% of consumption. However, many imported products are re-exported to other countries.

 

The market in 2011

In 2011, the French medical device market (see Figure 1) is valued at US$8,280 million. Consumables is the largest product category, accounting for 20.9% of the overall market, followed by diagnostic imaging (19.8%).

Espicom estimates that the medical device market will grow at an average annual growth rate of 3.5% between 2011 and 2016 – bringing the total market value to US$9.8 billion by 2016.

Orthopaedic and prosthetic devices are expected to continue to be the most dynamic sector of the market, with growth forecast to be more than double the rate for the overall market. Conversely, diagnostic imaging is forecast to have the lowest growth during the 2011–16 period.

 

Predictions for market segments

Figure 2 shows Espicom’s predictions for the major segments of the medical device market.

1. Consumables. The market for medical consumables is estimated at US$1,729 million. The consumables market grew at an annual rate of 5.1% in US dollar terms between 2006 and 2010. Imports supply the greater part of the market. Espicom estimates the consumables market will continue to grow by an average of 3.5% over the next few years.

The wound care products market is forecast to grow at an average annual rate of 2.9% in US dollar terms during the 2011–16 period. Syringes, needles & catheters has been the fastest growing sector of the consumables market and will continue to be, with a CAGR of 4.1% to 2016.

2. Diagnostic imaging apparatus. The market for diagnostic imaging is estimated at US$1,636 million. The market grew at an annual rate of 2.8% between 2006 and 2010. France lags behind its European neighbours in the diagnostic imaging field, though the second cancer plan aims to increase provision of MRI, CT and PET scanners.

Imports supply the greater part of the market, though their market share is lower for radiation apparatus due to the strength of the domestic manufacturing industry. The USA and Germany are the major sources of supply. Espicom estimates that the imaging market will grow by an average of 2.1% between 2011 and 2016.

3. Dental products. The market for dental products is estimated at US$859 million, equal to 10.4% of the total medical device market. The dental products market grew at an annual rate of 4.2% between 2006 and 2010. It is forecast to grow at an annual rate of 3.5% over the next few years, taking the total to US$1,020 million by 2016.

4. Orthopaedic & prosthetic devices. The market for orthopaedic & prosthetic devices is estimated at US$1,336 million, equal to 16.1% of the total medical device market. The orthopaedic & prosthetic devices market grew at an annual rate of 9.2% between 2006 and 2010.

Imports have seen particularly high growth in recent years, though a corresponding increase in exports in this sector indicates that not all imported products are destined for the domestic market. The majority of orthopaedic imports are supplied by Switzerland and the USA.

The orthopaedic & prosthetic devices market is forecast to grow at an annual rate of 6.1% in US dollars over the next few years, taking the total to US$1,794 million by 2016.

5. Patient aids. The market for patient aids is estimated at US$1,131 million, equal to 13.7% of the total medical device market. The patient aids market grew at an annual rate of 4.5% between 2006 and 2010.

French imports of patient aids far exceed the value of the domestic market due to a high level of re-export activity, particularly for pacemakers. Switzerland and the USA are the leading suppliers of portable aids, whilst the USA and China are the major sources of supply for therapeutic appliances.

The patient aids market is forecast to grow at an annual rate of 3.9% over the next few years, taking the total to US$1,367 million by 2016.

 

Imports

The value of French medical device imports has recorded a steady rise over the past decade, reaching US$10.4 billion in 2008 before falling back to US$10.3 billion in 2009.

Imports of consumable items amounted to US$1,780.6 million in 2009. Imports fell by 1.0% over 2008 in US dollar terms (though they increased in euro terms). Syringes, needles, catheters & cannulae are the largest subcategory.

Diagnostic imaging imports totalled US$1,564.0 million in 2009, equal to 15.2% of the total. This was the weakest performing category in 2009, with a fall of 16.4%.

Imports of orthopaedic & prosthetic devices were worth US$1,549.1 million in 2009, equal to 15.1% of total medical device imports. This was the fastest growing category in 2009, with a rise of 26.6%. All three subcategories – artificial joints, orthopaedic appliances and other artificial body parts – recorded strong growth.

Patient aids are the largest import category, with imports worth US$2,624.1 million in 2009, equal to 25.5% of total medical device imports. Pacemakers accounted for 54.7% of imports in this category in 2009, but also accounted for more than half of patient aid exports.

The leading suppliers of French medical imports in 2009 were the USA, Switzerland and Belgium, with the UK ranking eighth as a supplier with imports worth US$288,964 (2.8% of the total).

 

Exports

In 2009, medical device exports registered a 3.0% fall in value to US$9.2 billion, having recorded steady growth in previous years with a CAGR of 6.8% for the 2005–2009 period.

In 2009, 69.5% of all French medical device exports were sent to the rest of the EU, with the Netherlands taking a 17.6% share, followed by Germany with 14.4%. The UK took 6.6% of French medical device exports.

