Pharma’s future has never looked more promising – or more ominous. Major scientific, technological and socioeconomic changes will revive the industry’s fortunes in another decade, but capitalising on these trends will entail making crucial decisions first

1. Pharma’s future has never looked more promising – or more ominous.
Major scientific, technological and socioeconomic changes will revive
the industry’s fortunes in another decade, but capitalising on these
trends will entail making crucial decisions first
From vision
to decision
Pharma 2020
www.pwc.com/pharma2020

2. Contents
Introduction 1
Chapter 1 The best of times, the worst of times 2
Chapter 2 The mature markets: Maximising the molecule 8
Chapter 3 The growth markets: Hot, cold, hard to get right 18
Chapter 4 R&D: Beautiful hypotheses, ugly facts 24
Chapter 5 Portfolio management: Choosing the best jam 32
Chapter 6 Corporate culture: Culprit and cure? 38
Chapter 7 Conclusion: From vision to decision 42
References 43
Key national indicators 48
Acknowledgements 50
Contacts 51

3. Many of the conditions that will determine what happens
in 2020 are already in place. But does that mean pharma’s
fate is sealed? Far from it!
Introduction Major scientific and technological
advances, coupled with sociodemographic
• Cultural sclerosis
The prevailing management culture,
changes, increasing demand for medicines mental models and strategies on which
and trade liberalisation, will revive the industry relies are the same ones
pharma’s fortunes in another 10 years it’s traditionally relied on, even though
and deliver dramatic improvements in they’ve been eclipsed by new ways
patient care. But if the industry is to of doing business.
prosper in the future, it must first make
sure it has a future. Of course, many of the conditions that
will determine what happens in 2020
We’ve outlined our vision of what lies are already in place. Most, if not all,
ahead in previous Pharma 2020 papers. of the products that will be launched
The theme of our latest paper is decisions: by then are already in the pipeline.
the decisions pharma companies will Similarly, many of the senior executives
need to make between now and the who will be at the helm have already
end of the decade to capitalise on the been earmarked for high office or
opportunities the next decade holds. appointed. And changing the culture
of a large organisation can take years.
We believe the industry faces three
fundamental challenges: But does that mean pharma’s fate
is sealed? Far from it!
• ising customer expectations
R
The commercial environment is getting We believe there are various things
harsher. Healthcare payers are companies can do both to increase
imposing new cost constraints on their chances of reaching 2020 and to
providers and are scrutinising the value ready themselves for more favourable
of medicines more carefully. They want conditions thereafter. In the following
new therapies that are clinically and pages, we’ll look at how to maximise
economically better than the existing the value of new and existing medicines,
alternatives, together with hard, develop business models for the growth
real-world outcomes data to back any markets, improve scientific productivity
claims about a medicine’s superiority. and reinvigorate the corporate culture.
We’ll focus on the areas where the most
• oor scientific productivity
P important decisions must be made.
Pharma’s output has flatlined for the
past decade. Yet the processes it uses
to discover and develop new products
remain much the same. So there’s little
reason to think its productivity will
suddenly soar.
From vision to decision 1

4. The best of times, the Inexpensive gene sequencing will let
doctors diagnose and treat patients
worst of times
based on information about their
individual genomes. And, by 2020,
genetic testing will be part of mainstream
medical practice in some countries.
“It was the best of times, it was the worst of times, it was
the age of wisdom, it was the age of foolishness, it was Technological developments have also
paved the way for electronic medical
the epoch of belief, it was the epoch of incredulity….” record (EMR) systems that capture vast
Charles Dickens quantities of outcomes data. Numerous
healthcare providers in the mature and
growth markets alike are building the
necessary infrastructure. Meanwhile,
The opening words to Charles Dickens’s with sophisticated data sharing, processing
novel A Tale of Two Cities perfectly and mining techniques, scientists can
encapsulate the situation pharma easily collaborate and make better sense
finds itself in right now. The outlook of what they see.
has never seemed more promising –
or more ominous. In effect, two changes are taking place
concurrently. Our technologies for
The best of times collecting biological data are improving
Let’s start with the good news: a rapidly by many orders of magnitude. Our
strengthening scientific base, growing technologies for synthesising and
demand for medicines and the removal analysing that data are also becoming
of former impediments to free trade. much cheaper and more efficient.
Together, these advances will help
A strengthening scientific base pharma break through some of the
The scientific foundation on which barriers that have previously held it back
pharma rests is improving exponentially, (see box, Big data’s big dividends).3
thanks to massive increases in processing
power; advances in genetics and The progress we’ve already made
genomics; and new data management in understanding breast cancer is
tools. For the last half-century, computers a quintessential example. For many
have been doubling in performance years scientists thought breast cancer
and capacity every 18 months. This was a single disease. Then, in 1990,
revolution has transformed biomedical researchers discovered the first gene
research. In 2001, it cost US$95 million to be associated with hereditary breast
to read an entire human genome.1 Today, cancer. Now they’ve succeeded in teasing
two leading manufacturers are developing apart differences in DNA to identify
machines that can do so for as little as 10 subtypes, each with a unique genetic
$1,000 – in a matter of hours.2 fingerprint (see Figure 1).4
2 Pharma 2020

