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| Sunday, 24 February 2002 |
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| News Business Features Editorial
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Big pharma, big challenges LONDON (AFP) - These are unsettling times for big pharma: the sector which congratulates itself on being "the most profitable industry over the past 25 years" may not be so for much longer. Expiring patents, generic copies of their drugs, biotech challengers and the smouldering debate about providing affordable medicine to impoverished countries - global pharmaceuticals giants have much soul-searching to do as they rethink the formula for the decade ahead. At first glance, the good times appear to keep on rolling for the manufacturers and distributors of those blockbuster drugs that not only prolong life but improve quality of life. Recent results showed that at the bottom line at least, big pharma continues to thrive. The world's largest group by sales, GlaxoSmithKline, reported a 16 percent jump in profits, and predicted more of the same for the next two years. But that masks a deeper concern within the industry, which was laid bare at a forum organised by Economist Conferences. The cornerstone of the sector rest on the patents for massive selling drugs like Prozac and Viagra that rake in billions of dollars (euros) each year. Yet in the 2000-2005 period, patents on drugs worth 40 billion dollars in annual revenue to big pharma will have expired. And patent expiry paves the way for generic copies that naturally eat away at a blockbuster drug's profitability. "Within three months of Prozac going off-patent, it lost 90 percent of sales," noted Jan Leschly, former chief executive of SmithKline Beecham at the conference. He said for big pharma to retain its levels of profitability, "they will have to have launches of two to four major new products every year." That is simply not the case at the moment. Leschly noted that the top 15 big pharma companies had only 14 new chemical entities approved by US authorities last year. The signs of urgency are becoming tangible. In the United States, which generates one half of the 350-billion-dollar annual pharmaceuticals market, the number of sales representatives selling pharma products into the healthcare system has skyrocketed to almost 80,000. "There are almost more sales reps in physicians' offices in the US than outpatients," noted Leschly. Big pharma meanwhile is studying how it can maintain its profitability. Some executives note the US dominance of the market, which is primarily down to freedom of pricing, and call on Europe and Japan to lessen regulation so that drugs companies can charge more for their products. "The European and Japanese authorities must live up to their own responsibility of paying for new improved treatments," said Rolf Stahler, chief executive of British group Shire Pharmaceuticals. "We need help to remain profitable." Some - though not all - executives believe that a recent wave of mergers will continue as companies seek to take out costs. Other executives said that the way that drugs are researched and developed would change fundamentally. They point to breakthroughs in genomics, with the sequencing of the human genome as a key development that big pharma will have to harness. "The next 10 years will see a dramatic change in the way pharmaceuticals are created and marketed," said Franz Humer, chief executive of Roche. "The medicine of the future will result from careful study of the biology of the disease," he said. The idea is 'personalised medicine' - the development of drugs that target individuals with specific gene expressions. Humer noted that a Roche breast cancer drug was initially unimpressive in clinical trials because it only worked on 25-30 percent of women with a certain gene. "Only when we discovered the over-expression of that gene... were we able to achieve a success rate of 70-80 percent and the future of that drug was assured," he said. With myriad biotech companies pushing back the gene-therapy boundaries, big pharma will increasingly resort to 'buying in' promising products for their pipeline from smaller outfits who do not have the marketing muscle for their wares. "We will continue to bring in important products into our pipeline through licensing deals," said GSK chief executive Jean-Pierre Garnier. "We are getting the benefit of their pipeline without having to acquire the company and that is the best of both worlds as far as we are concerned." Beneath all the R and D and marketing tactic, lurks the big picture: as the debate about the provision of HIV drugs to Africa has shown, big pharma faces a growing image problem - ironically at a time when a demographic 'tailwind' means that ageing populations in the western world will increasingly rely on their products. As Stahler says: "We are actually making money out of sickness. "That commercial issue will remain a challenge." |
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