Truths & Untruths - Smart Pharma · Source: IMS World Review Executive 2013 – Forbes: The Global...
Transcript of Truths & Untruths - Smart Pharma · Source: IMS World Review Executive 2013 – Forbes: The Global...
Smart Pharma Consulting
1, rue Houdart de Lamotte – 75015 Paris – France
Tel.: +33 6 11 96 33 78 – Fax: +33 1 45 57 46 59
E-mail: [email protected]
Website: www.smart-pharma.com
Smart Pharma Consulting
Smart Pharma Consulting analyses
“Smart Pharma – ESSEC Santé – ALK” Prize
Truths & Untruths
in the Global Pharma Industry
June 2014
Smart Pharma Consulting
Sources: Smart Pharma Consulting
1. Introduction
June 2014
1 Also named Rituxan
1st Statement: The price pressure on pharma companies is temporary
2nd Statement: Pharma companies profitability keeps on shrinking
3rd Statement: The cost of new molecules is in the range of USD 1B
4th Statement: BRIC countries are the Eldorado of pharma companies
Smart Pharma Consulting has reviewed and analyzed four key statements related to
the global pharma business
Four key statements: Truths & Untruths
Truths & Untruths in the Global Pharma Industry 2
Smart Pharma Consulting
Source: World Bank and WHO (2012)
1st
Statement: The price pressure on pharma companies is temporary
June 2014 3 Truths & Untruths in the Global Pharma Industry
Healthcare expenditure per capita is highly related to growth domestic product per
capita of each country
Relation between GDP¹ and healthcare expenditure per capita (2012)
Norway Switzerland United States
Netherlands Austria Sweden
Japan
Belgium France
Germany
Finland Iceland
Ireland United Kingdom New Zealand
Italy Spain
Singapore Greece Qatar Cyprus
Slovenia
Portugal South Korea
Czech Republic Kuwait
Slovak Republic
Uruguay
Chile
Brazil
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
10 000
0 10 000 20 000 30 000 40 000 50 000 60 000 70 000 80 000 90 000 100 000 110 000
Healthcare expenditure per capita (USD)
GDP1 per capita (USD)
¹ Gross Domestic Product - - -: Linear trend line
Smart Pharma Consulting
16%
11% 11%
8% 8% 8% 8%
18%
12% 11%
10% 10% 9% 9%
0%
5%
10%
15%
20%
USA France Germany Japan Spain UK Italy
Source: World Bank's Open Data (2012) – OECD Government expenditure by function (2012) – Smart Pharma Consulting analyses
1st
Statement: The price pressure on pharma companies is temporary
June 2014 4 Truths & Untruths in the Global Pharma Industry
The weight of healthcare expenditure in developed economies has risen between
2003 and 2012, despite the implementation of cost containment measures
Healthcare expenditure as a percentage of GDP1
2012 2003
Healthcare expenditure as a % of GDP¹
(Local currency)
In 2012, healthcare expenditure
represented one of the largest public spending items in most developed economies: 1st (USA), 2nd (France, Germany, Japan, UK)2 and 3rd (Italy3 and Spain4)
At best, health authorities will manage to slow down the rise of healthcare expenditure as a percentage of GDP, but not to stop it
In principle, there is no ideal or optimal ratio of healthcare expenditure over GDP
The weight of healthcare expenditure is primarily a political decision based on public health considerations and national investment prioritization
1 Gross Domestic Product – 2 After social protection – 3 After social protection and general public services – 4 After social protection and economic affairs
Smart Pharma Consulting
33%
40%
46%
46%
48%
54%
56%
61%
70%
74%
74%
76%
77%
78%
82%
83%
9%
15%
43%
23%
45%
10%
10%
5%
7%
6%
9%
12%
16%
2%
3%
7%
58%
45%
11%
31%
7%
36%
34%
34%
23%
20%
17%
12%
7%
20%
14%
10%
India
Indonesia
USA
Brazil
S. Africa
S. Korea
China
Russia
Poland
Spain
Turkey
Germany
France
Italy
Japan
UK
Government Private (excl. out-of-pocket) Out-of-pocket