5. Big data’s big dividends
One industry marketer recently and query technologies – the industry
remarked: “Every patient experience will be able to develop more effective,
now generates rivers of data which, if personalised medicines. It will also
pooled intelligently, can trace a detailed be able to shift the focus from reaction
portrait of a patient’s health and, when to prevention.
aggregated with other patient data
streams, can coalesce into deep Several companies have already
reservoirs of knowledge about entire started exploiting this trend. Genomic
disease states and patient populations.” research firm CardioDX analysed more This leap in our knowledge has transformed
than 100 million gene samples to identify the prognosis for women with breast
That’s the promise of ‘big data’, and the 23 primary predictive genes for cancer. The five-year relative survival rate
the deluge is increasing all the time. coronary artery disease. It’s now has soared from 63% in the early 1960s
We create about 2.5 million terabytes developed a test that can identify coronary to 90%, and most of the improvement has
of data a day. Pervasive monitoring artery disease in its earliest stages. taken place in the last two decades.5
and ‘anywhere interface’ technologies
that turn a rigid surface into an interface Meanwhile, US data and lab testing A better understanding of disease has
with an electronic device will make it service company Medivo is mining produced new medicines, diagnostics
easier still to collect huge quantities laboratory records for patient and and lines of research. Take Benlysta,
of data on how patients respond to disease insights. It’s consolidated data one of the first treatments to come from
different treatments. Combine that from more than 50 million patients in mapping the human genome and the
with ubiquitous gene sequencing and a simple, easy-to-use system that helps first new therapy for lupus in 50 years.
the why will begin to emerge. doctors see the patterns in a patient’s The researchers who discovered Benlysta
disease, as well as the patient’s trawled through a library of human DNA
Big data’s potential in pharmaceutical response to a given treatment. And hunting for genes whose function wasn’t
RD is enormous. Armed with vast Sanofi recently tied up with pharmacy known, but whose characteristics suggested
amounts of biological data and the benefits manager Medco Health they were linked to lupus – ignoring the
tools to process it – cutting-edge Solutions to get ‘real-world’ insights conventional wisdom that you couldn’t use
analytics, streaming, massively parallel into how different therapies compare a gene to find a new medicine without
processing and domain-specific access when used in a normal clinical setting. understanding what the gene did.6
Figure 1 Our understanding of breast cancer is being transformed
William Halstead realises that breast cancer
spreads from a primary tumour and introduces
radical mastectomy
Investigators discover that tumours fuelled by
oestrogen and progesterone behave differently. Herceptin, the first targeted treatment for women
Tamoxifen, the first drug to block the activity of with HER2-positive breast cancer, is launched
oestrogen, is launched
Scientists sequence 42 tumours and identify
several different subtypes
The human genome
is mapped in full
1940-60 1990 1994 2004 2012
2020
1894 1977 1998 2000 2003
Myraid Genetics DNA testing of
isolates BRCA1 tumours reveals 10
different subtypes
Mary Claire-King and her Genome Health launches
colleagues at Berkeley prove the first genetic test for
Researchers establish that 75% of the BRCA1 gene exists women with oestrogen
breast cancers are fuelled by oestrogen
receptor-positive breast
and progesterone
cancer
Source: PwC
From vision to decision 3

6. Figure 2 The global pharmaceutical market could be worth nearly $1.6 trillion by 2020
US$ billions
500 499
425
400
337
300
273
205 194 205
200 183
149
127
100
27 31
0
United States Canada EU-Big 5 Japan Growth ROW
markets
Sales in 2011 Sales in 2020
Source: Business Monitor International
Notes: (1). All sales are expressed in US dollars at constant exchange rates; (2). The growth markets include, in
descending order of size, China, Brazil, Russia, India, Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia,
South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan and Vietnam. (3) EU-Big 5 is France, Germany, Italy,
Spain and United Kingdom.
Genomics isn’t the only field in which
we’ve made great headway. Several stem Working out
cell therapies have already reached the our wiring
While there’s still a lot more to market and Canadian regulators recently
approved the first stem cell medicine
learn about the human body, manufactured for off-the-shelf use.
Most diseases stem from
disturbances in the way the
medical researchers have made Developed by Osiris Therapeutics, molecular components in a human
Prochymal is a treatment for acute
huge strides in the past few graft-versus-host disease, using
cell interact, rather than a single
genetic abnormality. This
years – and even better things mesenchymal stem cells derived from intracellular network is immensely
the bone marrow of healthy adult donors.7
lie ahead complex. It has more than 100,000
different components – including
With disciplines like epigenetics, we’re about 25,000 protein-encoding
also beginning to understand the impact genes, 1,000 metabolites and an as
of heritable biological elements that yet unknown number of distinct
aren’t directly encoded in our DNA. And proteins and functional RNA
with concepts like network medicine, molecules – all of which function
we’re developing the means to understand interdependently.
the molecular relationships between
apparently distinct ‘pathophenotypes’ With network medicine, researchers
(see box, Working out our wiring).8 aim to create ‘wiring diagrams’ of
the cells whose breakdown causes a
So, while there’s still a lot more to particular disease – much as vehicle
learn about the human body, medical manufacturers create wiring
researchers have made huge strides diagrams of a car’s electronics, so
in the past few years – and even better that a mechanic can fix any faults.
things lie ahead. By 2020, the financial Such diagrams will ultimately help
and intellectual investment of the last pharma develop treatments that can
10 years should be starting to yield ‘fix’ the underlying components of
big rewards. disease, as distinct from its symptoms.
4 Pharma 2020