Outside Europe, the leading destination is the USA, which accounted for 9.1% of exports. The USA is the leading destination for French exports of diagnostic imaging apparatus.

Next month, Medtech Business will look at the medical technologies market in Germany.

This article is based on information from Medical Market Outlook reports published quarterly by Espicom Business Intelligence. *All figures are in US $. For further details of the 66 markets covered, please visit www.espicom.com/outlookm1

Ernest Waaser, new CEO of global wound care company Systagenix, talks to Medtech Business about the importance of helping clinicians to address the challenge of wound healing across a range of care environments.

Ernest Waaser is the recently appointed CEO of wound care company Systagenix, based in the UK. Formed in 2008 through a buyout of Johnson & Johnson’s advanced wound care business, Systagenix supplies wound dressings to over 100 countries. The recent launch of its ‘Let’s Heal’ brand shows the company addressing the wound management and healing process proactively across primary, secondary and home-based care environments.

What prompted the launch of Systagenix in 2008: what opportunity did the company’s founders identify?
When our investors looked at the business back in 2008 they saw a strong existing business that, with the right focus and strategic investments, had a terrific opportunity to grow. The business had a 75-year heritage, a world-class R&D capability, and a strong reputation in wound care – a clinical area that’s continuing to grow with the ageing population and the increase in diabetes and obesity. It was part of a very large diversified company where it had to fight for investment and resources against other businesses. So by creating a stand-alone company that’s solely focused on wound care, we can be much more responsive to the needs of the market, make those strategic investments and bring real innovation to the world of wound care.

What is the thinking behind the ‘Let’s Heal’ brand?
What has it achieved for the company and for the industry? There are two basic beliefs behind the brand. First, we believe passionately that the goal is wound healing, not wound management. And in today’s practice, too often companies focus on managing individual symptoms in isolation from each other, rather than tackling the whole wound healing process as a continuum. Second, we recognise that there’s no single product or device that will heal every wound. Each patient and each wound is different, and there may be many reasons why a wound is not healing: the patient may have an infection or a high protease level, or a venous insufficiency, or any one of several other underlying illnesses or complications.

So our objective is to take a more holistic approach, to put a system in place, starting with diagnostic tools and leading on to the proper treatment for that wound in that patient. ‘Let’s Heal’ is our approach to providing a range of treatment options and a systematic approach to when to use each product. The huge innovation here is to start that whole process with point of care diagnostics that will provide immediate feedback on the status of the wound, which the clinician then uses to help select the appropriate treatment. ‘Let’s Test’ is our Systagenix umbrella for future wound diagnostics and assessment products, and that’s the entry point for our overall system of care.

Systagenix has particularly focused on treating hard to heal acute and chronic wounds. How are you trying to change the way these wounds are perceived?
The first perception we’re trying to change is that some patients must live with a wound. Our objective is that every wound should be healed, and we think every patient deserves that. Managing life with a wound is not in our vocabulary.

The second thing we’re trying to bring visibility to is that hard to heal wounds are not only affecting the patient’s quality of life, but are very expensive for the healthcare system. In many countries wound care is done partly in hospital, partly in an outpatient setting and partly at home, so the costs are spread around and the total cost tends not to be visible to healthcare administrators. The product that’s used to treat the wound is a small part of the cost: there’s hospitalisation, physician time, multiple home nurse visits, and the very real cost of complications ranging from infections to amputation.

There haven’t been many large-scale economic studies, but the evidence is pretty clear that the faster you get a wound healed, the lower the overall cost to the health system. That really is the focus of our ‘Let’s Heal’ approach: to eliminate trial and error, using point of care diagnostics to get the right treatment started immediately and shorten the overall healing time and cost.

How does that strategy work at the sales and marketing level?
Wound care is a clinical process that is spread not only across different care settings –  hospital, home, clinic – but also across a number of clinical specialties that treat wounds: vascular surgeons, podiatrists, general surgeons and others. One leading international clinician told me that wound care is a team sport. So part of what we do from a sales and marketing point of view is to try and bring these various clinical specialties and different types of clinicians together, to take a look at how the overall care process can be improved.

For example, we recently brought an international group of key opinion leaders together who issued an international consensus document on the use of a diagnostic in wound care to detect high protease levels, which are a known inhibitor to wound healing. They are putting the ground work in place to establish the need for that diagnostic test and determine how it should be used in clinical practice. This element of bringing the clinical community together to look holistically at how we can help them and provide them with the right tools to diagnose and heal wounds is an important part of the marketing effort for us.

How are current changes in the NHS landscape affecting the UK market for wound care companies?
We really haven’t seen the major impacts just yet. Obviously the NHS will be incredibly focused on delivering high-quality care at the lowest possible cost. I think our challenge as a sector is to demonstrate very clearly that our products and services can materially lower the cost of wound care: faster healing, fewer visits and fewer complications. I think as we go forward and the landscape continues to change, we’ll monitor that carefully and adjust as we need to.