Source: WHO Global Health Observatory Data Repository (2012) – World Bank's Open Data (2012) – Smart Pharma Consulting analyses
1st
Statement: The price pressure on pharma companies is temporary
June 2014 5 Truths & Untruths in the Global Pharma Industry
1 Gross domestic product
With the exception of the USA, governments play a more important role in covering
healthcare expenditure in developed markets than in less developed ones
Share of public spending in total healthcare expenditure (2012)
In the USA, the level of public spending on healthcare is far below the one of other developed countries
Nonetheless, the weight of healthcare expenditure in the GDP is also significantly higher, stimulated by favorable policies to the private sector
The recent healthcare reform in the USA is expected to narrow the spending gap between the USA and other developed countries in the coming years
In emerging countries, the public and private healthcare insurance systems are less advanced, resulting in a higher share of out-of-pocket spending and a lower weight of healthcare expenditure in the GDP
Healthcare expenditure
as % of GDP1 % of total healthcare expenditure
9%
10%
9%
12%
11%
6%
10%
7%
6%
5%
8%
9%
9%
18%
3%
4%
Smart Pharma Consulting
Source: OECD Health Database as of June 2014 (Data France: 2012, Japan: 2010, other countries: 2011) – Farmindustria.it – Smart Pharma Consulting analyses
1st
Statement: The price pressure on pharma companies is temporary
June 2014 6 Truths & Untruths in the Global Pharma Industry
1 2012 - 2 2010
The cost of drugs is far behind that of hospital and ambulatory care, yet this segment
is paradoxically targeted by governments because it is easier and quicker to reduce
Breakdown of healthcare expenditure (2011)
Drugs represent the 3rd largest source of healthcare expenditure in major developed countries
Drugs are typically the easiest segment to apply cost-containment measures on, as decisions are:
– Made by payers (either public and/or private), with little or no negotiation with suppliers
– Much better accepted by citizens than restriction measures on the other segments
However, to significantly reduce total healthcare costs, governments will need to apply cost-optimization measures on all healthcare segments, irrespective of their relative importance
47% 42%
37%
50% 54%
38%
26% 29%
30%
27% 24%
35%
20% 21% 20%
18% 15%
13%
7% 8% 13%
5% 7% 14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% of total healthcare expenditure
Ambulatory care Hospital Other Drugs
Spain France1 Germany Japan2 Italy USA
Smart Pharma Consulting
Sources: Smart Pharma Consulting
June 2014 Truths & Untruths in the Global Pharma Industry 7
1st
Statement: The price pressure on pharma companies is temporary
Irrespective of the considered country, the price pressure on drugs, from either public or private
insurance companies, will keep on growing, over the long term
Three main reasons support this assumption:
− The cost of healthcare increases faster than the economy
− Pharma companies do still make high profits (net profits ~15%)
− Drug cost is not the biggest bucket, but the easiest on which price cuts can be applied (i.e. application is
easy and effects immediate, no direct social nor political negative impacts)
Pharma companies could negotiate, collectively (through their union) or individually a “Drug Price
Stability Pact” that will guarantee a certain level on price depending on:
− The medico-economic value of their products, at a national, regional and local levels
− Their commitment to invest in research programs and facilities
− Their logistic and manufacturing facilities
− Their level of employment and its evolution overtime
− Their contribution to exports
True or Untrue?