7. Escalating demand for medicines eight-year drive to provide universal Poor scientific productivity
That’s not all. The global pharmaceutical coverage.19 And India’s National Take the vexed issue of the industry’s
market is growing steadily, with sales Rural Health Mission has achieved scientific productivity. Although the
reaching $1.08 trillion in 2011 – a considerable progress in the 6½ years number of new medicines reaching the
year-on-year increase of 7.8%. The since it was launched, although much market picked up in 2011, pharma’s
mature economies proved very sluggish, still remains to be done.20 annual output has effectively flatlined
but the growth economies were another for the past 10 years (see Figure 3).
matter. Sales in the BRIC countries In short, there are more people – and
(Brazil, China, India and Russia) rose more sick or elderly people – in the world Developing new medicines is becoming
by 22.6%, while sales in the other 13 today than ever before. More people an increasingly expensive business, too,
growth countries (the ‘fast followers’, have access to affordable healthcare although precisely how expensive is the
as we call them) rose by 7.2%.9 than ever before. And, by 2020, access subject of fierce debate. In 2006, the
to healthcare may well be regarded Tufts Center for the Study of Drug
If this pattern continues, the market everywhere as a basic human right. Development put average costs per
for medicines could be worth nearly molecule at $1.24-1.32 billion.22 Various
$1.6 trillion by 2020 (see Figure 2).10 Trade liberalisation commentators have since challenged
Indeed, it could be worth even more. Many of the historical barriers to free these figures, claiming that the real cost
Demand for pharma’s products is rising trade have also been removed, bringing is anything from $75 million to $4
dramatically, as the global population a period of unprecedented growth in billion, although most people lean
increases, ages and becomes more global trade. Between 2001 and 2011, towards the higher end of the range.23
sedentary. In 2010, there were an the total value of merchandise export
estimated 6.9 billion people. By 2020, flows (excluding services) soared from Tighter regulation
there will be more than 7.6 billion.11 And, $6.2 trillion to $18.2 trillion in current The regulatory environment is
if present trends are any guide, many of US dollars.21 simultaneously getting more rigorous.
them will have health problems. The European Medicines Agency (EMA)
In some respects, then, pharma’s never recently introduced a new, three-pronged
More than 30% of the population won’t had it so good. The tools to develop approach to the management of adverse
get enough physical exercise;12 more than remarkable new medicines are reactions.24 And the Food and Drug
20% will be overweight or obese;13 and materialising, demand for its products Administration (FDA) is building an
more than 13% will be 60 or older.14 is escalating and trade is getting easier. active surveillance system called Sentinel
These are all factors that increase the risk to oversee the safety of all medicines on
of developing heart disease, diabetes and The worst of times the US market.25
cancer. The number of people reaching Yet pharma also faces some enormous
really old age is also mounting, and the obstacles. Innovation has declined, the
prevalence of dementia doubles every regulations are becoming more onerous
five years after the age of 65.15 Hence the and market conditions are getting
World Health Organisation’s prediction harsher, as healthcare costs everywhere
that, by 2020, non-communicable keep rising.
diseases will account for 44 million
deaths a year, 15% more than in 2010.16
Figure 3 Pharma’s scientific productivity has flatlined for a full decade
The global incidence of infectious
diseases is increasing as well. That’s partly Number of products approved
because some diseases have become
drug-resistant. But over the past few 40
decades new pathogens such as HIV and 35 7
MRSA have emerged. And old scourges
30 6
like pertussis have reared their heads 8 14 11
10 15
again. In fact, the number of cases of 25
11
10
pertussis in the US is now higher than 20
9 10 11
at any time since the early 1970s.17
15
Meanwhile, many of the growth economies 10
are improving access to healthcare.
5
Brazil’s introducing mobile clinics for 27 24 17 21 31 18 18 16 21 19 15 24
0
rural communities.18 China’s on track
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
with a US$125 billion programme to
extend health insurance cover to more New molecular entities Biologics
than 90% of the population by the end Source: EvaluatePharma, ‘World Preview 2018’ (June 2012)
of 2012. Mexico has just completed an
From vision to decision 5

8. Regulators around the globe are also Some instances? Russia started enforcing
The market’s getting much collaborating more closely, so a product mark-up limits on imported medicines in
that’s rejected in one region is more April 2010.28 India announced plans to
tougher, with tighter likely to be rejected in others. In late control the prices of 400 essential
regulation, harsher price 2010, for example, the EMA pulled products in November 2011.29 And
diabetes drug Avandia, while the FDA Turkey has upped the discount on
controls and greater imposed strict restrictions on its use, and treatments reimbursed through its social
government scrutiny, all the two agencies swapped notes before security system.30
reaching a decision.26
trends that will grow Many governments are also clamping
More difficult market conditions down on dubious promotional practices.
Things are even tougher on the The US authorities have been
marketing and sales front. The ‘patent particularly active. Between 2000 and
cliff’ is one major factor; between 2012 mid-2012, the industry paid more than
and 2018, generic erosion will wipe $30 billion to settle 226 violations,
about $148 billion off pharma’s revenues including off-label marketing and
(see Figure 4). Harsher price controls are overcharging of taxpayer-funded health
another. Most of the mature economies programmes like Medicaid – and the
already use direct and indirect price penalties have been steadily escalating
controls, as we noted in ‘Pharma 2020: (see Figure 5).31
Taxing times ahead’.27 But conditions are
getting more difficult in the growth The US is by no means alone, though;
economies as well. 24 countries have now introduced laws or
codes of conduct requiring that pharma
companies disclose any interactions with
Figure 4 Big Pharma’s earnings are tumbling over the patent cliff
healthcare professionals who are also
customers.32 And a recent analysis of the
Securities and Exchange filings made by
Expected sales losses (US$ billions)
the top companies shows that eight face
35 33 charges of corruption in foreign markets.33
30
25
21 21
20 19 19
18
17
15
10
5
0
2012 2013 2014 2015 2016 2017 2018
Sources: EvaluatePharma, ‘World Preview 2018’ (June 2012)
Note: Estimate of losses based on top 500 pharmaceutical and biotech companies.
6 Pharma 2020

9. As the governments of the growth Figure 5 Pharma’s incurring bigger and more frequent financial penalties in the US
economies invest more public funds in
healthcare, the regulators become more
proactive and patients become more Number of settlements Total penalties (US$ millions)
demanding, pharma will come under 50 8,000
even closer scrutiny. The way it conducts 7,000
clinical trials, the partnerships it forms 40
6,000
with payers and providers, its tendering
and contracting strategies, pricing 30 5,000
agreements and digital marketing, how 4,000
it handles patient safety – all will attract 20 3,000
more attention.
2,000
10
Soaring healthcare costs 1,000
Yet, serious as these issues are, there’s
0 0
arguably an even bigger hurdle facing 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
pharma: namely, the rising healthcare
bill. Healthcare expenditure as a Settlements Financial penalties
percentage of gross domestic product
Source: Public Citizen
(GDP) is climbing in countries in every Note: Figures for 2012 cover period up to 18 July 2012.
income bracket, and it’s climbing most
steeply in the mature markets where the
industry has historically made most of its Figure 6 Healthcare’s consuming a larger share of GDP in rich and poor countries alike
money (see Figure 6).
This trend is unsustainable, but the only Healthcare expenditure as % GDP
way to reverse it is by altering our 16 15.5
concept of healthcare itself. Instead of 14
13.9
focusing on the treatment of disease, we 12.7
12
need to focus on curing – or, better still, 10.9
9.6 10.1
preventing – it. And pharma has a crucial 10
role to play in making the transition. 8
6.2
5.7 5.9
6 5.4 5.4
Two key challenges 5.0
5.3
5.9 6.2
So where does the industry now stand? 4
4.1 4.0
4.8
It’s proved remarkably resilient, given 2
the many problems it’s dealing with.
0
But, in essence, it faces two overarching 1995 2000 2005 2010 2015E 2020E
challenges. Tomorrow’s challenge is to
develop new medicines that can prevent High income Middle income Low income
or cure currently incurable diseases. Source: World Bank and PwC analysis
Today’s challenge is to get to tomorrow
– and that’s a tall order in itself.
Fortunately, there are a number of steps
senior executives can take to help their
companies reach 2020 and ready them
for the opportunities the next decade
brings. But some of these steps will entail
making very difficult decisions.
From vision to decision 7

