Growth after low-hanging fruit has been picked

Jason Hesse leads a discussion among four industry experts on how the healthcare sector can overcome its problems and adapt to a challenging future

Stefan Gijssels, vice president public affairs, Janssen Pharmaceuticals, is chairman of the Federation of Belgian Industries communications committee and also a leading member of the European Federation of Pharmaceutical Industries and Associations (EFPIA).

 

Professor Stanton Newman, dean of health sciences, City University London, is a specialist in the impact of surgery on the brain and the management of chronic disease, including using telehealth.

 

Ana Nicholls, healthcare analyst, Economist Intelligence Unit, founded the unit’s industry briefing services, and now oversees the automotive, healthcare, and consumer goods and retail sectors.

 

Antony Odell, managing director, Tissue Regenix, previously chief executive of a UK NHS cardiovascular device spin-out, Tayside Flow Technologies, spent ten years with Johnson & Johnson Medical in European business development.  

The pharmaceutical industry is faced with a crisis of innovation. While the last 60 years saw huge advances in research and development, the number of new drugs approved has fallen considerably since the turn of the millennium. Between 2000 and 2010, the US Food and Drug Administration (FDA) approved an average of just 24 drugs a year, compared with an average of 31 medicines a year in the 1990s.

But this year the FDA expects to approve 35 new drugs once a number of experimental medicines come to the fore. And the trend is set to continue. Research by McKinsey determined that between 2012 and 2016 the industry should continue to average 35 new products a year. Yet firms will struggle to make a strong return on their investment as costs to bring new medicines to the market grow. 

The days of finding easy cures are over, says Ana Nicholls, healthcare analyst at the Economist Intelligence Unit. “The low-hanging fruit has already been gathered. It’s increasingly difficult to come up with new solutions for diseases, because as you look more closely at them, the problem becomes more complex.”

Stefan Gijssels, vice president public affairs of Janssen Pharmaceuticals agrees. “For many diseases, the easiest cures have been found. Now we’re looking at tough diseases – Alzheimer’s, lung cancer and some infectious diseases. But finding a solution is incredibly complex.”

Blockbusters are a thing of the past… the industry is changing and adapting to the new environment

As an example of how difficult – and costly – research and development can be for pharmaceutical companies, Mr Gijssels explains how Janssen worked on developing an Alzheimer’s drug for more than ten years, until it fell in clinical trials when the drug was tested on a wider group of potential patients.

“The drug simply didn’t show any significant improvement on the disease,” he explains. “It was very frustrating. It was the culmination of ten years of research with hundreds of researchers, but we had to stop its development. Its efficacy was just much lower than expected.”

This underscores that, while companies can spend billions of dollars on research and development, there is no guarantee a product will be successful and deliver a return on its investment.

There is also a regulatory burden. For a product to become truly profitable, manufacturers not only need the drug to be approved by the authorities, such as the FDA or European Medicines Agency, but it also needs to be accepted by insurance companies and national health bodies, which subsidise or pay for the products for patients.

“It’s no longer a given that just because you’ve got regulatory approval, you’ll be able to make money on it,” explains Antony Odell, managing director of research and development firm Tissue Regenix. “You can get FDA approval, but it may take another three years for the reimbursement codes which will help get you a decent return.

“And in addition to showing that the product works, you need to demonstrate that it’s bringing something to the market that no one else is doing. Launching ‘me too drugs’ are no longer an option.”

Ms Nicholls adds: “There has been a lot of panic by research and development firms. But by any standards this is still a very profitable industry. It still has the money to invest in its own future. Regulators have been sensitive to pharmaceutical companies getting a return; regulators are not blocking innovation.”

Professor Stanton Newman, dean of City University London’s School of Health Sciences, adds that pharmaceutical companies must also address a “burden of cost effectiveness”.

“In Britain, there is a £30,000 per treatment threshold for limiting what will go into the National Health Service,” he explains. “Then there is a big hurdle from managed care organisations, which look for clear benefits for patients.”

A unique historical feature of the market has been its reliance on so-called blockbuster drugs, which bring in billions of dollars in revenue for pharmaceutical companies, justifying the billions spent on research and development.

For Mr Gijssels, blockbusters are “a thing of the past”. Research by McKinsey shows that innovative products are becoming less profitable. Peak-year sales of innovative products are forecast to decline from around $900 million for products launched in 2012 to around $600 million for products launched in 2015.

“The industry is changing and adapting to the new environment,” says Mr Gijssels. “Most companies try to have a broad portfolio now. Because if you put all your money on blockbusters, it really hurts when the patent expires.

“There really is no other industry like this; it’s unique. Once a patent expires, you lose the market in a couple of months. So you need to compensate for the loss of immediate sales in some way or another. The only possibility for businesses to ensure their revenues are stable is to have a broader portfolio of products with fewer blockbusters. That generates better predictability.”

But the prohibitive costs of research and development are making innovation a struggle for smaller firms, explains Mr Odell.

“There is no more early-stage partnering going on,” he says. “As the big drug companies become more risk-averse, they want to see sales and revenue in an early-stage research and development company before acquiring it. They prefer to hold back and pay a premium for something that has a proven model.”

The next two decades will see the development of smart pills, personalised and regenerative medicine, and integrated healthcare that addresses the growing issue of chronic diseases, the panel agrees. And, increasingly, stakeholders are collaborating to develop these products.

“There is much more open collaboration with academic environments as well as other companies,” says Mr Gijssels. Janssen has more than 4,000 contracts with academic institutions alone.

“In the future, pharmaceutical companies will be just a spider in a web of collaboration. The growth of technology and science is exponential, so it’s impossible for one organisation to have all of the experts internally. So we’re focusing on our core business and subcontracting the rest to other experts.”

Pharmaceutical firms are also increasingly partnering with one another to share the burden of costs – and, if successful, the resulting profits.

Professor Newman adds: “Collaboration opens the door to large-scale trials and sharing data; it’s a unique opportunity. The collection and quality of data could improve significantly. Collaboration will make this easier and more sustainable.”

Yet the pharmaceutical industry is not out of the woods just yet, and profit margins on research and development will continue to tighten.

Mr Gijssels concludes: “It’s easier and financially less risky to put a probe on Mars than to bring a new drug to the market. The timeframes and money involved for a new drug are bigger. And there is another notable difference: if something is wrong with the probe’s design, it can be tweaked. But with a drug, you can’t do that. You have to start again.”