Big Pharme – big swimming

7 trends determining the future of Big PharmaAnna Shibaeva, Weekly "Pharmacy"

This publication presents the key trends that will determine the development of Big Pharma in the new 2010. The greatest scale of influence on the global pharmaceutical market is attributed to changes in the systems of reimbursement of medicines (drugs) in the largest developing pharmaceutical markets in countries such as South Korea, China, and Japan. In addition, in the coming year, the transition of global pharmaceutical companies to new business models is expected - innovative activities will be concentrated within the framework of production without the involvement of external forces. Pharmaceutical companies have stepped up their efforts to introduce new therapeutic forms available to low-income patients in developing countries. A second life will be breathed into the segment of over-the-counter drugs…

In preparing the publication, data provided by IMS Health were used.

1. A panacea for developing countries

Currently, innovative technologies are no less important than innovative products themselves, since without finding new effective ways to obtain the necessary drugs, no scientific potential of the industry will be able to bring maximum returns in the field of improving the healthcare system. In the past year, there has been an increased interest in polypills (English: polypill – combined drugs, multicomponent drugs). The first steps to develop polypills were taken back in 2001 – the World Health Organization proposed a product with a fixed dosage of components for the treatment of cardiovascular diseases.

Today, the urgency of the problem of obtaining a universal universal remedy for the treatment of cardiovascular diseases, which occupy the first place in the world among the causes of mortality, has significantly increased.

The main purpose of creating polypills is to make a profit by meeting the demand of low–income consumers in developing countries. Even at the stage of development of these drugs, companies are trying to occupy their niche in the potentially lucrative market of low-cost drugs for the treatment of cardiovascular diseases based on three or more components, and most, if not all, companies are generic.

So, the company "Dr. Reddy's Laboratories has announced plans to introduce Red Heart polypill to the Indian market, clinical studies of which were completed in May 2008. The generic drug contains a beta-adrenergic receptor blocker, an angiotensin converting enzyme (ACE) inhibitor, acetylsalicylic acid and a means to reduce cholesterol levels in the blood. The release of the drug to the world market is planned for 2010. Note that this drug will cost patients about $ 1. US$ per month.

Doctors from the Wolfson Institute of Preventive Medicine (Great Britain) have produced the first sample of a 5-in-1 polypill, which includes statin, folic acid, as well as drugs that reduce blood pressure. The introduction of this polypill to the UK market is planned for 2 years. The drug will be available to all patients over the age of 55 for less than $2 per day.

Spanish scientists have also started clinical trials of the 3-in-1 polypill, which is expected to be released to the world market in 2010. A drug for less than $10. per month contains components such as statin, ACE inhibitors and acetylsalicylic acid.

According to the American Heart Association, the incidence of cardiovascular diseases in India and China is higher than in all economically developed countries of the world combined. The development of a polypill for the treatment of this pathology (for just a few dollars a month) promises promising prospects for those market participants who previously had no particular interest in combined drugs due to the pricing policy for proprietary products. It should be noted that such a complex of drugs will not be a universal panacea for all patients. Post-marketing observations are designed to help in determining the optimal dosage options and the interaction of components.

If the introduction of polypills justifies the hopes placed on it and turns out to be economically feasible, then it should be expected that many companies will revise their product portfolios taking into account the opening prospects. Along with cardiovascular diseases, diabetes is also a candidate for all-in–one treatment among the potential areas for the introduction of polypills.

2. The immune system of the global pharmaceutical market

The US Food and Drug Administration (FDA) – the "immune system" of the pharmaceutical market of this country – is designed to protect consumers from products that do not meet health safety requirements. There are clear requirements for the norms for the production of active pharmaceutical ingredients (API), but the problem lies in the lack of resources of regulatory authorities for their compliance.

A striking example of the overload of pharmaceutical markets with imported substances of "dark" origin was the situation with heparin. So, at the beginning of 2008, Baxter Healthcare, after receiving a message about an allergic reaction, recalled 9 batches of sodium heparin ampoules for injection from the market. In the following weeks, the number of the company's heparin-containing drugs withdrawn from the market in 11 countries increased like a snowball. As a result of an allergic reaction to heparin, 149 deaths were recorded.

