2009 – the year pharma came of age?
Posted 31st December 2009 in Articles, General | 2 comments
Paul Tunnah
pharmaphorum
As 2010 fast approaches, I wanted to reflect on the highlights of 2009. It has certainly been a tough year for pharma like so many other industries as the global recession bit deep. However, pharma had already been feeling the pain even before the financial crisis emerged, caught in the headlights of the impending patent cliff and faced with increasing cost containment challenges that at best limited penetration of new medicines, at worst preventing them ever reaching the market.
But it is not all doom and gloom. Forced to adapt, become more efficient and truly start to innovate its business model I would suggest that 2009 could become known as the year that pharma came of age and matured as an industry.
Here are my five highlights from the past year.
1) Sales reps continue out, Twitter comes in
Sales force downsizing has continued in 2009 throughout most of the major pharma companies, with reports of AstraZeneca offering its entire sales force the option of redundancy in October being the “highlight” of such activities. This in itself is not news, merely a trend that has been ongoing for several years as pharma realises the impact of the rep is often not paying for itself.
What has changed in 2009 is the real emergence of new technologies and social media to allow pharma to interact with its customers in a more cost-efficient way. This includes measures that have been around for a while such as the use of more advanced mobile technology for the remaining sales force and increasingly sophisticated use of the internet for “e-detailing”. However, the hot topic of 2009 has definitely been the emergence of social media in the pharma space.
Patients and healthcare professionals have been aware of such tools for a while, using sites such as Twitter and blogs to discuss medicines and diseases. In 2009, pharma woke up and smelt the social media coffee, realising this was a medium that was here to stay and not just a personal tool for keeping in touch with friends you never saw.
“…the hot topic of 2009 has definitely been the emergence of social media in the pharma space.”
At the end of 2009, many of the major pharma companies have established Twitter accounts, either as a corporate entity or through a specific individual blogging in an approved capacity. The phenomenon has taken off so quickly that the US Food and Drug Administration (FDA) held a two day meeting in November to discuss how to manage pharma promotion / discussion through the internet, recognising that issues such as drug promotion and adverse event reporting need to be monitored.
No-one has any straightforward answers but pharma is likely to invest significantly in its social media presence in 2010.
2) From mega acquisitions to diversification
The year started with the Pfizer acquisition of Wyeth being the major story in the news – a $68bn deal that seemed to suggest the golden days of big pharma consolidation were back. Some questioned exactly what Pfizer had got for laying out its hard earned cash and I would speculate that even the Pfizer senior execs did not see this as a long-term fix to the challenges facing the world’s biggest pharma company. For sure, Wyeth came with a leading reputation in the vaccines and biologics sector and also increased Pfizer’s strength in the oncology sector. What this acquisition really did for Pfizer though was to immediately offer a more diversified portfolio and hence reduce the shareholder risk.
The theme of diversification and reducing risk is one that has really come to the fore in the latter half of 2009. Certainly in the last quarter of 2009, the deals market seems to be breathing new life with big pharma increasingly looking to take out options on promising new candidates and more often looking to build relationships with a broader portfolio of smaller companies rather than acquire specific discrete entities.
Diversification has also been observed in recent activity around big pharma expanding its presence into both generics and consumer health / over-the-counter (OTC) medicines, such as the recent $1.9bn acquisition of Chattem by Sanofi-Aventis. And who would have thought 12 months ago that the CEO of Pfizer would have been endorsing a pathway for approval of biogenerics?
Expect to see shareholders driving more big pharma to diversify in 2010.
3) Emerging markets become the focus
Diversification has also been a theme for the recent charge into emerging markets, in particular Eastern markets such as China. Pharma has been talking about emerging markets for a few years now, lured by promises of 20% growth per annum, but the second half of 2009 has seen real strides towards capturing a key foothold in emerging regions.
These regions offer untapped revenue streams and levels of growth that simply do not exist in the Western markets, but also offer significant cost savings as a hub for R&D activities, something which has come to the fore as pharma looks to bolster margins.
Recent examples include Pfizer expanding its R&D facilities in China; Takeda gearing up for Indian market entry through hiring the former regional head at Roche and Novartis; Roche expanding its manufacturing presence in Singapore; and Novartis investing over $1bn in China in 2009 including plans for building the largest R&D plant in the region.
