Pharmaceutical industry: waiting for a deadlock
By 2012, the existing model of the pharmaceutical industry will exhaust its resources, according to market experts. The validity periods of the main patents are coming to an end, and research centers are unable to cope with the creation of fundamentally new medicines.
Competition from generic drugs (copies of original drugs) will lead to a reduction in sales of the largest American companies by $67 billion already in 2007-2012, as patent protection for more than 30 drugs will expire. This is almost half of the total revenue of US companies in 2007. The American business newspaper The Wall Street Journal writes about this with reference to international experts in the pharmaceutical industry. The scientific engine of the industry is drying up, the publication believes, and the top managers of Eli Lilly & Co said that without drastic changes, the industry will die altogether.
Actually, the crisis has already begun. Pharmaceutical companies are forced to cut costs. So, last week, Bristol-Myers Squibb announced plans to cut 10% of jobs and sell about half of its 27 plants by 2010. Serious problems in pharmacology by 2011-2012 for the first time in 40 years will lead to a reduction in profits in the industry, which will have to look for ways to maintain positions. 50 thousand jobs are also expected to be cut.
"The reduction of profits of pharmaceutical companies is an understandable and natural process, it also affected our company," Grigory Kokhreidze, Director of Sales in Russia at Bayer Schering Pharma, commented on the opinion of experts to the Gazeta correspondent. "We are also waiting for the appearance of generics for a number of our innovative drugs." The only way to counter this threat is to increase research costs, Kohreidze is sure. This is possible largely due to mergers. "In this regard, the example of our company is indicative, since thanks to the merger of Bayer and Schering, we increased the costs of scientific research in 2006 to 1.5 billion euros," he notes.
Regis Lomm, head of Pfizer's representative office in Russia, also confirmed the validity of the experts' concerns. "Indeed, generics have one extremely tempting quality – cheapness," he noted in an interview with Gazeta, "but we must not forget that there are no generics without original drugs: before a cheap copy appears, it is necessary to create an original, which takes many years and huge resources are spent." For example, Pfizer, according to Lomma, annually invests about $7.5 billion in research and development of new drugs, creating innovative drugs in 11 therapeutic areas.
Patents for medicines are valid for 20 years, but this time also includes the period of development and clinical trials (CI) of all phases. The drug enters the market only 10 years after its synthesis. However, it can immediately bring a very high profit – up to 90-95%. After the expiration of the patent, manufacturers of generic copies offer products at a significantly low price.
For example, Pfizer Inc. it will suffer especially badly when the patent for the Lipitor drug for lowering cholesterol in the blood expires in 2010. In 2006, its sales brought in $13 billion. By 2012, Merck & Co. will face generic competition with its three key brand medicines: Fosamax (for osteoporosis), Singulair (for asthma) and Cozaar (for pressure normalization). These brands bring corporations up to half of their profits. Experts believe that this year sales of the drug Zocor, the patent for which expired in 2006, will fall by 82% compared to $ 4.38 billion in 2005. Forecasts are similar to the truth – the Internet is full of calls to buy the "cheapest Zocor". At the same time, industry experts have to admit that new bestsellers appear less and less on the market. In 2002-2006, 43% fewer new drugs entered the market than in 1995-2000, despite the doubling of pharmaceutical research costs.
Looking at all this, financial analysts do not recommend investing in the securities of pharmaceutical companies. The forecasts of the world rating agencies for the pharmaceutical industry in the USA have decreased to negative. Moodys downgraded the ratings of such giants as Schering-Plough, Merck, Bristol-Myers, Pfizer and GlaxoSmithKline. The industry is being reorganized: in a few years, many companies will have a new business, the cost structure will be more flexible, some names will simply disappear during mergers. Experts predict the leadership of biotechnologies, in which generics are technologically and legally impossible.
According to Health Care M&A Information Services, large companies have already spent almost $76 billion since 2005 on the purchase of biotech companies, including in Russia. "Russian biotechnological developments and ideas have been under the supervision of industry leaders for a long time," says David Melik–Huseynov, Director of Marketing Research at CMI Pharmexpert. – Valuable original products that were created for the military-industrial complex and the space industry allowed the development of virology, immunology, release phenotropil, arbidol, amoxin and other drugs to the market. Western developers are actively looking for such new molecules and ideas, offering grants and competitions to our research institutes, since this segment is drying up in the West. Solvay-Pharma, Pfizer and GlaxoSmithKline announced their interest in this segment."
True, therapy with biotechnological means is often unavailable to many: a monthly course of the Avastin cancer drug from Genentech costs $ 4.4 thousand, and an annual course of Cerezyme – a drug for Gaucher's disease – costs $ 200 thousand. For those who do not have such money, traditional medicines will remain the only way to recover for a long time. And generics account for an increasing share in this sector. By the way, the industry leaders themselves are actively entering the generic market. This year, Sandoz, Novartis' generics division, grew three times faster than the brand division and generated almost 20% of revenue. According to the CMI "Pharmexpert", Pfizer and GlaxoSmithKline announced the appearance of their own generic divisions.
Another way to protect your profits from the coming fall is the transfer of production from Europe and the United States to Asia. Pfizer recently announced plans to outsource up to 30% of its production to Asian plants. In 2007, the concern has already closed two plants in the United States and sold production facilities in Germany. Most likely, other pharmaceutical companies will soon follow Pfizer. "It is obvious that the company is looking for opportunities to maintain its income level at a time when generic drugs from other manufacturers will win back a part of the market," says Svetlana Zaruba, Vice President of the National Distribution Company. – One of the ways to save the situation and ensure further profits is to optimize the costs of manufacturing their drugs at the expense of more profitable productions in Asia. And most likely many other multinational giants will resort to similar measures in the near future."
The end of the dictate
Nevertheless, it seems that it will not be possible to avoid a crisis in the global pharmaceutical industry. Experts say that there is a certain crisis of ideas regarding new drugs in the pharmaceutical industry on a global scale, which is evidenced by the lack of new effective anti-tuberculosis drugs, drugs for the treatment of chronic hepatitis, some oncological diseases. Moreover, stagnation is observed in the cardiological, antibacterial, and antiviral segments, and in many others.
"The time when the giants of the pharmaceutical business, manufacturers of original drugs, dictated their terms to all market participants is going away – they also have to adapt," says Anna Buchina, marketing specialist at RMBC. – For generic companies, which are currently growing at a faster pace, the crisis of ideas of companies producing innovative drugs will turn into stagnation in a few years – there will be nothing to copy."
For Russia, the release of a large number of the most expensive original drugs from the patent in the medium term is rather beneficial. The state (namely, drugs are mostly purchased at its expense within the framework of state programs) will be able to save budget funds," notes Anna Buchina. In addition, Russian patients will in principle be able to receive treatment with copies of such drugs – after all, not all brands are present on the Russian market, they are too expensive for us.
According to the expert, the main promising ways for the industry are biotechnology, the creation of targeted drugs acting at the genomic, gene or molecular level. But the cost of developing such tools can be compared in costs with space technologies, then these drugs will become unaffordable for both patients and health authorities, even in developed countries.
However, even the impact of large volumes of purchases of medicines for state programs will not help the pharmaceutical industry: according to the CMI "Pharmexpert", insurance medicine will still replace the obsolete traditionally Soviet programs of public procurement of funds in the near future, in which insurance companies will choose generic drugs as the main guideline. At the same time, analysts believe that the Russian market is interesting to the industry as a growing and stable one, because players can not be afraid of leaving it.
Irina Vlasova, Gazeta
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10.12.2007