First of all, a big thank you to the folks at asiahealthspace.com for the warm welcome. I am very much looking forward to contributing to the space.
In the next 2 – 3 years the much talked about patent cliff in the pharmaceutical industry will gain real momentum and traction. Some estimates value the impending loss of revenue as dramatic as USD 100 – 200 billion a year or approximately 10% of the total annual global pharmaceutical output. It is clear that the implications on the pharmaceutical industry as we know it today will be dramatic and profound.
Companies that stand to lose the most have been using a range of traditional M&A (merger and acquisitions) tactics to stem the pending revenue drain. 2009 alone brought three high-profile deals meant to strengthen product portfolios and pipelines: Pfizer paid US$68 billion for Wyeth, Merck bought Schering-Plough for US$41 billion, and Roche paid in excess of US$47 billion for the 44% of Genentech that it did not already own. This year Sanofi acquired Genzyme for US$ 21 billion and Takeda acquired Nycomed for close to US$ 10 billion.
Yet even with this latest round of M&A activity, it is remarkable that no single firm commands more than 8 – 9% of the global prescription drug market.
So, are companies now looking more inwards and starting to define strategies for growth from within? At least according to Chris Viehbacher, CEO of Sanofi this is certainly the way forward for his company. In a recent investor relations meeting, Chris Viehbacher stated that he is convinced that the key to avoiding another patent cliff in Sanofi is to reduce its dependence on “small molecules which have limited patent lives,” in favor of businesses with high barriers to entry, such as speciality health care and consumer health. At the same investor meeting, Chris Viehbacher stated the Sanofi’s “growth platforms”, i.e. emerging markets, diabetes, human vaccines, consumer healthcare, innovative products and animal health combined in 2011 will contribute to approx. 66% of total revenues and in 2015 approxiamately 85%. Reading between the lines, it is thus clear that at least in Sanofi’s case, speciality health care and consumer health will be key drivers for Sanofi’s future success and also a way to mitigate the risks of future patent cliffs.
In the next round of contributions, I will be focusing more on what the growing trend towards speciality health care means for Asia and how this is likely to reshape the industry in this part of the world.
Henrik Glarbo
Hi Henrik,
We look forward to your insights into the pharma industry,its substantial challenges, and what actions are taken to maintain growth opportunities and profitability. I wanted to see your views on a claim by IMS that shows that despite the fear of the “patent cliff” over the past 4-5 years, branded pharmaceuticals have, at least in Asia, continued to sell well, in fact have grown their total sales, despite generic alternative being made available in these markets.
Please see this post for further interest:
http://www.asiahealthspace.com/?p=3636
Warm regards,
Tej
Hi Tej,
Many thanks for the warm welcome and feedback.
It is indeed true that both the prescription and the consumer markets in Asia are by and large branded markets.
Even if you include Japan, the world’s 2nd largest pharma market by value in the equation, this still remains true. Japan with virtually all health care being centrally funded by the treasury and now ridden with dizzying high public debt, one would think should have the greatest motivation of all to increase the use of generics!
All said and done, generics are on the rise in Asia, but curiously many generic firms are also finding that they still need branding and building trust with its key local stakeholders in order to succeed and sustain itself. Doing generics in Asia is certainly not the desktop trading business that increasingly characterizes generics in the US or Europe.
There are many reasons for this, but the overarching one is that prescribers and users are still very brand driven in Asia. Health is important and not to be taken lightly. Although affordability is always a consideration in Asia, product quality, the company’s standing and reputation also rank high in the minds of particularly prescribers and users.
The power of branding and how companies can solidify their brands is indeed one the areas I will touch on in my upcoming posts, so stay tuned!
Henrik