What are the major business challenges facing UK wound care companies seeking to export to global markets?
I’d point out three challenges. The first is regulatory. Our products are covered under medical device and/or pharmaceutical regulations in every country they’re sold in, and once you get outside the EU they’re all different. The second is reimbursement. Just because you have regulatory approval doesn’t necessarily mean you can get paid for the product. The reimbursement systems are different in literally every country in the word. So those two issues, regulatory and reimbursement, require the combination of a fairly sophisticated infrastructure with the right skills and expertise and good local partners in your export markets. And finally, you really have to tailor your offering to local needs, taking into account local clinical practice and pricing expectations.

What do wound care companies need to do to address the clinical and commercial challenges of healthcare in the 21st century?
21st-century healthcare is all about finding more cost-effective ways to deliver high-quality care to a growing population of patients. As an industry we need to help clinicians in wound care get the right treatment to the right patient quickly and avoid much of the costly trial and error process that exists today. That requires thinking about innovation in a different way, looking not only at your product but at the overall process for treating a patient.

Oncology drugs are likely to rise to the second or third largest trend-driving category by 2015, a new report has revealed.

The 2011 Medco Drug Trend Report estimates that expensive new cancer drugs may increase spending on oncology products by as much as 15% a year until the end of 2013.

Dr Glen Stettin, Medco’s Chief Medical Officer, says that new cancer drugs reaching the market are “expected to double during the next several years”.

The incidence of certain types of cancer is decreasing, despite the overall number of cancer cases increasing significantly, the report says. But due to advanced treatments, the number of US cancer survivors is expected to increase by almost a third (30%) – from 13.8 million in 2010 up to 18 million a decade later.

This increase has – and will – heighten the demand for oncology speciality drugs which already increased by 6.7% last year, according to the report, due to treatments such as Revlimid (lenalidomide), for multiple myeloma, and Gleevec (imatinib mesylate), for chronic myeloid leukaemia and gastrointestinal stromal tumours.

Following the introduction speciality drugs entering the market, cancer drug inflation surged to 11.5% during 2010. The price hike now means that more than 90% of anti-cancer drugs approved since 2004 cost more than $20,000 for a 12-week course of therapy, according to the Journal of the National Cancer Institute.

The report also found that more than 71% of the prescription drugs dispensed last year were for generics. Non-branded drugs had a small inflation rate of 0.5% and assisted as a lever to control overall prescription costs during 2010.

For the fourth year in a row, diabetes medicines were again the largest therapeutic category of drugs for driving overall spending growth. The large number of patients contributed to an increase of almost 17% of the overall growth in drug spending last year.

“Demand for these diabetes drugs as a category remains unabated as America struggles with what has become a worldwide epidemic,” said Dr Stettin.

“The number of people in the US being treated for diabetes is expected to increase from nearly 25 million today to 44 million by 2035. Lifestyle changes, especially diet and exercise, need to be emphasised in order to address the financial and health care burden brought about by this disease.”

Respiratory, rheumatological, neurological and ADHD drugs were other key categories for driving growth last year.

Global spending on medicines is expected to grow at a slower rate by 2015, a new report issued by the IMS Institute predicts.

The Global Use of Medicines: Outlook Through 2015 expects growth to reduce to between 3% and 6% by the end of 2015 as a result of slow US sales and patent expiries.

Murray Aitken, Executive Director, IMS Institute for Healthcare Informatics, says future spending levels have “striking implications” for healthcare and past patterns offer “few clues” to future trends.

The global amount spent on medicine has been increasing by an average of 6.2% over the last five years and is expected to reach $1.1 trillion by the end of 2015.

The report found that by the end of 2015, current leading branded medicine will have a progressively smaller share of the market. In 2005, approximately 70% of drug spending was on branded products. But the market share is expected to drop to 53% in the space of a decade.

The impact of patent expiries in developed markets will see payers save $98 billion, with the US in particular expected to see a huge expansion in generic spending.

Health policies throughout the world are also expected to have a major impact, as governments look to reduce the amount they spend on healthcare.

Emerging markets – known as pharmerging markets – are also expected to overtake those of Germany, France, Italy, Spain and the UK by 2015.

“There are unprecedented dynamics at play, which are driving rapid shifts in the mix of spending by patients and payers between branded products and generics, and across both developed and pharmerging markets,” said Murray Aitken.

The IMS Institute also predicts that oncology will still be the leading therapy class by 2015, although growth will also slow to between 5% and 8%. Acceleration will also slow in asthma and COPD treatments to between 2% and 5% with sales of lipid regulators also expected to drop from $37 billion in 2010 to $31 billion. Although the news is more positive for diabetes treatments, with new oral antidiabetic agents boosting growth from 4% to 7%.

The global market for pharmaceuticals is expected to grow nearly $300 billion over the next five years, reaching $1.1 trillion in 2014, says IMS Health.

