Current Context
Pharma Futures was set up in response to the serious challenges facing the pharmaceutical industry and, in particular, the dilemma of meeting short-term profitability for investors while meeting growing societal expectations of effective, affordable and accessible medicines. The aim of this project is to help investors and companies reconcile these competitive tensions to enable the industry to more systematically and strategically address these unmet societal needs.
Industry Challenges
The pharmaceutical industry faces enormous challenges, including:
- Limits to innovation. A wave of patent expiries without commensurate compensating new drug approvals.
- Growing societal demand for improved health care. Demographic changes and massive unmet health needs in emerging markets and poor countries.
- Pressure on health budgets. Pressure from governments and corporations to reduce health expenditure.
- Prices and IP coming under fire. Calls for price reductions and challenges to intellectual property rights.
- Loss of trust with key stakeholders. Societal anger at corporate priorities and behaviour.
The pharmaceutical industry has many stakeholders with public views concerning their expectations of the industry. The web site links listed to the right give a sense of the range of views expressed.
The pharmaceutical industry faces a wave of patent expiries in the coming years, which will intensify competition from generics firms. Meanwhile, the industry is experiencing limits on new innovations. The current ‘productivity crisis’ stems from an imbalance in the three factors that drive pharmaceutical industry success: a strong R&D process; a reward system that encourages innovation and discovery of medicines that people want or need; and affordability and accessibility of medicines. In the past ten years, the annual number of new molecular entity (NME) approvals by the FDA has fallen while R&D expenditure has more than doubled.
Assessments of current levels of R&D productivity differ depending on whether they are made on the basis of today’s pipeline or today’s output. Judged against the former, changes in the management of R&D have combined with advances in molecular and cellular biology and biochemistry to produce promising results, and early stage projects have experienced very robust growth.
Judged against recent output, productivity over the past ten years – the annual number of new molecular entity (NME) approvals of the US Food and Drug Administration (FDA) – has fallen slightly, while R&D expenditure has almost doubled. There are a number of explanations for the current situation, but the result is that the industry is seeking to drive more innovation through a variety of initiatives, including internal restructuring and alliances with external firms and research centers.
Growing Societal Demand for Health Care
Demographic trends and shifting disease burdens, including increases in chronic diseases, are driving demand for more medication over longer periods of time. As the average age of the OECD population rises, so too do both overall and per capita consumption of health care resources.
In the US, for example, it has been calculated that health expenditure for people over 65 is three times that for people between 19 and 65. The situation is echoed in developing countries, many of which are experiencing a significant increase in the incidence of chronic diseases such as diabetes, heart disease and asthma, which require ongoing treatment.
Pressure on Health Budgets and, Consequently, Pricing Regimes
The combination of demographic changes and increase in chronic disease has put significant pressure on health budgets and has led governments and health insurers across the world to seek greater efficiencies from their health systems. Payers everywhere are seeking to understand better the drivers of healthcare expenditure and to implement reforms to contain them as far as possible. One result is that pharmaceutical costings and expenditure are under greater scrutiny than ever before – particularly in Europe – and the findings of such studies are being translated into public policy.
Prices and IP Under Fire
As health budgets around the world come under pressure, the industry is increasingly asked to justify pricing regimes and innovation is coming under greater scrutiny. Price controls, reference pricing, prices cuts on reimbursable drugs are all in evidence in different markets. At the same time the appropriate reward for incremental – over breakthrough – innovation is under discussion, and the enforcement of and adherence to intellectual property agreements continues to be highly contentious.
Loss of trust
Though ratings have improved since the early 2000s, marketing research firms conclude that the pharmaceutical industry still has work to do to maintain the trust of its stakeholders. The 2007 Ipsos biannual survey on perceptions of large companies shows low levels of confidence in the pharmaceutical industry which has a net favorability score of 3%. The oil and gas, chemicals, and tobacco industries fare worse than the pharmaceutical sector in this poll.
