The US pharmaceutical market experienced sluggish growth in 2008 and that low-growth trend, the lowest in five years, is expected to continue throughout 2009. Patent expirations and greater generic penetration continues to take their toll. In addition, industry insiders point out that with the slower performance of new products and a sluggish economy, the demand in the marketplace for pharmaceuticals will continue to erode.
“The growth of 1.3% that we are seeing from a sales perspective is the lowest that we have on record at this point,” says Diana Conmy, corporate director of market insight for IMS Health. Conmy notes that while many of the factors that are influencing the market place are familiar, in particular patent expirations and greater generic utilization, slower performance of new products is a new dynamic that has been added to the mix.
Currently, generics account for just over 60% of all prescription volume and 35% of sales. When taking into consideration oral solids alone, that number jumps to 73% of prescription volume.
According to the results of a survey by Wolters Kluwer Health, Pharma Insight 2008, A Turning Point for Healthcare, by 2012 the industry will have seen over $50 billion at risk due to patent expiration.
Payers who set tiers and higher co-pays for branded products are driving the generic growth along with the unemployed and uninsured. An uptake in usage of $4 generic programs offered by major retailers is further fueling generic growth.
Another factor that contributed to the downturn was an alarming rate of patient action in response to their out-of-pocket experience including a rise in patient abandonment (patients who don't pickup their prescriptions). “We're seeing that play out for both brand and generics,” says David Martin, VP of marketing and business development, Wolters Kluwer Health, Pharma Solutions.
In the third quarter of 2008, 7.1% of patients never picked up their scripts, according to the company's survey, and since 2006, the number of abandoned prescriptions increased by 34%.
Industry experts expect the economic situation to continue to have a negative impact. Martin predicts that as COBRA benefits expire, there will be a second wave of the economic influence associated with healthcare. “I expect it to get worse before it gets better.”
2009 and beyond
According to Martin, the biggest drivers for the next few years has to do with the patent expirees associated with the mega brands headed off patent. “While those brands are relatively small in number in 2009, the number of major brands in 2010 and 2011 that go generic are staggering to contemplate.” He adds:“What you'll see in 2009 is pharma companies preparing the way—the merger of Pfizer and Wyeth is not necessarily tied to the challenges of '09—but it's all about planning for what has to happen in 2011 and beyond.”
The success of pharma companies going forward depends a lot on how they differentiate themselves. “I worry about the industry all chasing the same dream that sets up an unreasonable expectation for success,” says Martin.
Pharma companies need to spend more time examining the underlying aspects of their business, notes Martin. “In other words, looking at national trends—while important—actually hides or masks the underlying issues of the business and also doesn't allow for a company to develop plans and execute against them. We see that playing out in the vast differentiation that's taking place with respect to health-plan influence, patient influence and physician influence in what ultimately gets prescribed, dispensed and consumed by patients.”
At the end of the day, Martin says that the new art or science of the pharma promotion has to be at the most granular level possible.
Martin notes that pharma companies are beginning to focus on highly differentiated products in the market. “And I do believe that the evidence that is being provided by pharma companies to healthcare decision-makers is getting better,” he says. Martin adds that it's gone from simply efficacy to getting a regulatory approval to cost effectiveness, to clinical trials or trials that are understood in the context of real-world patient experiences. “I think all of those things are good harbingers for the future.”
Also on the positive side, Conmy says that pharma companies are looking at specialist-driven products and products that address areas of true medical need for the market. “So, that's the good part of the equation from the perspective of contribution to dollar growth.” However, Conmy cautions that these newer products are not providing as much dollar growth to the market as new products did 5-10 years ago when they may have been more primary-care focused and they may have addressed a larger patient population.
Conmy says that across the board, pharma companies are aggressively changing their infrastructure and in some cases their strategies, pursuing opportunities that would allow them to grow in the areas where there may be more robust growth than some of the traditional segments they've been involved in the past. “They are looking at broadening their portfolios rather than having a couple of large primary care products. They may have a broader-based portfolio with more specialist-driven biotech products.”
Conmy adds that going forward, more and more pharma companies will be diversifying in other ways too, including going into segments such as OTC or diagnostics or medical devices. “I think you are starting to see those kinds of changes, obviously in the mega mergers—in and of themselves are some evidence of the level of change that is happening in the market,” says Conmy. “But there are still opportunities for growth and some of those areas that we identified last year: specialist growth, the biotech area [and] oncology are still areas of higher growth within the marketplace.”
“They are all going to have to adjust their cost base and they are also going to have to find a way to become more effective in producing new drugs,” says Barbara Ryan, an analyst with Deutsche Bank. Ryan notes that there will be a lot more consolidation in the space. “It's always hard to predict where,” she says, “but I think the whole space is going to continue to consolidate because of the pressures of the top line.”