The market analysts predict a global growth rate of 5-8% during this time, due to the impact of leading products losing patent protection in developed markets, as well as strong overall growth in the world's emerging countries.

However, the forecast is worsening for the UK market, where IMS estimates annual growth will drop from 3.2% in 2009, to 1-1.7% between 2010 and 2014.

These conclusions are included in the latest release of IMS Market Prognosis, the company's series of strategic market forecasting publications.

Global pharma sales growth of 4-6% is expected this year, consistent with IMS's prior forecast. In 2009, the market grew 7.0% to $837 billion, compared with a 4.8% growth rate in 2008.

“Patient demand for pharmaceuticals will remain robust, despite the ongoing effects of the economic downturn being felt in many parts of the world,” said IMS's Murray Aitken, Senior Vice President, Healthcare Insight. “In developed markets with publicly funded healthcare plans, pressure by payers to curb drug spending growth will only intensify, but that will be more than offset by the ongoing, rapid expansion of demand in the pharmerging markets.

“Net growth over the next five years is expected to be strong – even as the industry faces the peak years of patent expiries for innovative drugs introduced 10-15 years ago and subsequent entry of lower-cost generic alternatives.”

Key drivers

In its analysis, IMS identifies several key market dynamics.

• Pharmerging markets – IMS predicts pharmerging markets will grow at a pace of 14-17% through to 2014, while major developed markets will grow at just 3-6%. The US is expected to remain the single largest market, with 3-6% growth annually in the next five years and reaching $360-390 billion in 2014, up from $300 billion in 2009.
• Therapy areas – Due to the wide availability of low-cost generics in many chronic therapy areas, R&D focus will switch to areas where there is significant unmet clinical need, high-cost burden of disease and innovative science that can bring new treatment options. In oncology, diabetes, multiple sclerosis and HIV, annual growth is expected to exceed 10% through to 2014 as new drugs are brought to market, patient access is expanded and funding is redirected from other areas.
• Spending cuts – Under increased pressure to save money, countries with publicly-funded healthcare systems may seek to cut spending on medicines. Turkey, Spain, Germany and France, as well as others, have already announced plans to apply across-the-board restrictions on access or reductions in reimbursements.
• The generic threat – Over the next five years, products with sales of more than $142 billion are expected to face generic competition in major developed markets. The impact of this shift to generics in major therapy areas such as cholesterol regulators, antipsychotics and anti-ulcerants will reduce total drug spending by about $80–100 billion worldwide through to 2014. This will particularly impact the US, where six blockbuster products are expected to hit patent expiry in 2011-2012.
• Rigorous assessment – The number of new molecular entities launched annually over the next five years is expected to remain in the range of 30 to 35 products. However, these will be subject to more rigorous and complex assessments by payers before being accepted and reimbursed. As funding and implementation of healthcare at regional or local levels becomes more significant, the time it takes for new medicines to be made available will extend.

Aitken added: “The expected global economic recovery removes an element of uncertainty for the industry over the next five years, although the way payers address lingering budget deficits will remain an issue in many markets. Health system reforms, such as those to be implemented in the US, can spur fundamental change in the market – but the full impact may not be felt until the latter half of this decade.”

Leading up to 2020, IMS forecasts a continuing shift toward biopharmaceuticals, specialty-driven products, and changes in the mix of disease areas of interest.

IMS Market Prognosis offerings are subscription-based, strategic market forecasting publications that provide unparalleled insights into the economic and political issues affecting the pharmaceutical and healthcare industries. Based on a rigorous evaluation of the key events affecting the marketplace, IMS Market Prognosis provides a five-year forecast at the country, regional and global level.

The pharma industry’s salesforce will be replaced by a new model over the next ten years as the industry shifts from a mass-market to a target-market approach, according to a recent report by PricewaterhouseCoopers (PwC).

The pharmaceutical industry’s current sales and marketing model will no longer be practical as the industry is forced to change its approach in response to market pressures, industry analyst PricewaterhouseCoopers (PwC) has claimed.

According to the report Pharma 2020: Marketing the Future, the industry will have to shift its focus from simply ‘pushing pills’ to demonstrating through products and services that it can promote health, improve quality of life and reduce healthcare costs.

One in five doctors now refuses to see any sales representatives and returns on sales visits to doctors have declined in the developed world, the report states. There is increasing resistance from doctors and regulators and growing public scrutiny over the interaction between pharma companies and healthcare professionals.

Pharmaceutical manufacturers have responded with various cost-cutting measures so that by the end of 2008, PwC claims, big Pharma had announced plans to shed over 60,000 jobs globally, many of them in sales and marketing.

