NEW YORK—With $110 billion in global sales exposed to generic competition for the top 50 pharmaceutical companies through to 2014, pharmaceutical companies that don't want to go tumbling over the "patent cliff" must look to emerging markets, biologics and continued cost-saving initiatives to drive growth according to Datamonitor, in its report Pharmaceutical Key Trends 2010.
"In addition to this massive figure, pharma companies face growing regulatory pressure and healthcare budget deficits in the wake of the recession, as well price and reimbursement cuts in order to curb growing healthcare spend," notes Alistair Sinclair, head of strategic healthcare analysis at Datamonitor. "To maintain growth the industry must harness the sales and profit potential offered by expansion into emerging and high value biologic markets, as well as implementing cost cutting strategies."
Emerging markets
The top 50 pharma companies are forecast to experience a U.S. sales decline of 1.3 percent year-on-year from 2009 to 2014, with sales falling from $228 billion to $214 billion. However, major markets outside the United States are forecast to grow by 2.4 percent year-on-year offsetting the U.S. decline, and emerging markets are forecast to experience double-digit growth rates over the next few years, with an average year-on-year growth rate of 12 percent.
"International pharmaceutical companies are quickly penetrating these markets through acquisitions of domestic generics and manufacturing companies, which accounted for 58 percent of merger and acquisition deals in 2008 and 2009," Alistair says. "However, our data infers that pharma players are not fully exploiting the growth potential and sales opportunities provided by these markets."
Biologics
In the major markets, injectable biologic therapies for the treatment of secondary care conditions will drive sales, according to Datamonitor. This is attributed to the high unmet need satisfied by these drugs, their high price points, and the fact that many biologics have only recently entered the market, while those that face patent expiry are largely insulated from sales erosion due to the high barriers to market entry at present.
"As cash-strapped healthcare payers scrutinize drug costs and clinical benefit more than ever before, pharma has recognized that it needs to move away from the increasingly genericized primary care market," Alistair says. "However, while many expensive biologics receive reimbursement in the U.S. and the EU today, the increasing cost pressures facing payers and the growing number of market entrants will ensure that competition for reimbursement will intensify going forward."
Cost-cutting
Cost cutting will be required to grow profitability in the face of slowing sales growth, Datamonitor also maintains, noting that mega-mergers have been used as a pivotal tool for cutting costs and growing sales, ultimately bolstering operating profit. The large scale mega-merger deals in 2009 of Pfizer-Wyeth and Merck-Schering-Plough, for example, will provide cost savings of $4 billion and $3.5 billion to 2014, respectively, achieved by reducing expenditure on marketing and administration, manufacturing, and research and development.
"Given that the launch of new drugs between 2010 and 2014 will only just offset the sales erosion experienced by those companies facing patent expiry within the next few years, further cost-savings will continue to be central to boosting pharma's profits and market capitalization throughout 2010 and beyond," Alistair says. "Additional redundancies, further industry consolidation through M&A, expansion in outsourcing and ever greater collaboration are set to be the key cost saving trends going forward."
Datamonitor also expects out-licensing deals, which have been relatively sparse historically, to rise over the coming years as Big Pharma seeks local marketing expertise to increase the regional commercial prospects of marketed products and free up resources and cash that can be put to other uses.
"In addition to this massive figure, pharma companies face growing regulatory pressure and healthcare budget deficits in the wake of the recession, as well price and reimbursement cuts in order to curb growing healthcare spend," notes Alistair Sinclair, head of strategic healthcare analysis at Datamonitor. "To maintain growth the industry must harness the sales and profit potential offered by expansion into emerging and high value biologic markets, as well as implementing cost cutting strategies."
Emerging markets
The top 50 pharma companies are forecast to experience a U.S. sales decline of 1.3 percent year-on-year from 2009 to 2014, with sales falling from $228 billion to $214 billion. However, major markets outside the United States are forecast to grow by 2.4 percent year-on-year offsetting the U.S. decline, and emerging markets are forecast to experience double-digit growth rates over the next few years, with an average year-on-year growth rate of 12 percent.
"International pharmaceutical companies are quickly penetrating these markets through acquisitions of domestic generics and manufacturing companies, which accounted for 58 percent of merger and acquisition deals in 2008 and 2009," Alistair says. "However, our data infers that pharma players are not fully exploiting the growth potential and sales opportunities provided by these markets."
Biologics
In the major markets, injectable biologic therapies for the treatment of secondary care conditions will drive sales, according to Datamonitor. This is attributed to the high unmet need satisfied by these drugs, their high price points, and the fact that many biologics have only recently entered the market, while those that face patent expiry are largely insulated from sales erosion due to the high barriers to market entry at present.
"As cash-strapped healthcare payers scrutinize drug costs and clinical benefit more than ever before, pharma has recognized that it needs to move away from the increasingly genericized primary care market," Alistair says. "However, while many expensive biologics receive reimbursement in the U.S. and the EU today, the increasing cost pressures facing payers and the growing number of market entrants will ensure that competition for reimbursement will intensify going forward."
Cost-cutting
Cost cutting will be required to grow profitability in the face of slowing sales growth, Datamonitor also maintains, noting that mega-mergers have been used as a pivotal tool for cutting costs and growing sales, ultimately bolstering operating profit. The large scale mega-merger deals in 2009 of Pfizer-Wyeth and Merck-Schering-Plough, for example, will provide cost savings of $4 billion and $3.5 billion to 2014, respectively, achieved by reducing expenditure on marketing and administration, manufacturing, and research and development.
"Given that the launch of new drugs between 2010 and 2014 will only just offset the sales erosion experienced by those companies facing patent expiry within the next few years, further cost-savings will continue to be central to boosting pharma's profits and market capitalization throughout 2010 and beyond," Alistair says. "Additional redundancies, further industry consolidation through M&A, expansion in outsourcing and ever greater collaboration are set to be the key cost saving trends going forward."
Datamonitor also expects out-licensing deals, which have been relatively sparse historically, to rise over the coming years as Big Pharma seeks local marketing expertise to increase the regional commercial prospects of marketed products and free up resources and cash that can be put to other uses.