10. The mature markets: Crushing burdens
Financial pressures have played a part
Maximising the molecule in hardening healthcare payers’ policies.
The mature markets have experienced
enormous turmoil in the past five years
– and though fiscal stimuli have
“A thing is worth only as much as it can be sold for.” produced a fragile recovery in the
Publilius Syrus strongest economies, the situation is still
dire in the GIIPS countries (see
Pharmageddon? on page 16).
Crushing demographic and
epidemiological factors have compounded
these economic woes. More than
There are big differences within the three-quarters of all Americans are
mature markets and over the past few overweight or obese. Obesity is also a big
years the differences have been growing. problem in the rest of the mature markets,
In this chapter we’ll focus on pharma’s with the exception of Japan. But Japan
prospects in Canada, France, Germany, has other troubles; by 2020, 34% of the
Japan, the UK and US, and the decisions population will be 60 or older. (See
involved in maximising returns in these our list of key national indicators on
markets. We’ll also touch on the situation page 48.)
in Greece, Ireland, Italy, Portugal and
Spain (the GIIPS economies), where the Age and obesity are both associated with
issue is not so much how to increase more illness and, sure enough, the
sales as how to reconcile conflicting prevalence of diseases like diabetes has
ethical and commercial responsibilities. soared.34 The US has been hit especially
hard. Some 11.3% of adults – rising to
Collectively, Canada, France, Germany, 26.9% of those aged 65-plus – have
Japan, the UK and US still generate 59% diabetes. Another 35% – rising to 50% of
of the industry’s total revenues (see those aged 65-plus – have prediabetes.35
Figure 1). But they’re becoming more In fact, diabetes now accounts for about
difficult places in which to prosper for one in every 10 healthcare dollars.36
one key reason. They’re all demanding But the US isn’t alone. The prevalence
better outcomes as a precondition for of diabetes has been creeping up in
paying for new medicines – a change we Europe, too.37
expect to result in new regulatory
requirements by 2020.
8 Pharma 2020

11. Consumer power is increasing the Affordable care and its The law also encourages healthcare
challenge. Patients in the mature implications professionals to band together in
economies have higher expectations than Consider the recent healthcare reforms in accountable care organisations (ACOs)
ever before. They want medicines for the US. The Affordable Care Act aims to to deliver better, more coordinated
conditions previous generations simply improve access to healthcare by bringing care, help prevent disease and reduce
endured. They want medicines that work another 30 million citizens within the unnecessary hospital admissions. Those
for them. And they only have to turn to insurance net.40 It also aims, among that offer a superior service and cut costs
the Internet to find out what’s available other things, to reduce out-of-pocket will be allowed to keep some of the
– or, indeed, to broadcast their opinions: expenses on pharmaceuticals, which money they’ve saved – an incentive that’s
16% of US adults in one recent survey should enhance patient compliance. generated considerable interest. To date,
said they post reviews of the treatments 65 ACOs have been set up and the
they take on social media sites.38 The act includes various provisions number’s expected to double over the
intended to offset the cost of the coming 12 months.42
These financial, demographic and social changes, some of which will fall
pressures are driving up healthcare on pharma’s shoulders. We estimate These changes will inevitably expose
expenditure dramatically. So it’s easy to that these provisions will reduce the medicines to much greater scrutiny.
see why healthcare payers and providers industry’s revenues from branded When healthcare providers are paid for
in the mature countries are doing all medicines by $112 billion over the the value they create, they’ll apply the
they can to curb the bill. Their resources next decade (excluding the effect of same criterion to the therapies they
are finite – and they’re particularly keen introducing a biosimilars pathway). prescribe. In fact, they’re already starting
to address the so-called HONDAs Assuming a modest increase in sales to do so. Four-fifths of the US health
(Hypertensive, Obese, Non-compliant, from expanded insurance coverage, insurers we polled in a recent survey now
Diabetic Asthmatics) who account for an the net loss will be about $97 billion.41 require evidence of cost savings or a clear
estimated 70% of healthcare costs.39 clinical benefit to include new products
But the new law has far wider in their formularies. 16% have also
ramifications – and the biggest of all, entered into outcomes-based contracts
perhaps, is value-based purchasing. with pharma companies, while another
From 2013, all hospitals serving 33% expect to do so within three years.43
Medicare patients with the most common
conditions will be paid for the quality of So the Affordable Care Act will have
the care, rather than the quantity of a huge impact on pharma. Historically,
services, they supply. The same concept drugmakers have sold their products
will be extended to other healthcare by the unit at prices they themselves
providers over the next few years. have set, with discounts for volume
buyers. But with the shift from unit
pricing to value-based purchasing, it’s
Figure 1 markets generate three-fifths of pharma’s revenues from prescription
Six what customers think – not what the
products manufacturer thinks – that matters most.
New products will be priced on the basis
Percentage of sales in 2011 of the value buyers accord them. And the
pharma company’s relationship with the
healthcare community won’t stop when
the deal’s signed; it will continue for the
United States
31 duration of the patient’s treatment.
ROW 41
12
Japan
2
4 5 5
Canada
United Kingdom Germany
France
Source: Business Monitor International
From vision to decision 9

