Technological advances and sociodemographic changes set to revive pharma’s fortunes

Major scientific and technological advances, alongside socio-demographic changes and increasing demand for medicines, will revive pharma’s fortunes post 2020, forecasts a new report from PricewaterhouseCoopers (PWC).

But to survive to 2020 and then thrive on the opportunities the next decade holds, Pharma 2020: From vision to decision, says important decisions need to be made and the challenges of rising customer expectations, poor scientific productivity and cultural barriers need to be addressed.

One of the major hurdles facing the pharma industry is the rising healthcare bill. Its expenditure as a percentage of GDP is climbing in countries in every income bracket and is increasing most steeply in the mature markets where the industry has historically made most of its money. Collectively, Canada, France, Germany, Japan, the UK and US generated 59% of the industry’s total revenues in 2011, the report says. Of this, the US generated 31%; followed by Japan (12%); Germany and France (5% each); the UK (4%) and Canada (2%).

At a time when all economies are feeling the tougher times, the industry has to play its part. The bill payers are demanding better outcomes and introducing new mechanisms to measure these as a precondition for paying for new medicines.

For example, in 2010, the German Bundestag passed the AMNOG health bill, under which all new therapies must be independently assessed against a comparator within 12 months of reaching the market and in line with the improvement they offer. The UK will also introduce compulsory, value-based pricing of all new drugs in 2014. Health researchers in Canada are investigating the idea of a pan-national body to negotiate drug prices, thereby reducing the inequities between provinces with more or less buying power. They are also examining the feasibility of performing real-time evaluations of medicines.

Japan is exploring other options, including the expansion of its scheme for re-pricing medicines whose sales are much higher than expected. It also imposed a 1.26% cut in prices last April.

Many healthcare payers are looking for opportunities to reduce costs by moving the point of care from the hospital to the surgery or patient’s home

Further changes are afoot. Several countries have introduced fixed, all-inclusive hospital tariffs for the treatment of specific diseases, with penalties for emergency re-admissions. And many healthcare payers are looking for opportunities to reduce costs by moving the point of care from the hospital to the surgery or patient’s home.

PwC research suggests that the pharma industry must either offer more value without charging more, or prove that it can remove costs from another part of the healthcare system to make room for the higher prices it is charging. Currently, more than 85% of the health budget goes on healthcare services and less than 15% on medicines. If the industry can reduce expenditure on costly medical services and procedures, PwC estimates that its share of healthcare expenditure in these countries could rise to 20% by 2020.

The report believes that the industry needs to rebalance its expenditure and invest more in the early part of the R&D process to deal with rising costs. More needs to be done to improve productivity and the returns on R&D investment. Most of the products that will be launched in the coming years are already in the pipeline, but they are not aligned with demand and rising expectations from healthcare payers, providers and patients. Marrying the pipeline with the market in the next decade is going to be the key.

Mike Swanick, global pharmaceutical and life sciences leader, PwC, said: ‘The industry is at a crossroads. In established markets, budgets are constrained and all stakeholders want real solutions and cures.

‘Pharma companies must now deliver ‘real’ value to payers and patients to prove their worth and to rebuild trust in the sector. In growth markets, companies must respond responsibly to a growing population’s needs, recognising demographic and cultural diversity.’