If drug price pressure will continue over the long-term, pharma companies will not be
impacted the same way, due to differences of portfolio and socio-political strategy
Smart Pharma Consulting
Source: IMS World Review Executive 2013 – Forbes: The Global 2000 (2014) – United Nations: World Economic Situation and Prospects 2011-2012-2013 – IMF 2014 – Smart Pharma Consulting analyses
2nd
Statement: Pharma companies profitability keep on shrinking
June 2014 8 Truths & Untruths in the Global Pharma Industry
1 Return on revenues = net profit / total revenues – ² Including biotech companies, J&J, Fresenius and Baxter, which are included in the medical equipment and other supplies industry and excluding companies whose
business is mainly focused on distribution – 3 Constant USD (2012) – 4 Compound annual growth rate
The pharma sector continues to be very attractive as it offers higher profitability and
growth rates than the global economy, however its performance is deteriorating
Global pharmaceutical market attractiveness (2008-2013)
0
200
400
600
800
1 000
1 200
2008 2013
USD3 B
Market sales trend
CAGR4: +4.4%
Profitability trend (Based on companies included in the Forbes Global 2000)
16,9%
20,5%
15,5%
16,7%
16,5%
14,5%
5,1%
4,7%
7,3%
7,2%
6,4%
7,9%
0% 5% 10% 15% 20% 25% 30%
2008
2009
2010
2011
2012
2013
Global economy Global pharma²
Return on
revenues¹
808 B
1,000 B
Global economic growth - CAGR 2008-2013: +3.7%
Smart Pharma Consulting
Source: Annual reports -2011-2012-2013 – Smart Pharma Consulting analyses
2nd
Statement: Pharma companies profitability keep on shrinking
June 2014 9 Truths & Untruths in the Global Pharma Industry
1 Including profits from non-healthcare related businesses – 2 Average 2011 - 2013 Federal Reserve exchange rate –
The operating profitability of the top 10 pharma companies has decreased in 2013
compared to 2012, mostly driven by AstraZeneca’s & Merck & Co profitability drop
Operating profitability of leading pharmaceutical companies (2011-2012-2013)
Operating profits2
(USD B)
2013 2011 2012
12 14 15 11 11 11 12 13 15 11 11 16 8 8 7 13 12 11 7 9 6 6 3 4 13 8 4 5 5 6
Note: Reported numbers have been adjusted to make them comparable – In 2013, Eli Lilly came back on the top 10 at the expense of Abbott/AbbVie
Operating profitability¹
19% 19%
32%
19%
18%
29%
15%
24%
38%
22%
20% 20%
31%
21%
18%
28%
18%
12%
29%
24%
22%
19%
35%
30%
15%
27%
13%
17%
14%
25%
0%
10%
20%
30%
40%
J&J Novartis Roche Pfizer Sanofi GSK Merck & Co Bayer HC AstraZeneca Eli Lilly
Average 2013: 21.8%
Average 2012: 22.1% Average 2011: 23.4%
Smart Pharma Consulting
Sources: Smart Pharma Consulting
June 2014 Truths & Untruths in the Global Pharma Industry 10
2nd
Statement: Pharma companies profitability keep on shrinking
We have observed over the past years, a deterioration of the profitability of the pharma industry
and a slow down of its sales growth
However, the analysis of the top selling pharma companies, shows that, with the exception of
AstraZeneca, they manage to maintain they profitability level, over the past three years
To achieve such a performance, the leading pharma companies have:
− Refocused most of their research programs to address secondary care diseases with major unmet needs
− Closed a large number of their production centers, and reallocated many of the remaining ones in countries
benefiting from lower-cost manpower
− Significantly downsized they sales forces
− Divested or sold their low (lower) profit strategic segments
In the years to come, pharma companies should not only keep on improving the efficiency of their
operations (R&D, manufacturing, marketing & sales, etc.)…
… but also simplifying their internal processes and their structure to become leaner and more agile
True or Untrue?