12. Tough talk in the EU, Above all, the mature economies are Pharma’s biologics bet
Canada and Japan encouraging generic prescribing – and But what’s pharma been doing? It’s been
The other mature economies have also some have been doing so for many years. concentrating on biologics for cancer
been reforming their healthcare systems, Indeed, as of 2009, the French social and rare diseases. Nearly 30% of the
as we predicted in ‘Pharma 2020: The health insurance system even offers 7,891 molecules currently in clinical
vision’. And, like the US, they’re taking doctors individual guidance on rational testing cover cancer and autoimmune
a much harder stance. prescribing.50 Such initiatives have had conditions.52 An estimated 460
a pronounced effect on prescribing medicines for rare disorders are also in
In 2010, the German Bundestag passed patterns. Generic spending in the mature trials, although there’s some overlap
the AMNOG health bill, under which all markets is forecast to rise by $35-40 between the two areas (see Figure 2).53
new therapies must be independently billion over the next five years, with 60%
assessed against a comparator within of the increase coming from greater Most such treatments cost far more than
12 months of reaching the market and utilisation of existing generics.51 chemical molecules. In the UK, for
priced in line with the improvement example, the average price of a biologic
they offer.44 The UK will also introduce So the message healthcare payers in the is about £9,500 ($14,750) per patient
compulsory, value-based pricing of all mature markets are sending out is loud per year, compared with £450 ($700) for
new drugs in 2014.45 Both these systems and clear: give us new medicines that are a conventional therapy.54 Prices are even
mark a major departure from previous clinically and economically better than higher in the US and some products for
practice; in the past, economic what’s already available – medicines that rare diseases cost hundreds of thousands
evaluation of medicines in the EU has decrease mortality or morbidity, make of dollars.
been used to determine whether to the care pathway more efficient or
reimburse them – not to set prices. reduce the total resources a patient
consumes. And give us hard, real-world
Meanwhile, health researchers in data to back up your claims.
Canada are investigating the idea of
a pan-national body to negotiate drug
prices, thereby reducing the inequities
Figure 2 There are 460 therapies for rare diseases in the pipeline
between provinces with more and less
buying power. They’re also examining
the feasibility of performing real-time
Number of drugs
evaluations of medicines.46 Autoimmune disorders 18
Blood disorders 12
Japan is exploring yet other options,
Cancer 107
including the expansion of its scheme
for re-pricing medicines whose sales Cancer-related conditions 10
are much higher than expected.47 Cancer, blood 79
It also imposed a 1.26% cut in prices Cancer, skin 31
(using total healthcare expenditure Cardiovascular diseases 6
as its base) in April 2012.48 And the
Eye disorders 11
Ministry of Health, Labour and Welfare
Gastrointestinal disorders 10
is considering whether to introduce
health technology assessments.49 Genetic disorders 67
Growth disorders 5
Further changes are afoot. Several Infectious diseases 31
countries have introduced fixed, Neurological disorders 37
all-inclusive hospital tariffs for the
Respiratory disorders 14
treatment of specific diseases, with
Transplantation 20
penalties for emergency re-admissions.
And many healthcare payers are looking Other 37
for opportunities to reduce costs by 0 20 40 60 80 100 120
moving the point of care from the hospital
to the doctor’s office or patient’s home. Source: PhRMA
10 Pharma 2020

13. The value dilemma Figure 3 Pharma has an additional lever in the form of outcomes data
In short, the mature markets have been
evolving economically, demographically
and structurally, but pharma hasn’t kept Outcomes impact
abreast of the changes. It’s continued
to pursue its old ‘get more, pay more’
approach, even though the mature Marketing
and sales
markets are running out of money and RD Patent
some of the medicines it’s developed productivity extension
Costs
arguably provide little extra value.
$0
What healthcare payers want, by
contrast, is more value for the same
money or the same value for less. And
they can afford to play a waiting game.
RD (12-13 years) Marketing and sales (7-8 years)
As a growing number of treatments come
off patent, they’ll soon be able to buy the
same medicines at lower prices anyway. Source: PwC
So pharma’s contributed to the position The outcomes lever marketing and sales. Rather than
in which it finds itself. And any company There are other implications, too. In the focusing on commercial potential, for
that wants to reach 2020 will either have past, pharma had four ‘profit’ levers: example, the RD function will have to
to offer more value without charging RD productivity, cost cutting, marketing focus on creating value for customers
more or prove unequivocally that it can and extension of the period of market when it decides which medicines to
remove costs from another part of the exclusivity. Most businesses relied progress through the pipeline. It will also
healthcare system to make room for the mainly on marketing, but this lever has have to collect proof of that value, using
higher prices it’s charging. become much less effective now that real-world outcomes data.
payers and providers scrutinise outcomes
Moreover, since many of the medicines so carefully. No matter how many sales Similarly, rather than using unit prices
in the industry’s pipeline went into reps a company fields or how many and sales volumes to produce budgets
development before these market forces samples it hands out, if a new treatment and forecasts, the health economics
were so strong, some products may be doesn’t offer more value than competing function will have to use outcomes-based
incapable of meeting healthcare payers’ therapies, healthcare payers in the modelling and make sure that investors
expectations. It takes at least a decade to mature markets simply won’t buy it. understand the approach it’s adopting.
develop a new drug and only six months It will also have to set up systems capable
to change a clinical pathway. A lot of That said, the industry now has another of managing an intricate network of
companies may thus have to slash their lever in the form of outcomes data. contingency payments and rebates.
portfolios at very short notice. Instead of ‘creating awareness’, it can
demonstrate the worth of its products The marketing and sales function will
with real-world evidence of lower have to make even bigger adjustments.
mortality and morbidity rates or savings It will have to grapple with rigorous
in total healthcare costs (see Figure 3). scientific data and complex economic
studies, as well as developing the skills
But pulling the ‘outcomes lever’ will to negotiate with healthcare payers
require major changes, and three equipped to perform their own
functions will be particularly deeply sophisticated analyses.
affected: RD, health economics and
From vision to decision 11