According to PwC, the pharma industry’s salesforce of the future will be dramatically smaller, more agile and require new skills. Tomorrow’s field force will need an education in science or health, greater understanding of specific complex diseases and the ability to negotiate with powerful payers and medical specialists. Its focus will no longer be just selling products, but better managing health outcomes through a full complement of health management services..
Steve Arlington, global pharmaceutical and life sciences advisory leader, PricewaterhouseCoopers, commented: “Products alone will no longer guarantee the pharmaceutical industry’s long-term future. The shortcomings of pharma’s current marketing and sales model can no longer be addressed by simply reducing the size of the sales force; the problems go deeper.

“If pharma succeeds in bringing bold, brave changes to the current model it will be in a much better position to ensure that the billions of dollars it invests in R&D are wisely spent, and eliminate the need to spend massive sums persuading increasingly sceptical doctors to prescribe medicines whose clinical superiority may be questionable. The pharma industry will be able to slash its expenditure on sales and marketing by selling products and services that the market will pay a premium price for.”

 

Balance of power shifting to payers

For years, pharmaceutical companies have decided what their products were worth and priced them accordingly, investing little effort in understanding the payer’s perspective or what the market was willing to buy. With healthcare costs rising, payers including governments and private insurers are becoming the ultimate arbiters of pricing and value, reimbursement and prescribing decisions.

There will have to be a stronger link between marketing and R&D, according to PwC. For many years, pharma firms have more or less ignored the payer’s perspective when developing medicines, with the result that just eight of the 27 new therapies launched in 2007 were the first of their kind. However, this is already beginning to change, as indicated by Novartis’ recent deal with NICE to pay the agency a consultancy fee for advising on the design of a Phase III trial to measure the efficacy and cost-effectiveness of a new drug. GlaxoSmithKline also recently took the step of giving government officials in the UK, France, Spain and Italy a say in deciding which of its pipeline compounds to progress.

The often contentious relationship and competing agendas that have long existed among pharma companies, payers and providers will end as pay-for-performance and comparative effectiveness analysis force them to work together for the common goal of improving health outcomes for the patient and demonstrating value for money. Pay-for-performance is already evident in the UK, in such reimbursement schemes as those employed by Johnson & Johnson for Velcade and Novartis for Lucentis. There are also now plans to extend this approach with a flexible pricing system that will better reflect the value of medicines.

 

Product portfolio to change

The current blockbuster model was designed to promote mass-market treatment of common diseases such as hypertension, diabetes, high cholesterol to primary care physicians. Sixty-five percent of these drugs are now sold generically in the US and 70% in Central and Eastern Europe. In the next ten years, only drugs considered truly innovative will be financially rewarded with a premium price.

Good medicines will no longer be enough in isolation. As the balance of power shifts to payers and patients, qualitative criteria – such as the extent to which a treatment makes a patient feel better, whether it allows them to return to work or reduces the cost of caring for them – will become increasingly important. Pharma companies will therefore have to collaborate with others in the healthcare arena to provide a range of products and services from which patients can pick, both to differentiate their offerings and preserve the value of their drugs. These may include services such as health screenings, compliance programmes, exercise facilities and nutritional advice.

Pharma companies that choose to focus on specialised medicines will gradually shift their product mix to include more biologics and medicines that are targeted to specific and more complex disease states.

Science is leading the pharma industry toward specialist medicine – highly effective therapies developed for specific complex conditions, developed in small doses and in need of refrigerated handling and storage. Specialised drugs are significantly more expensive, in some cases costing thousands for a single dosage or treatment. The global market for specialised medicines, which accounted for 44% of worldwide prescription drug spending in 2008, could be twice the size of the current market for all prescription drugs by 2020, according to PwC.

This change in focus to specialist therapies will require significant cultural and organisational changes. As these drugs are prescribed by specialists, rather than GPs, sales and marketing executives will need considerable scientific knowledge, as well as a clear grasp of the health economics involved, since the drugs will attract greater regulatory scrutiny due to their expense. A pharma company promoting these products will have to offer complimentary diagnostic and support services, appoint a smaller salesforce with greater knowledge and invest in patient education. However, the rewards will be a longer period of exclusivity and greater customer loyalty.

Regulatory harmonisation

The FDA and other leading regulatory agencies are exploring various new methods for assessing, approving and monitoring innovative medicines. While a single global regulatory body is unlikely, there may well be a common regulatory regime across pharmaceuticals, medical devices and diagnostics. Plus, more global regulatory harmony will make simultaneously multi-country launches routine.

By 2020, the launch of a new drug will become much more incremental. The big bang, big budget blockbuster launch will be replaced by a process in which clinical outcomes information is continuously disseminated in a series of much smaller waves. New medicines will be launched with ‘live licenses’, conditional on further in-life testing to substantiate their safety and efficacy in larger/different populations.

According to PwC, the future sales and marketing process must master each of these dynamics and synthethise them into a new system. Pharma companies will need to restructure their marketing functions accordingly, with the appointment of key account managers who will be responsible for collaborating with healthcare payers to shape the information doctors receive and provide hard proof that a product really is safer, more effective or more economical than its rivals before they add it to the formulary.