The recalled drug was contaminated with a chemically modified intermediate, hypersulfated chondroitin sulfate. As it turned out, a substandard substance imported from China was used for the production of heparin. This API was processed by the Changzhou SPL plant. During the inspection, the FDA commission found out that due to confusion in the names of the enterprise, a preliminary inspection was not carried out at the Changzhou plant. Significant deviations from the standards of Good Manufacturing Practice (GMP) were revealed only in February 2008.

Returning to the background of the issue, twenty years ago, American and European manufacturers covered 90% of the needs of the US market in API. Today, this figure has decreased to 20%, and the FDA simply does not have time to check the compliance of pharmaceutical industries with GMP standards. According to the law, the agency is required to conduct appropriate inspections at all pharmaceutical plants in the United States every two years. However, the frequency of inspections of foreign manufacturing enterprises varies significantly, as a rule, they are carried out less frequently than at local US factories. Moreover, the priority of technological inspection of objects is determined by the level of risk of the production process.

Who should be responsible for the quality of products produced by foreign factories? AFI manufacturing company? Regulatory authorities of the country in which this API was produced? Regulatory authorities of the country that imported the API? A manufacturer who uses this substance to make ready-made drugs?

The Chinese government claims that the importing country is responsible for the quality and safety of products. Obtaining marketing authorization from the FDA does not exempt from liability in U.S. courts. Recently, the US Congress voted to allocate additional funds to the FDA, which will allow the agency to conduct 120 more inspections annually.

3. Napoleonic plans… China

China has ambitious plans to create an unprecedented health insurance system on an unprecedented scale.

Over the past 10 years, the Chinese healthcare system has been gradually reformed. However, the impetus for the most significant changes in 2005 was the report of the State Council of China on the high degree of differentiation of the level of health care in the country. According to the data presented in the report, about 35% of the urban and 43% of the rural population of the country do not have access to medical services. In October 2008, the Chinese Government submitted for public discussion a draft healthcare reform, which in early 2009 was approved by the State Council as a Plan for implementing the reform of the healthcare system and the pharmaceutical industry in 2009-2011. Among the key objectives of this plan: to ensure coverage of insurance medicine for at least 90% of China's population (1.3 billion people) by 2011; creation of an effective logistics chain to provide the population with high-quality pharmaceutical products; rational use of drugs included in the list (about 250 names) of vital and essential medicines. In addition, the reform is aimed at improving the infrastructure of the primary health care system. It is planned to spend $586 million on improving the infrastructure of the healthcare system.

As part of the project, the state will exercise strict control in the production, delivery and distribution of essential medicines, the establishment of trade margins and the quality of drugs also falls under state supervision. According to forecasts, there should be no problems with the implementation of the reform in terms of financing, since the country's economy is growing at a rapid pace.

125 billion dollars will be allocated from the state budget for the implementation of the project as a whole during 2009-2011.

In case of successful implementation of the health system reform plan, the coverage of the Chinese population with medical insurance will increase by 5 times compared to 2004, as a result of which the attractiveness of the country's pharmaceutical market will increase. It remains for pharmaceutical companies to find out the needs of the part of the population that will be covered by medical insurance, taking into account the fact that the structure of morbidity of urban and rural populations is different. In addition, it will be necessary to create effective logistics chains to provide medicines to rural hospitals.

The potential of the Chinese pharmaceutical market will become more definite after the final formation of the list of vital and essential drugs. The prospects for the development of the segment of branded generics, which already occupy a stable position in the Chinese pharmaceutical market, are associated with an increase in the number of socially-oriented health centers being opened. Multinational companies have already entered the generic drugs market, which has traditionally been dominated by local manufacturers.

In general, the generic drugs market is under price pressure, in particular, the regulation of trade margins according to the list of vital and essential drugs will be a serious blow to the industry. Thus, price reforms will actually block access to expensive drugs supplied by multinational companies to hospitals.