14. Maximising the molecule
So what, more specifically, can pharma Reinforcing the power of the pill
companies do to ‘maximise the molecule’?
We’ll look at four ways to create more With ingestible microchips embedded now incorporated the game into
value for customers: plugging ‘leaks’ in drugs, doctors will soon be able to physiotherapy programmes.
in the healthcare system; collecting tell whether patients are taking their
real-world evidence of a medicine’s medicines as prescribed. Proteus But other companies have used the
effectiveness; measuring how patients Digital Health’s chips are one of same idea. HopeLab has launched
feel; and developing companion several new technologies that aim a video game designed to foster a
diagnostics for specialist therapies. to improve compliance. Other devices positive attitude in young cancer
in the pipeline include implants that sufferers. Players can use a variety of
Plug leaks in the wirelessly inject drugs at pre-specified ‘weapons’ to zap malignant cells, with
healthcare system times and sensors that send a patient’s 20 levels each providing information
Since healthcare payers want better electrocardiogram to a smart phone. about different treatments and the
clinical and economic outcomes, one importance of adhering to them. Bayer
logical place to start is by analysing the Mobile health applications also hold has also created a blood glucose
care pathway to identify where the huge promise. mHealth apps store monitoring system that can be plugged
outcomes from existing treatments Happtique has, for example, launched into a Nintendo. Didget aims to teach
are impaired. Our research shows that, a pilot programme that lets doctors children with diabetes how to manage
in the US alone, roughly $210 billion prescribe apps as part of an overall their disease by rewarding them for
a year is wasted on overuse or misuse healthcare package. mHealth will testing themselves regularly with new
of medicines and procedures. Care for revolutionise healthcare in at least two scenarios and characters.
conditions that could be corrected respects. It will encourage patients to
through lifestyle changes costs another take responsibility for their own health Health video games merge the worlds
$303-493 billion a year.55 and provide a means of measuring key of healthcare and entertainment. More
health parameters in a comprehensive, sophisticated biomonitoring devices
The first step is to map out the different continuous fashion. and mHealth apps will produce further
stages in the pathway for a given disease convergence. Fast-forward and
– from the stage at which the patient is Remote monitoring devices and biosensors will eventually be able to
at risk to the stage at which the disease mHealth will eliminate some of the record everything we eat and drink,
is no longer controllable through obstacles to non-compliance. The as well as the amount of exercise we
medication. The next step is to find the ‘gamification’ of healthcare has a take. They’ll track the number of
places in the care pathway where value different end: encouraging people to calories we consume, remind us to
is lost, because of the patient’s behaviour lead a healthier lifestyle by making it go to the gym and warn us when we
or failings in the healthcare system. fun. Nintendo’s Wii Fit video game is open the refrigerator for that diet-
Many of these leaks occur at transition probably the best-known example of blowing snack.
points in the care pathway, where there’s this approach. Several hospitals have
unnecessary duplication and waste.
Once a company has pinpointed the
leaks, it can identify the sort of
interventions that might help and where
they’re required. This might include
screening for a disease while it’s still in
the asymptomatic stage, offering dietary
advice, reducing a drug’s dosing
frequency, providing reminders or,
indeed, many other things (see box,
Reinforcing the power of the pill).56
12 Pharma 2020

15. A number of medical technology firms pharma’s walls. EMRs, electronic But capturing patient-reported outcomes
are already exploring new ways of prescribing data, patient compliance in clinical trials requires a lot of upfront
creating added value, as we noted in data and the like are important pieces planning, particularly when new
‘Owning the disease’.57 A few pharma of the jigsaw puzzle. measurement tools must be developed
companies have started doing likewise. and validated first. So it’s essential to
In June 2010, for example, Pfizer The industry will also have to convince start early in the process. It’s also
launched a vascular health check service healthcare payers of the reliability of its important to capture the patient
in British pharmacies.58 Similarly, data and that could be an uphill struggle. perspective from as many sources as
GlaxoSmithKline (GSK) has linked up Only 5% of the US health insurers we possible. Social media can be a rich
with specialist technology provider recently surveyed are very confident of source of information here – and the
MedTrust Online to offer an iPhone the quality of the economic data pharma number of people using such outlets will
app that lets US oncologists search companies provide, and only 7% are very only increase. In the US, for example,
for clinical trials by cancer type and confident of the quality of the information 83% of Internet users aged 18-29 use
automatically identifies the trial centres they receive on a drug’s comparative social networking sites, compared with
nearest their patients.59 effectiveness.61 just 33% of those aged 65-plus.64
Meanwhile, Boehringer Ingelheim is There are several things the industry Online patient groups and blogs provide
piloting a digital health management can do to foster trust. For instance, an opportunity to listen to patients
service for patients with diabetes. It it can sponsor independent research talking openly about their experiences.
combines a personalised action plan on the cost-effectiveness of its products Several firms have already set up
and digital coaching with wireless or get independent verification of its disease-specific communities and sell
monitoring to measure the impact of data. It can also agree on a set of the insights they collect. With new
behavioural changes.60 But many more common measures for assessing clinical technologies for processing natural
opportunities for stopping the leaks and and economic value to reduce the language and analysing unstructured
enhancing outcomes exist. administrative burden on its customers. data, it’s also getting easier for pharma
companies to monitor the digital
Collect real-world evidence Measure the feel factor grapevine themselves.
of value It’s not just clinical and economic
We’ve talked about maximising outcomes that count, though. Nearly That said, it’s imperative the industry
molecules that are already on the market. a third of the quality measures initially secure proper patient consent and treat
What about those that are still in the used for value-based purchasing of all such data responsibly. Privacy and
pipeline? With value-based purchasing, healthcare services in the US rest on security violations can cause serious
it’s imperative to collect the sort of patient satisfaction.62 So healthcare reputational damage, in addition to
information healthcare payers want – providers will have to take account of other problems like the loss of vital
and traditional randomised controlled how patients feel. clinical data. Yet our research shows that
trials don’t capture that data. They’re nearly three-quarters of US healthcare
designed to measure the safety and The number of pharma companies organisations (including pharma
efficacy of a new medicine in carefully that measure the patient experience companies) use health data for secondary
managed conditions, not how well it is still very small. But Incyte’s recent purposes other than those for which it
works in the real world. use of patient-reported outcomes with was collected, and less than half have
myelofibrosis drug Jakafi shows just how put robust safeguards in place.65
We’ll discuss the sort of trials that provide valuable a tool it can be. The FDA stated
evidence of a medicine’s economic value that it was a vital element in the decision
in more detail in chapter 4. But, among to approve Jakafi and, unusually, let
other things, they entail setting up a the company include information about
real-world data infrastructure. Most symptom relief on the packaging.
companies will have to collaborate with Incyte’s efforts have been recognised
other organisations to do this, since in the marketplace, too. Jakafi sells for
much of the information that’s needed to $84,000 a year in the US – compared
develop medicines with a better clinical with the $40,000-60,000 it was
and economic profile lies outside originally expected to fetch.63
From vision to decision 13