The shift to specialist medicines will require a greater focus on brand management to improve the longevity and value of products, closer working between sales and marketing and R&D, more use of professional networking sites to engage with patients and health professionals, and improved collection and sharing of information through ETM systems.

Simon Friend, global pharmaceutical and life sciences leader at PricewaterhouseCoopers, concluded: “In the past, the sales and marketing function shouted loud and jumped high to sell products. Soon, the imperative will be who can add the most value, not who can sell the most pills. The pharmaceutical companies that succeed in demonstrating value will be rewarded with a longer period of exclusivity, stronger financial health and greater loyalty to its brand. The challenge for pharmaceutical companies will be managing through the changes in their business model as the shift from blockbuster to specialised evolves over the next ten years.”

The report Pharma 2020: Marketing the Future is available at: www.pwc.co.uk/eng/publications/pharma_2020_marketing_the_future.html

Challenging times mean that companies can no longer ‘go it’ alone. To survive, pharma will have to move beyond treatments and collaborate with others in the healthcare arena to provide holistic solutions, suggests PricewaterhouseCoopers (PwC).

Even the largest pharmaceutical companies will soon need to step outside their sector and collaborate with other organisations, according to new research by PricewaterhouseCoopers (PwC).

Recently announced activity such as GSK and Pfizer’s new HIV-focused venture confirms that pharmaceutical companies are exploring new ways to collaborate. At the same time, a flurry of merger and acquisition (M&A) deals have been triggered – Roche/Genentech, Pfizer/Wyeth, GSK/Stiefel and Merck/Schering Plough. While M&A will continue, there are alternatives, such as collaboration, that PwC believes will actually be more flexible and value-enhancing in the long term.
PwC believes that the financial crisis may force many more companies into collaboration. In fact, the government’s response to the economic climate has allowed collaboration outside the pharma sector that would have been unthinkable before, such as waiving competition issues for mergers. Collaboration could address the current funding crisis for biotech firms but this requires an immediate response. Indeed, the pressure to change to new business models could come from outside the pharmaceutical sector, perhaps triggered by regulators, investors, and healthcare payers.

Collaboration is the key

There is plenty of evidence to suggest that there are significant benefits from a collaborative approach with longer-term aims. A study by the RAND Corporation estimated the financial savings from having 100% participation in disease management programmes for four diseases (asthma, chronic obstructive pulmonary disease, diabetes and congestive heart failure) in the US. They estimate the net savings to the health system to be $28bn (around 2% of total US health expenditure), with additional benefits to the economy in terms of working days saved.
Moreover, companies will need to move fast, because several non-pharmaceutical companies have already entered the arena. Vodafone has, for example, joined forces with Spanish telemedicine provider Medicronic Salud and device manufacturer Aerotel Medical Systems to offer a wireless home monitoring service. Similarly, Prudential is collaborating with Virgin Active Health Club to offer a critical illness policy that provides subsidised gym membership and rewards people who exercise regularly by reducing their premiums.
The changing face of the wider healthcare model and demands from different stakeholder communities, including the patient, will insist that pharmaceutical companies provide holistic solutions, not narrow treatments. In tomorrow’s world this means that pharmaceutical companies must work more with other parties. To do so they will have to ‘profit together’, by joining forces with a wide range of organisations, from academic institutions, hospitals and technology providers to companies offering compliance programmes, nutritional advice, stress management, physiotherapy, exercise facilities and health screening.

Profiting together

Although many companies were unsuccessful in establishing disease management programmes in the 1990s, the fact that collaboration will be necessary by 2020 and that the technological and cultural conditions now in place to facilitate this are key differences in today’s market.

Jo Pisani, Partner in the Pharmaceutical and Life Sciences practice at PricewaterhouseCoopers, commented: “In the future, collaboration will be a ‘do or die’ requirement for pharmaceutical companies and healthcare payers alike. Big Pharma’s traditional fully integrated business model enabled it to ‘profit alone’ successfully for many years. The top companies saw their market value soar 85-fold between 1985 and 2000. But this model is now under huge pressure and if not already broken, it is predicted that by 2020 it will not work.

“If the leading pharmaceutical companies cannot change their business models rapidly, other firms may ultimately feature more prominently on the healthcare scene than they themselves. The shift in the market and strategic importance of data and new technologies opens the door to new entrants to take a leading role, such as Google and Microsoft, data providers and companies with strong brand reputations that can be stretched such as GE Healthcare.”

The federated model

One business model the pharmaceutical industry may adopt is the federated model, whereby a company creates a network of separate entities with a common supporting infrastructure. These might include universities, hospitals, clinics, technology suppliers, data analysis firms and lifestyle service providers based in numerous countries. An example of this would be a federation to address cardiovascular disease. Here the federation could include drugs companies, clinics and diagnostics to provide diagnosis and treatment, but also nutritional advisors and stress management services to prevent disease. All the players would be rewarded based on patient-centred measures such as increased quality of life.