There are such outstanding issues as:

• will insurance medicine cover 100% of the cost of drugs included in the list of vital and essential medicines, or will part of the costs be paid by patients?
• what will happen to the segment of innovative drugs that were allowed to be sold at a premium to the price?
• to what extent will the local government follow the centralized policy of the country in setting prices for drugs included in the list of vital and essential drugs?
• how will the establishment of a fixed trade margin in the hospital segment affect the appointment of certain drugs by doctors?

4. Economic evolution of reimbursation in Korea(Reimbursement – full or partial reimbursement of the cost from state and non–state insurance funds - VM.)

In South Korea, in order to establish a system of self-regulation of the fast-growing pharmaceutical market, the list of drugs subject to reimbursement will be revised. The decision to include drugs in the list for reimbursation will now be made on the basis of the economic feasibility of their use. In Korea, it is planned to switch from a negative list (a list of drugs not subject to reimbursation) to a positive one (a list of reimbursable drugs). The change in the reimbursement system provides for inclusion in the positive list of clinically and cost-effective drugs.

In January 2008, the development of the Health Technology Assessment Program (Health Technology Assessment), provided for by the National Health System of Korea, began.

Drawing up such a program is a prerequisite for the fact that South Korea will become the first Asian country where the formation of the state budget for healthcare is based on data on the state of health and economic indicators. This approach, based on the evidence of the therapeutic significance of the drug, indicates drastic changes in the Korean healthcare system, which previously covered a wide list of reimbursed drugs – 13,613 names. For comparison, 8632 items of drugs are subject to reimbursement in the USA. Thus, during 2001-2005, the volume of drug expenditures increased by 44.6%, as a result, Korea reached the 15th place in the world in terms of the pharmaceutical market.

Changes to the existing reimbursement system in Korea could potentially slow down the decision-making process regarding the addition of new drugs to the list, with the exception of perhaps some of the most serious diseases. Further growth of the South Korean pharmaceutical market is expected. However, the government will put price pressure on pharmaceutical companies as a result of the transition to a system of quantitative (cost) evaluation of the significance of drugs.

5. Innovation Course in JapanIn Japan, the introduction of a new drug pricing system can breathe new life into its pharmaceutical market and increase the R&D activity of pharmaceutical companies.

Last year, the Federation of Pharmaceutical Manufacturers Associations of Japan (FPMAJ) submitted to the central Council of social and medical insurance a proposal to revise the existing pricing scheme in the drug market. Associations are incompetent on their own in creating a platform for reforming the pricing system. Then they remembered the promise once given by the Japanese government to improve the innovation climate in the country. In turn, the expert subcommittee of the Council of Social and Medical Insurance on drug pricing proposed its approach to this reform. So, after the expiration of patent protection, the price of the drug will decrease by 30-40%.

According to FPMAJ calculations, the pricing reform, which is expected to come into force in 2012, will reduce the cost of pharmaceutical products in Japan in 2010-2020 to $ 17 billion. It is also planned to annually reduce prices for brands whose patent protection period has already expired. In 2009, the Ministry of Health pursues a policy of high prices for innovative drugs.

Currently, the Japanese government sets drug prices based on market prices. Then, every two years during the life cycle of the product, the price for it decreases by 4.5-7.5%. According to the estimates of IMS Health, government price regulation has actually reduced the growth rate of the Japanese drug market to +47.5% over the past 5 years. The price of the first generic drug that enters the market is usually about 70% of the cost of the original drug. While generic drugs occupy a small market share in Japan. Thus, the share of branded drugs whose patent protection period has expired is 42% of the total volume of the Japanese drug market. For comparison, for the 5 leading drug markets of the EU countries, this figure is 22%, and for the USA – 9%.

In 2008, out of the top 30 brands of medicines in terms of sales in Japan, 15 were branded generic drugs. Loyalty to these drugs (branded generic) remains at a high level due to the fact that branded drugs provide more profit than generic drugs, as well as due to the fact that the quality of generic drugs is questioned by doctors and patients.