16. Creating companion diagnostics for medicines that target
a specific disease subtype lets doctors maximise the value
of those medicines themselves
Develop companion diagnostics The FDA has also signalled that it would
for specialist medicines like to see more specialist medicines
Another way companies can maximise paired with companion diagnostics and
the molecules they’re developing is to sometimes accelerates the review
create companion diagnostics that let process for such products. But when the
doctors maximise the value of those ‘carrot’ doesn’t work, it’s ready to wield
molecules themselves. There’s no point the stick. In 2010, the agency refused to
in prescribing therapies that target one approve leukaemia treatment Omapro
disease subtype for patients who suffer without a diagnostic to identify the
from another, as healthcare payers target patient base.66
recognise. And they’re prepared to
reward innovations that help them direct NICE rejected melanoma therapy Yervoy
precious resources more effectively. for reimbursement on the same grounds
(see Table 1). in 2011.67 So failing to develop a
diagnostic test for a costly treatment
that’s aimed at a tiny patient population
Table 1
Targeted medicines with companion diagnostics generate high revenues
may damage its prospects of commercial
because they work so well for specific patient segments
success. Indeed, we think that, by 2020,
companion diagnostics will be mandatory
Population for approval of all such medicines.
Annualised testing positive
cost per for biomarker Projected sales
Product Indication patient in US Biomarker (%) (2012-2018)
Erbitux Colorectal, head $84,000 EGFR+ 37.5 $13.42 billion
and neck cancer KRAS-wt
Herceptin + Breast cancer $124,800 HER-2+ 25 $49.96 billion
Perjeta
Tarceva Non-small cell $52,800 EGFR+ 10-15 $10.8 billion
lung cancer
Xalkori Non-small cell $115,200 ALK+ 4-7 $4.76 billion
lung cancer
Zelboraf Melanoma $112,800 BRAF+ 13.5 $4.25 billion
Sources: EvaluatePharma and The Pink Sheet
Note: Projected sales are cumulative and global.
14 Pharma 2020

17. What’s it worth? Maximising the molecule will involve
To sum up, the message healthcare major decisions about which diseases
payers in the mature markets are sending to concentrate on, which medicines to
is clear: they want more value for their pursue, what data to collect and how
money, they’re measuring the value best to plug leaks in the healthcare
they get more carefully and they’re not system. The vast majority of companies
prepared to pay thousands of dollars for will also need to revise their budgeting
medicines that offer only incremental and forecasting processes, billing and
improvements in outcomes. Their payment systems and the way they go
pockets aren’t deep enough. to market.
But what healthcare payers mean by Most importantly of all, they’ll need to
‘value’ is also becoming clearer, as the keep the big picture in mind at all times.
Healthcare payers in the Treatments that prevent disease, cure
pricing and reimbursement processes
mature markets want more they use become more transparent. otherwise incurable diseases, reduce the
And the scope for helping them make overall use of resources and let patients
value for their money and stay as productive as possible for as long
savings is huge. Thus far, pharma’s
they’re measuring the value focused on the roughly 15% of the as possible: these are the sort of
health budget that goes on medicines.68 medicines governments and health
they get much more carefully insurers in the mature markets will buy.
That leaves another 85% from which
it can generate revenues by reducing
consumption of more costly medical And, in the end, as the Roman writer
services. If it succeeds in doing this – and Publilius Syrus once noted, “A thing is
in surmounting sociopolitical opposition worth only as much as it can be sold for.”
to the rebalancing of the mix – we think So it’s what payers, providers and
its share of healthcare expenditure in patients value that will determine the
the mature economies could rise to 20% value pharma creates for its shareholders.
by 2020.
From vision to decision 15

18. Pharmageddon? Tighter economic
governance
The financial problems in the GIIPS Under EU law, national governments are
economies have already had a significant responsible for setting health policy and
impact on pharma. The European organising and financing healthcare, so
Federation of Pharmaceutical Industries the EU’s health initiatives are generally
and Associations (EFPIA) estimates that confined to promoting cross-border
price cuts and discounts in all five cooperation and setting health and
markets reduced the industry’s revenues safety standards. But, with strict fiscal
by more than €7 billion ($8.8 billion) in rules enshrined in the EU treaties and
2010 and 2011. But, with other countries European Fiscal Compact, as well as
demanding similar discounts, the stringent bailout terms for the member
indirect cost was much higher.69 states that have accepted help from the
EU and International Monetary Fund
The next few years also look bleak. (IMF), EU economic governance poses
The governments of the GIIPS states are an increasingly important constraint
tightening their budgets, and expenditure on healthcare.
on healthcare – including prescription
medicines – is a prime target. Opposition Portugal, for example, is currently
from the voting public, industry implementing the terms of an EU/IMF
advocates and subnational governments rescue package under which the
in some countries may temper these government is required to enact
efforts. Even so, pharmaceutical sales in legislation to rationalise the use of
the five GIIPS economies are expected to health services and reduce overall public
fall to $65.4 billion by 2020, down from spending on medicines. So it’s likely to
$81.3 billion in 2011 (see Figure 1). issue new cost-saving provisions. One
option is to halve the prices of drugs
whose patents expire.70 The next annual
review of drug prices, due in early 2013,
may well bring additional cuts.
Figure 1 By 2020, pharma’s revenues will be lower in four of the five GIIPS markets
US$ billions
40
34.6
35
30 29.0 28.0
25
19.2
20
15
9.3
10 8.5
6.2
5.1
5 3.2 3.6
0
Greece Ireland Italy Portugal Spain
Sales in 2011 Projected sales in 2020
Source: Business Monitor International
Note: All sales are expressed in US dollars at constant exchange rates.
16 Pharma 2020