PwC have identified two variants of this model: a virtual version, where a company outsources most or all of its activities, and a venture version, where the company manages a portfolio of investments.

The fully diversified model

Another option is the fully diversified model, in which a company expands from its core business into the provision of related products and services, such as diagnostics and devices, generics, neutraceuticals and health management. Johnson & Johnson is pharma’s leading exponent of this approach, but Novartis, Roche and GSK are also starting to expand their offerings in a similar way.

This model enables companies to reduce their reliance on blockbuster medicines and spread their risk by moving into other areas of the market. It could also improve the corporate image of a company, by associating with more positive ‘wellness’ services. However, its disadvantages are that it requires a substantial investment in new equipment, premises and personnel, as well as major cultural changes towards providing services rather than products.

Industry evolution

Pharma has so far only focused on the 10-15% of the health budget that is spent on medicines, yet there are endless opportunities for profit from the remaining 85-90%, and this is where pharma will need to focus its attention by 2020.

Simon Friend, Global Pharmaceutical and Life Sciences Leader at PricewaterhouseCoopers, concluded: “Most large pharmaceutical companies use external contractors to supplement their in-house resources, but very few firms have taken the next step. Yet there is no reason why many companies could not outsource R&D, manufacturing and promotional activities. This would allow them to focus on their main value-adding functions – project management, business development, regulatory affairs, intellectual property management, pharmacoeconomic analysis and the formation of good relationships with key opinion leaders and healthcare payers. The world is changing fast and those who are flexible and can adapt will reap the benefits.”

 

The report Pharma 2020: Challenging business models is available at:

http://www.pwc.co.uk/eng/publications/pharma_2020_challenging_business_models.html

Frost & Sullivan’s Sylvia Miriyam Findlay analyses the impact the recession is likely to have on the global pharma industry and its business partners.

As the economic crisis hit various industries across the globe, a short analysis on the level of impact on the pharma industry has unveiled some interesting trends.

The pharmaceutical industry is currently being pressurised by two major factors – pricing pressure and regulatory pressure. In addition, another factor impacting on the industry is the reduced supply of late stage drugs to replace drugs going off patent. Drugs going off patent at this period are estimated to be worth $30 billion. As businesses shrink, expenditures are falling fast to maintain profitability.

Impact on innovation

Thinning pipelines are considered to be the real issue. New products are essential to reduce the impact of the economic downturn. The number of new drug approvals has recently declined, thereby pushing companies to tighten their R&D budgets. As revenues shrink, companies are forced to reduce their R&D spending, amongst others, in order to preserve profitability ratios. Early stage R&D projects have been halted. There are very few drugs in the late stage of the drug development process.

Impact on other sectors

The global recession is likely to adversely affect the pharmaceutical industry and its impact is expected to linger for a long time. The ripples of the impact are sure to be witnessed in adjoining sectors like the outsourcing markets. As reduction on R&D spending continues, the landscape turns dull for contract research organisations. While big pharmaceutical companies may just reduce the amount of work outsourced, small pharmaceutical and biotech companies may actually halt all outsourcing.

In addition, the much sought after outsourcing hubs like India and China are losing their attractiveness to other emerging geographies like Philippines, Eastern Europe, Central and South America and other South Asian countries. These countries are expected to offer financial buffers to the pharmaceutical industry and big pharma companies are expected to choose such areas to maintain their standing in the global crisis.

Other sectors offering administration services and backend services to the pharmaceutical industry are also expected to recede.

Impact on investments

The biotech industry has suffered during the financial crisis. Since most biotech start-ups are being funded by private equity or venture capitalists, the current economic climate is not quite conducive for such investments. Investors are not ready to invest in high-risk projects and hence this is indirectly impacting the birth of innovation. Low valuations of biotech companies are preventing new investments as investors are unsure of the technology and return of investments. In addition, the huge losses shouldered by the investors in this financial meltdown have led biotech investments to a grinding halt.

Investments are more likely to turn towards medical devices and diagnostics. Diagnostics offers much potential for revenue generation and hence seems to attract investors.

Impact on patients

The recent recession has had its impact on the medical community as well. Patients are forced to delay their refills and also to resort to generics. Patients are even postponing their doses due to tight financial situations.

Impact on generics

Price cuts have encouraged the use of generics and the generics industry has seen good growth. In order to cut healthcare costs, governments are encouraging the use of generics.

Impact on organisational structure

Thriving in such a crisis requires the efficient steam lining of operations. Pharmaceutical companies have resorted to realigning their sales and marketing strategies – reducing the number of employees and lay-offs are some of the usual tactics undertaken by the companies. This has enabled some organisations to reduce over-head expenditures and to maintain profitability. In certain extreme cases, some sales force operations have been halted altogether. In addition, innovative sales and marketing techniques are being sought to remain competitive during the financial crisis.