“These regions offer untapped revenue streams and levels of growth that simply do not exist in the Western markets…”
GlaxoSmithKline is probably leading the pack in terms of focus on emerging markets, with CEO Andrew Witty being early to recognise the potential of these regions. Its head of emerging markets, Abbas Hussain, recently stated it would continue to lead the rest in these markets and outlined a strategy of cutting prices to go for volume over margin.
2010 should see competition in the emerging Eastern markets hot up considerably and pharma looking closely at other high growth regions such as South America and the Middle East.
4) H1N1 swine flu – a pig of an epidemic
The dreaded H1N1 swine flu is perhaps one of the non-events in 2009, so far famed for being a bit of an anticlimax. H1N1 (incidentally the Hx and Nx represent the variants of the hemagluttinin and neuraminidase proteins found on the surface of the virus) first came to our attention in late April when the first cases were observed in the US and Mexico, with the World Health Organization (WHO) declaring it a public health emergency. Fears arose over whether this could be the next big flu epidemic, perhaps even to rival the Spanish flu epidemic of 1918 as the first deaths were reported and the virus spread globally.
Whilst it has no doubt presented a serious challenge, with at least 12,000 deaths from the virus reported for the year by the WHO in late December, it has so far failed to live up the initial concerns. What captured my interest about this story in 2009 was the speed with which public awareness was raised through modern media and with which the pharma industry could respond.
One could take a cynical view of the industry response, with flu medication / vaccine manufacturers certainly benefitting from all the media hype (Roche expects to see Tamiflu sales of almost 3bn Swiss francs for the full year) but it is almost certain these medicines have helped to manage the disease. Lessons have also been learnt about stockpiling, formulation and administration, not to mention the challenges of convincing the public with respect to the safety of such treatments.
The debate will rage and rage over whether the 2009 swine flu was a very real threat that has been well managed by government cooperation with the industry or simply a cynical ploy to scaremonger and generate more drug sales. But if H1N1 or another dangerous variant does rear its head again in 2010 hopefully we will be better prepared from the experience of 2009 and that can only be a good thing.
5) US healthcare reform nears the finish line
The leading story at the end of the year has been the passage of President Obama’s proposed healthcare reform in the US. At the core of the bill is recognition that the US must reduce spending on healthcare, with the US spending a greater proportion of its GDP on it than most other countries.
Democrats and Republicans have been at odds over the content of the bill, with key divisions on issues such as extending insurance cover through a public option, increased tax through private schemes, abortion and ultimately the overall cost and savings from the bill. At this juncture it looks like it will almost certainly come into force early in 2010 once the Senate and the House of Representatives have agreed a mutually acceptable version, despite continued protests from the Republicans.
Speaking from a European perspective, this reform is certain to lead to increased scrutiny over the value medicines provide rather than simply the clinical benefits, a view more akin to the assessments undertaken by bodies such as the UK’s National Institute for Health and Clinical Excellence (NICE). Whilst US pharma execs are concerned about potential pricing restrictions this will impose, in the long run the industry will find a way to cope – and perhaps it will help drive innovation. You could even argue that the US Food and Drug Administration (FDA) is already keeping one eye on the cost of novel medicines when assessing them for approval anyway.
“It seems that 2010 will be the year that the US brings cost-effectiveness into the open…”
Certainly in the UK, we are seeing increased “partnership” approaches to working with NICE and the NHS where risk-share and mutual benefit take precedence over push selling. It seems that 2010 will be the year that the US brings cost-effectiveness into the open and partnership with regulatory authorities / cost-effectiveness bodies becomes the order of the day.
Conclusion
In summary, my highlights of 2009 show an industry that is forward thinking, striving to adapt and become more efficient. By no means is pharma perfect and it certainly still has a PR problem (at least in part caused by some dubious historic marketing practices) but it is progressing in the right direction. Hopefully this will lead to a more commercially successful industry, which can in turn invest more in innovation and this will ultimately benefit the key people here – the patients.
Happy New Year!
About the author:
Paul Tunnah is the founder of pharmaphorum. He would hesitate to regard himself as an “expert” on anything but does find running a site like pharmaphorum gives you a healthy helicopter view of the world. He welcomes comments on his views, whether in agreement or not, and can be reached through the contact form or by posting below.