19. The Greek government has also initiated The Italian and Spanish governments are Pharma’s efforts to curb the practice
various healthcare reforms, including both at loggerheads with the regional have been repeatedly stymied, even
a restrictive reimbursement list, under administrations, which manage most though most studies show that it’s the
its two EU/IMF Memorandums of public healthcare spending. In Italy, this middlemen – not healthcare payers –
Understanding.71 Other cost-saving is partly because the Cabinet hopes to who benefit most. But resistance may
measures may involve the promotion of conclude a health pact with the country’s finally be softening. In May 2012, the
generics. In March 2012, for example, regional governments in mid-November European Commission launched an
the Italian government passed a that will probably reduce the amount of investigation into the parallel trade of
‘liberalisation’ law strengthening the money transferred to them.78 The pharmaceuticals. It’s reported to be
rules on the use of generic alternatives.72 Cabinet will also set new standard cost considering whether the industry is
And, in July 2012, the Irish Minister for measurements to allow for more efficient justified in arguing for differential pricing
Health introduced a draft bill permitting healthcare budgeting and lay out a of drugs bought for re-exportation.85
automatic generic substitution which, timeline for adoption by the end of
if passed, could cut the country’s 2012.79 Its recent spending review A tightrope to walk
expenditure on medicines by €50 billion includes other measures to limit public The key issue pharma companies trading
a year.73 spending on medicines and medical in the GIIPS economies face, then, is how
devices, force suppliers to return part best to balance the needs of patients
Mounting debts of their compensation when hospitals with their own commercial imperatives.
Price cuts and generic erosion aren’t the run over budget and impose deeper That entails making some hard decisions
industry’s only grounds for concern, discounts on pharmaceuticals.80 about whether to impose more rigorous
though. Ireland apart, all the GIIPS payment terms, whether to restrict the
countries have deferred payment of their Patients will be expected to pick up a products they supply and whether to
medicines bills, with an estimated bigger share of their medical expenses serve patients via different channels,
€12-15 billion owing by the end of 2011.74 in the coming years, too. Italy and thereby giving patients access to the
Spain are both trying to reduce costs treatments they require without going
The problem started in Greece, where by shifting more of the burden of through bankrupt public hospitals.
the hospitals racked up debts of about pharmaceutical expenditure to private
€7 billion in the latter part of the last payers. For example, the Spanish Health It also entails coping with considerable
decade. Many of those bills remain Ministry recently eliminated over 400 uncertainty. As the Eurozone crisis
unpaid, and the Greek government drugs from its reimbursement lists.81 unfolds, prolonged austerity and market
recently passed a law stipulating that And, in April 2012, it introduced pressure may contribute to public
if the country exceeded its annual co-payments on medicines for pensioners, discontent and political instability.
medicines budget, the industry would be as well as raising co-payments for Changes in government in the GIIPS
required to pay for any overspending.75 everyone in the workforce, with countries and elsewhere haven’t
increases tied to income levels.82 generally resulted in the reversal of
The contagion subsequently spread austerity measures and structural reform
to Italy, Portugal and Spain. Grey trading policies thus far. But it remains to be
Macroeconomics research group The financial plight of the GIIPS seen whether voters will continue to
Prometeia reports that Italy’s local health economies has had one last change of tolerate austerity in the longer term.
authorities took an average 262 days to particular significance for pharma: the
pay their medicines bills in 2011, while increase in re-exportation of medicines
payment delays in Portugal rose from from lower- priced to higher-priced
375 days to 453 days.76 The Spanish countries. In 2009, the ‘grey’ market for
health system was in an even worse prescription drugs in Europe was worth
position until June 2012, when the about €5.2 billion a year (at ex-factory
government set aside €17 billion to cover prices).83 But EFPIA reports that there’s
rising debts in the autonomous regions.77 been a marked rise in parallel trading in
recent months.84
From vision to decision 17

20. The growth markets: Hot and cold at the
same time
Hot, cold, hard to get right The growth markets are as hot as boiling
water, but they can also be as cold as ice.
On the one hand, they’re expanding
rapidly. By 2020, the BRIC economies
“If a man has one foot in a bucket of ice and the other alone will account for 33% of the world’s
in a bucket of boiling water, he is, on the average, GDP, measured in terms of purchasing
power parity (PPP) – up from 25%
very comfortable.” in 2009.86
Mark Twain
On the other hand, the growth markets
come with some enormous challenges,
including their geographic size, cultural
diversity, underdeveloped infrastructure,
fragmented distribution systems and
Figure 1 Demand for medicines is rising rapidly in the growth markets weak regulations that are often
ineffectively enforced. Average incomes
are also much lower than they are in the
US$ billions developed world.
200
175.8 172.2
So the growth markets have great
175
commercial potential, but they could
150 take as long as 20 years to catch up
125 with the mature markets. And, in the
meantime, doing business in these
100
countries carries a lot of risks for the
76.6
75 66.9 inexperienced or unwary.
57.3
45.1 48.8
50
25.6 A foot in each bucket
25 20.7 15.6 Pharma’s prospects reflect this
0 dichotomy. On the upside, expenditure
China Brazil Russia India Fast followers
on medicines is rising far faster in the
Sales in 2011 Projected sales in 2020 growth economies than it is elsewhere.
In aggregate, it could reach $499 billion
Source: Business Monitor International
a year by 2020 – up from $205 billion in
Notes: (1) All sales are expressed in US dollars at constant exchange rates; (2) The fast followers include
Argentina, Egypt, Indonesia, Mexico, Pakistan, Poland, Romania, South Africa, Thailand, Turkey, Ukraine, 2011 – as economic expansion and better
Venezuela and Vietnam. access to healthcare drive up demand
(see Figure 1).
On the downside, serving the growth
markets is very difficult, both because
of their intrinsic problems and because
they vary so much. They differ
politically, geographically, religiously,
18 Pharma 2020