If the pharma industry profitability has declined, it is still very profitable and should
remain as such, provided they improve their operational and organizational efficiency
Smart Pharma Consulting
Average: USD 1308 M
2 200
1 778 1 700
1 506
1 318 1 241
1 100
992 880 868
802
0
500
1 000
1 500
2 000
2 500
1 2 3 4 5 6 7 8 9 10 11
Source: Adams CP et al, 2006. health Affairs – O’Hagab P and Farkas C, 2009. Bain & Co, Mestre-Ferrandiz J. 2012 – Efpia key data 2013 – M. Steven 2010 – Smart Pharma Consulting analyses
3rd
Statement: The cost of new molecules is in the range of USD 1B
June 2014 11 Truths & Untruths in the Global Pharma Industry
According to the most recent study published, the R&D cost per approved new drug,
including the cost of capital, is estimated at USD 1.5 B
Evolution of R&D costs (2000 – 2012)
Bain
(2008)
BCG
(2001)
Adams
(2000)
DiMasi
(2000)
USD M
Sources Bain
(2005)
DiMasi 2
(2005)
DiMasi 1
(2005)
Bain
(2000)
Vernon
(2000)
Mestre-
Ferrandiz
(2012)
Lilly & Co
(2010)
Estimated capitalized cost per approved new drug (pre-tax)
Smart Pharma Consulting
Source: DiMasi JA et al, 2007. Manage. Decis. Econ – Smart Pharma Consulting analyses
3rd
Statement: The cost of new molecules is in the range of USD 1B
June 2014 12 Truths & Untruths in the Global Pharma Industry
1 Capitalized costs in 2005 dollars
No significant differences have been observed between the R&D costs of biological
and chemical products (small molecule chemical entities)
R&D costs for biological & chemical products
55% 51%
45% 49%
0%
20%
40%
60%
80%
100%USD 1,241 M1
Out-of-pocket
costs
Cost of capital (discount rate of
11.5%)
USD 559 M
USD 682 M
Biological products
Costs of 17 investigational biological products
(9 recombinant proteins and 8 monoclonal antibodies)
from 4 pharmaceutical companies were analyzed based
on 2005 data
Costs of compound failures were included
Out-of-pocket costs were capitalized at a real discount
rate of 11.5% until the date of marketing approval (~12.5
years)
Development time costs of failed projects were allocated
to those of marketed new products
Out-of-pocket and capitalized preclinical costs were
estimated at USD 198 M and USD 615 M, respectively
Out-of-pocket and capitalized clinical costs were
estimated at USD 361 M and USD 626 M, respectively Chemical products
USD 672 M
USD 646 M
USD 1,318 M1
Biological products
Estimated capitalized cost per approved new drug (pre-tax)
% of total cost
Smart Pharma Consulting
Source: Forbes August 2013 after Innothink Center for Research in Biomedical Innovation
June 2014 13 Truths & Untruths in the Global Pharma Industry
1 Cumulated resulting from 2003 to 2012 – 2 Period preceding new drugs approval
3rd
Statement: The cost of new molecules is in the range of USD 1B
The overall cost per new drug differs significantly amongst top 10 pharma
companies, with Sanofi spending twice as much as J&J or GSK per launched product Estimated R&D costs of new drugs – Top 10 pharma companies
10,1 9,6
8,9
7,8
6,7 6,6 6,1
5,5 5,2 5,2
0
2
4
6
8
10
12
Sanofi AstraZeneca Roche Pfizer Eli Lilly Bayer Novartis Merck & Co GSK J&J
# of new drugs1 6 4 5 8 10 13 10 4 9 11
10-year spending
USD B2 61 38 33 71 61 68 78 26 49 56
Average cost per new drug in US B
Average: USD 7.2 B
Smart Pharma Consulting
Source: Forbes August 2013 after Innothink Center for Research in Biomedical Innovation
June 2014 14 Truths & Untruths in the Global Pharma Industry
1 Average spending of top 10 big pharm companies = USD 7.2 B / USD 2.0 B for biotech companies = 3.6 times 2 Cumulated resulting from 2003 to 2012 – 3 Period preceding new drugs approval
3rd
Statement: The cost of new molecules is in the range of USD 1B
Biotech companies which spend much less than big pharma companies in R&D and
focus on a limited number of projects show a cost per new drug 3.6 times lower1 Estimated R&D costs of new drugs – Selection of 10 biotech companies
5 2 1 4 4 1 2 3 5 3
21.4 7.2 1.6 9.5 6.3 4.9 4.1 5.5 4.8 2.2
4,3 3,6