Despite the longer life cycle of branded generic drugs, the state initiative to reduce prices for them every two years hinders the development of the segment of innovative drugs in Japan. During the whole period of 2004-2008, 150 new chemical compounds were introduced to the world market. This is less than in Japan on average for the quarter of 2008. In the course of a study by The Association of Researchers and Manufacturers of Pharmaceutical Products of the USA (The Pharmaceutical Research and Manufacturers of America – PhRMA), it was found that the development of 23 drugs has been suspended by Japanese manufacturers over the past 10 years due to the price structure of the country's drug market.

The price reform will allow the Japanese drug market to function by analogy with the developed pharmaceutical markets. In most cases, the products will be protected from price cuts for about 8 years, respectively, the price barrier to market entry will actually decrease compared to today's level. Pharmaceutical companies provide a wider range of discounts than wholesalers can offer. Currently, discounts of more than 2-3% are punishable.

The administration of the Democratic Party of Japan assures that the proposal will be considered.

6. The era of the renaissance of the OTC segment("OTS" is a widespread international abbreviation in business life, from the English "Over the Counter" − "over the counter".

This is the name of pharmaceuticals dispensed from pharmacies without a doctor's prescription – VM.)

In 2008 the volume of the global over–the-counter drugs market increased by 6.9% compared to the previous year, while for the prescription drugs segment this indicator is slightly less - +4.7%.

Traditionally, pharmaceutical companies define the most profitable market segments as the key areas of business development. For example, in 2006 Pfizer sold its pharmaceutical products division to J&J. The following drivers of the growth of the over - the - counter drugs market are distinguished:

• distribution channels of over-the-counter drugs are expanding, including markets for mass-market products;
• the growth of Big Pharma is determined by the developing pharmaceutical markets. China and Russia are among the top 10 largest global markets for over-the-counter medicines.

The market of consumer demand products is a sphere of attraction of interests not only of pharmaceutical companies. So, if pharmaceutical manufacturers enter this market by expanding the business of prescription drugs, FMCG companies occupy their niches in the segment of dietary supplements and herbal-based preparations. Thus, the market of consumer demand products is characterized by a high level of competition.

7. New R&D models

Global pharmaceutical companies have resumed the activities of R&D divisions, improved productivity. Of the world's ten leading pharmaceutical manufacturers, six have announced a change in the R&D model, and nine have changed the scale and structure of innovation activities.

Early R&D models were characterized by a vertically integrated structure, that is, all functions from development to product launch are carried out within the company. This model is destructive, since the biotechnology market is experiencing an excess of young companies replete with innovative projects, which in most cases are not able to bring the created product to the market on their own. In recent years, global pharmaceutical giants have been financing the most promising projects developed by young companies, this form of cooperation is also called an incubator of innovative projects. As a result of this form of cooperation, young innovative companies do not consider doctors and patients as consumers, but rather global giants.

Approximately 10 years ago, it was believed that the dual model was ineffective and led to a reduction in income. However, this was not confirmed. At the end of the Human Genome project, a surge in innovation activity began. The cost of research has been steadily increasing and, according to the Tufts Center for the Study of Drug Development at Tufts University, reached an average of $1.2 billion in 2006. for one biotechnological product.

At the same time, the potential of the consumer demand products market decreased due to the fact that many therapeutic areas became publicly available to companies in related industries, as a result of which there was an acceleration in filling free market niches in this segment.

Considering the payer as the main consumer may lead to the fact that deviation from the standard step-by-step scheme for the development of a new drug may negatively affect some therapeutic areas, in particular oncology, where progress in treatment in the long term is a critical factor for determining the effectiveness of the drug.

The time for change came yesterday. Companies that have managed to adapt new R&D models are opening up new promising areas of development. The "principle of machine gun fire" (a marketing strategy in which the company's innovative activities are designed for the maximum possible audience in the hope of achieving the goal at random) is a relic of the past, which is replaced by targeted development of highly specialized products for specific therapeutic areas.

Portal "Eternal youth" http://vechnayamolodost.ru29.12.2009