Radical treatments for difficult times

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Radical treatments for difficult times

Home/Pharma News | Posted 30/07/2009 0 Post your comment

The economic downturn is only one of many factors forcing the drug industry to rethink its strategy reported Financial Times pharmaceuticals correspondent Mr Andrew Jack in the British Medical Journal. According to him, large drug makers such as AstraZeneca, GlaxoSmithKline, Merck and Pfizer are being forced to adapt at an increasing pace to a range of growing pressures.

Drug companies’ existing products are under threat from expiring patents and the launch of similar new and generic equivalents; pipelines of experimental treatments to replace them are thin; health systems are making new demands as a condition of reimbursement; and the emerging markets are becoming ever more important.

A survey of companies Mr Jack coordinated last summer showed that more than two thirds had cut costs in sales over the previous two years, and almost 60% had trimmed them in production, distribution, and marketing. Around a quarter were considering substantial additional cuts in marketing and sales. Sales and marketing are among the hardest hit functions, partly because they swelled so fast in the past. A decade of liberalisation in marketing rules and aggressive competition for prescriptions in the US led to an ‘arms race’ of recruitment of many thousands of representatives who ‘detailed’ doctors to push their medicines.

In Europe, more health systems are introducing ‘health technology assessment’ procedures, while others have pegged the price of innovative drugs close to that of generics. In the US, insurers have introduced formularies that also attempt to study value for money, squeezing margins. Tougher, more centralised reimbursement and prescription rules mean that individual doctors have less power, and fewer sales representatives are needed. Newer forms of more sophisticated marketing using more highly qualified sales staff are focusing on making a stronger, evidence-based case directly to payers.

A second area of focus for cost cutting has been manufacturing. The trend for innovative drug companies to buy their generic rivals is partly explained by the acquirers’ desire to exploit the experience of generic companies in production at the lowest possible cost. Biotech companies burning their investors’ cash as they attempt to develop new medicines are in trouble. Ironically, many of the larger, better established companies stand to gain in the short term. With top selling medicines generating billions of pounds in sales each year, they remain cash rich, with little reliance on debt. The big drug companies are able to negotiate better terms for licensing and acquisition of struggling biotech companies that had previously hoped to hold out for more money or go it alone. The downturn has also provided the larger companies with ‘cover’ for job losses already underway.

In the medium term the prospects are not so bright. Recession will accelerate governments’ resolve to tighten health budgets, potentially accelerating US President Barack Obama’s hints that he may become directly involved in drug price negotiations with companies.

Source: BMJ 2009;338:a2955.