Conclusion

With such an economic crisis pressurising the drug industry, the onus lies in the hands of the government to step in and take adequate measures to mitigate the impact. If this situation continues, it can be expected that five to six years from now, the global healthcare markets will suffer from a dearth of innovative drugs. The government has to increase liquidity by pumping in fresh monetary resources and thereby supporting drug research. Tax benefits and rate cuts have to be provided for private equity firms and venture capitalists thereby encouraging investments in biotech firms. Such measures can, to some extent, help sustain liquidity of funds and alleviate the impact of the current financial crisis.

The world’s aging population is expected to facilitate a 50% increase in the global incidence of cancer over the next two decades, with the World Health Organisation (WHO) predicting that new cases will increase from 10million in 2000 to 15million in 2020.

FORTUNATELY, over the next ten years, numerous new novel cancer treatments with improved efficacy and side effect profiles are expected to hit the marketplace. However a new report from independent market analyst Datamonitor* (DTM.L) has suggested that despite the undoubted medical benefits of the new treatments, economic constraints may restrict the uptake of the new drugs, especially in already cash-strapped national health systems.

Putting a price on treatment

Datamonitor expects that pharmacoeconomic constraints will exert an increasingly influential role in the uptake of novel molecular- targeted cancer therapies, Datamonitor Oncology analyst Nish Saini says. “Even in the USA, where pricing policies have historically been less restrictive, the fiscal challenges resulting from spiralling healthcare costs and the recent Medicare Modernisation Act may lead to an era of greater price regulation.” “In terms of cancer treatment, this may lead to a widening of the gap between the ‘haves’ and ‘have-nots’ of the medical world, with these new medications likely to be beyond the reach of those in the developing world, for example. However, perhaps like HIV/AIDS treatments, with the help of western governments, we may see a trickle-down effect over time.” The new treatments may also place western governments, in particular, under increasing pressure to loosen the national healthcare purse strings, Saini says. “Many cancer sufferers in first world economies may be unwilling to accept that they cannot have access to the best available treatment because of budget restrictions. They may ask: how do you put a price on people’s health, well being and quality of life?” “On a practical level, this may lead government- controlled bodies to undertake robust pharmacoeconomic analysis to evaluate the clinical benefit realised with targeted therapies such as Iressa, Avastin, Erbitux and Tarceva, against the cost pressures incurred by these innovations. However in situations where these parameters are incongruent, reimbursement will prove challenging.” Where the uptake of novel treatments is constrained by the pharmacoeconomic pressures associated with these new technologies, improved diagnostic and prognostic analyses will facilitate predictive targeting of treatments to patient populations most likely to respond, Saini says.

New approach, better efficacy

Until recently, pharmacotherapeutic approaches to cancer therapy have been relatively unsophisticated, non-selective in nature and indiscriminately target both malignant and non-malignant cells. “For many tumour types, the relatively unpredictable duration of response to standard chemotherapy approaches means that there is a tremendous unmet need for improved treatment strategies in both early and latestage disease.” Historically the approaches to identifying new cancer treatments have been relatively unsophisticated, relying on crude measures of cancer cell growth or inhibition in animals and test tubes, Saini says. “However with the emergence of new technologies and an increased understanding of the molecular basis for cancer evolution, the molecular changes that distinguish malignant cells from normal cells are becoming increasingly apparent.” “This offers a growing range of potential drug targets in the form of altered genes, proteins or corrupted pathways. The increased selectivity offered by these unique targets affords developers the opportunity to cultivate more efficacious and less toxic treatments, the archetypal example being Novartis’s Glivec which garnered sales of $757m in the first half of 2004.” Molecular treatment targets may be tumour-site specific (such as the Bcr-Abl tyrosine kinase targeted by Glivec) or exhibit commonality between tumour-types (for example, EGFR), Saini says. “The latter offers developers the potential of horizontal product expansion and enhanced product revenues, which is increasingly important given the economic constraints that may restrict the uptake of these novel therapies.” Current cytotoxic agents (chemotherapy) are associated with a high level of toxicity, due to their non-selective pharmacology in targeting all rapidly dividing cells, Saini says. “Common toxicities associated with many frequently used drugs include anaemia, nausea, vomiting, diarrhoea, alopecia, infertility and general fatigue. For patients with terminal disease, the maintenance of quality of life is paramount and significant drug toxicities may jeopardise this.” “Overall, Datamonitor believes the angiogenesis and signal transduction inhibitor classes provide the greatest revenue potential.”

Datamonitor plc (DTM.L) is a premium business information company specialising in industry analysis. We help our clients, 5000 of the world’s leading companies, to address complex strategic issues. Through our proprietary databases and wealth of expertise, we provide clients with unbiased expert analysis and indepth forecasts for six industry sectors: Automotive, Consumer Markets, Energy, Financial Services, Healthcare, Technology. Datamonitor maintains its headquarters in London and has regional offices in New York, San Francisco, Sydney, Tokyo, Frankfurt, Shanghai and Hong Kong. See www.datamonitor.com for further details.