2,4 2,1 1,8 1,6 1,6 1,0 0,7 0,5
0
2
4
6
8
10
12
Amgen Celgene Biogen idec Vertex Gilead Millenium Genentech Genzyme Regeneron Alexion
Average: USD 2.0 B
# of new drugs2
10-year spending
USD B3
Average cost per new drug in US B
Smart Pharma Consulting
Sources: Smart Pharma Consulting
June 2014
1 For an opportunity cost estimated at 11%. The US government guidelines call for using 3%
Truths & Untruths in the Global Pharma Industry 15
3rd
Statement: The cost of new molecules is in the range of USD 1B
The review of the main studies published since 2000, shows that the average cost of new drugs is
estimated at USD ~1.3 B
The average cost of a new drug is USD ~7.2 B for top 10 pharma companies and USD ~ 2.0 B for
biotech companies that are focused on a more limited number of research projects
The huge variations observed from one source to another one are due to differences in
methodologies and cost assumptions used
These figures should be analyzed with caution because:
− They include the cost of drugs having failed during their development
− They take into account the cost of capital invested (~50% of the total estimated cost)
− They do not deduct corporate tax savings (estimated at ~35% of total R&D costs)
− They use means while median would be more appropriate because of the huge difference of R&D costs
observed according to pharma companies and the type of products being developed
The median cost of one single successful new drug, without considering the associated
opportunity costs and with deduction of tax savings should amount USD ~ 0.5 B
True or Untrue?
The median cost of a new drug is in the range of USD ~0.5 B, if one considers out-of-
pocket costs only and one deducts tax savings
Smart Pharma Consulting
Source: IMS Medicines Outlook Through 2016 (July 2012) – Nicholas Hall's OTC Yearbook 2013 – Smart Pharma Consulting analyses
June 2014 16 Truths & Untruths in the Global Pharma Industry
1 Brazil, Russia, India, China – 2 Compound annual growth rate – 3 France, Germany, Italy, Spain, UK – 4 USA and Canada
Almost 50% of the total pharma sales growth is expected to come from the BRIC1 during
the 2013 – 2018 period, while North America should contribute to 30% of that growth
Pharmaceutical market size and growth (2013-2018)
4th
Statement: BRIC countries are the Eldorado of pharma companies
360 415
150 154
90 102
160
250
240
265 1,000 B
1,186 B
0
200
400
600
800
1 000
1 200
2013 2018
Sales in USD B
+3% North America4
BRIC
Total +3%
+9%
CAGR2 2012-2018
Sales growth 2013-2018
+3% Japan
+1% EU 53
USD 55 B
USD 186 B
USD 90 B
USD 12 B
USD 4 B
(36%)
(15%)
(9%)
(16%)
(35%)
(13%)
(21%)
(22%)
(24%)
(9%)
Rest of the world +2% USD 25 B
+100%
+13%
+48%
+6%
+2%
+30%
Contribution to growth
Smart Pharma Consulting
Ranking
Source: IMS World Review Executive 2013 – Smart Pharma Consulting analyses
4th
Statement: BRIC countries are the Eldorado of pharma companies
June 2014 17 Truths & Untruths in the Global Pharma Industry
¹ Brazil, Russia, India and China
The BRIC¹ countries are expected to belong to the top 10 pharma markets by the end
of 2018, while China and Brazil will be ahead of Germany, France and Italy
Evolution of the Top 20 national pharma markets in value (2013-2018)
2013 2018
USA
Japan
Germany
China
Brazil
Italy
Canada
UK
France
Spain
Russia
Mexico
South Korea
Australia
India
USA
China
Brazil
Germany
France
Canada
Italy
Russia
Japan
India
Australia
Spain
UK
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Argentina
South Korea
Evolution 2013-2018
Turkey 16. Mexico
Venezuela 17. Turkey
Poland 18. Indonesia
Argentina 19. Venezuela
Belgium 20. Poland
+++
+
-
- -
=
++
+
+
+
+++
+++
+++
+
+
+
+
+++
+
++
+
+++ 8 – 12%
++ 3 – 6%
+ 0 – 2%
- -12 – 2%
- - -32 – 4%
Smart Pharma Consulting
2018 estimated EBITDA3
2013-2
018 s
ale
s g
row
th (
CA
GR
2)
+0-2%%
+3-6%
+7-8%
+8-10%
2018 estimated sales level in USD B3
+3% GAGR of the total pharma market
Source: Smart Pharma Consulting analyses
4th
Statement: BRIC countries are the Eldorado of pharma companies