What were your key highlights of 2009 for pharma and what will 2010 hold?
7th January 2010, 22:14
I still think the jury is out on the whole Twitter thing - it's caught the attention of people but already many are losing interest. Time will tell.
The rest I think are fair predictions.
8th January 2010, 09:03
I agree that the industry is "striving to adapt", but I believe this is because it has not been forward thinking previously. Despite the writing being on the wall for years about rising healthcare costs, ageing populations, cost-containment pressures, tightening of regulatory controls, reduction of sales growth opportunities in developed markets, etc etc the industry appears to only recently have looked into the mirror and realised it is not in good shape.
All the above signals ought to have sparked diversification much earlier in my view. Let's just take one quick example:
Given the cash strapped healthcare budgets of most developed nations, wasn't it absolutely obvious, I mean, blindingly obvious, that governments would want to encourage, even enforce, generic prescribing? Yet we have some pharma companies who have come out and stated publicly that generics is not for them.
There is a theory in business that says it is best to "stick to the knitting", meaning, do what you are best at and don't go diversifying off into other fields where you don't have the expertise. And I think there is some merit in that philosophy, to a point. However, if you don't have the expertise you have a choice of ignoring it, building it, or acquiring it by some other method. Smart companies have seen the opportunity and threat that generics offer and have acted, usually, to acquire it.
But we still have some that ignore it and hope it will go away. It won't. But their business will.
A comment now about efficiency. I don't think that pharma companies are becoming more efficient necessarily. I think they are becoming less efficient. They have lost sight of their customers and what their customers actually want and need from the industry. They are choking on their own internal checklists of what constitutes efficiency and have become very introspective. The sum total of the past 10 years academic study and implementation of various kinds of "Salesforce Effectiveness" or "Business Excellence" initiatves appears to boil down to just two major conclusions:
Key Account Management and Value creation
Didn't we know that before?
I read an article a short while ago talking about what characteristics the most successful sales reps share. It was mind-blowing stuff in so much as it was all the things that you might have expected...
Good interpersonal skills, good product knowledge, good customer knowledge and strong relationships etc
There wasn't anything in there at all about their ability to comply with a calling plan to within a specified percentage. How strange?
Looking forward to 2010 - what will this hold?
More of the same I think. Mergers and takeovers, big fish eating smaller fish, not because they are hungry, but because that's what big fish do. Reducing revenues forcing together new partnerships, marriages of convenience, where the motive is cost reduction, not synergy. More loss of skilled and talented employees from the industry - half hearted forages into emerging markets to try and recover lost growth - less new products reaching registration - growth of generics and small specialist players.
Sorry if I'm making it sound gloomy - it's actually not all bad news.
One of the biggest opportunities for pharma is that offered by the growth of social media. However, typical old pharma, we don't see glaringly obvious opportunities too early eh? Steve9, your comment about Twitter sums up the attitude of many, "the jury is out - many are losing interest".
Actually, I think the jury has never been in. If you think about social media along the lines of an adoption ladder, we are at the "Aware" stage. Some people are curious. Some are even interested. Few have reached the trial stage or adopted this as routine. Yet, at a time when access to our customers has never been so low, or so difficult, this media provides the opportunity to reach not hundreds, or thousands, but millions of customers, all across the world, on different continents, in different countries, in different time zones, in different languages, all at the same moment.
People don't know how to adopt this into their plans - that's why some may be losing interest. But those were never the ones that were going to make a success of it anyway. They will have their success with social media, in about 10 years time, when it has become the norm and by then the competitive advantage will have disappeared. Late stage adopters, and laggards, are rarely ever wrong.
Now, go on, someone please tell me...
"but we are a regulated industry".
The above statement is an innovation killer. It is the catch-phrase of those with no imagination and an excuse for not acting. No-one is suggesting for one moment that we should breach industry rules or regulations, only that we seek to maximise our commercial efforts within them.
If you buy all that, then the only other thing standing in your way between adoption of social media as a key marketing strategy is the necessity to prove Return On Investment to your bosses. A good idea cannot possibly be a good idea, unless you can prove ROI eh?
or no?