June 2014 18 Truths & Untruths in the Global Pharma Industry
1 Brazil, Russia, India, China – 2 Compounded annual growth rate – 3 Earnings before interests, taxes, depreciation and amortizations – 4 France, Germany, Italy, Spain, UK – 5 USA and Canada
BRIC1 countries are likely to keep on driving the growth of the global pharma market
but they are expected to be much less profitable than North America, EU 5 and Japan
Growth potential per socio-geographical area (2013-2018)
EU 54 ROW
North America5
190% for total sales of pharma companies
154
(16%)
265
(22%)
415
(35%)
<15% 26-30% 16-20% 21-25%
(x%): of total market
2018 total pharma marketing size:
USD 1186 B
Japan 102
(9%)
BRIC 250
(21%)
Smart Pharma Consulting
Sources: Smart Pharma Consulting
June 2014
1 Brazil, Russia, India, China
Truths & Untruths in the Global Pharma Industry 19
4th
Statement: BRIC countries are the Eldorado of pharma companies
The key question for pharma companies is not anymore: “Should we operate in BRIC countries?”
but “How can we run a profitable business?”
These emerging markets appear to be less attractive and more complicated than anticipated:
− The Chinese market sales growth rate is lower than forecasted
− Access through local registration procedures and affordability by local patients remain strong barriers to
the development of global pharma companies in all BRIC countries
− Governments tend to favor the development of domestic companies at the expense of foreign
multinationals (e.g. Brazil, Russia, India, China) through the implementation drastic price controls,
amongst other measures
− Local rules and business practices are not always clear to understand and nor in line with the code of
business ethics of foreign pharma companies
− Low protection of Intellectual Property: India has declared compulsory licensing on several brands (e.g. In
2012, a compulsory license of Bayer’s Nexavar, indicated for hepatocarcinoma, was granted to the Indian
generic company Natco Pharma Ltd)
− Local currencies are weak and may fall significantly (e.g. Russia, recently)
True or Untrue?
The profitability of foreign pharma companies operating in BRIC1 countries remains a
key issue for most of them and their situation is unlikely to improve in the short term
1, rue Houdart de Lamotte – 75015 Paris – France • Tel.: +33 6 11 96 33 78 • Fax: +33 1 45 57 46 59 • E-mail: [email protected] • Website: www.smart-pharma.com
Consulting company dedicated to the pharmaceutical sector operating in the complementary domains of strategy, management and organization
Smart Pharma Consulting
Core capabilities
Strategy 1
Assessing the attractiveness of markets (Hospital / retail innovative products - Vaccines - OTC - Generics)
Growth strategy
Optimization of marketing / sales investments
Development of a company in the hospital market Business
Valuation for acquisition
Portfolio / franchise assessment
Extension of product life cycle performance
Improvement mature products performance
Adaptation of price strategy
Defense strategies vs. new entrants
Competitive strategies in the hospital market
Strategic partnerships companies / pharmacies
Rethink of operational units organization
Improvement of sales force effectiveness
Improvement of the distribution channels covering the hospital and retail markets
Development of a strategic planning process
Organization 3
Organization
Facilitation and structuring of strategic thinking for multidisciplinary product teams
Key challenges identification
Strategic options formalization
Resource allocation optimization program
Training of marketing and market research teams to sales forecast techniques (modeling and scenarios development)
Development and implementation of a "coaching program" for area managers
Sales reps coaching
Regional action plans roll-out
Development and implementation of a "sales techniques program" for sales forces (STAR1)
Management 2
1 Sales Techniques Application for Results (training courser