Blockbuster drugs coming off patent will knock a major hole in our export figures and tax revenues
PHARMACEUTICALS HAVE been a driving force for Ireland’s export success in recent years. Even through the darkest days of our financial collapse and recession, the sector, dominated by the large multinational players, continued to deliver export growth and a glimmer of hope of economic recovery.
However, the most recent trade figures point to a looming problem for the Government. Reporting a 9 per cent fall in exports in December, the Central Statistics Office was unusually frank and detailed in stating that “a substantial part of the decline in the value of exports was due to a high value product in the chemicals and related products sector coming off patent”.
The drug is Lipitor, Pfizer’s blockbuster cholesterol lowering therapy and the world’s best-selling drug in recent years, accounting for revenues of $10.7 billion in 2010. Pfizer’s Cork plant produces 100 per cent of the company’s global requirements for the active pharmaceutical ingredient in the drug and a significant portion of the finished tablets.
Coming off patent will knock a major hole in the future revenues Pfizer can expect to get from the drug as generic competition kicks in. As a rule, loss of patent protection can hit the value of sales by anything between 40 and 70 per cent over time – and not much time at that.
For Ireland, the concern in the December figures was that, for now, generic competition to Lipitor is limited. If that was enough to skew the export figures so dramatically, the worry is what damage future, more intense competition will do to our trade balance.
And Lipitor is just one of a number of key drugs in which Ireland has a commercial interest and which are coming off patent. Chris van Egeraat, a lecturer in economic geography at NUI Maynooth, says seven of the 10 largest-selling drugs worldwide which are losing patent protection are currently produced in Ireland. They include the best-selling drug worldwide in 2010 after Lipitor; Sanofi/Bristol Myers Squibb’s blood clotting treatment Plavix, with sales of $9.43 billion. It comes off patent in May.
Globally, it is estimated that as much as $100 billion in sales will be lost to drug companies between 2009 and 2014 as a result of drugs coming off patent. Expected pipeline delivery in terms of market revenue over the same time amounts to about $30 billion, Dr van Egeraat says.
While he doesn’t expect the loss of patents to lead to huge imminent job losses, it does highlight the ambition of the Government’s new Action Plan for Jobs, which has targeted the health and life sciences sector for significant growth in the coming years to help reach the Government’s 100,000 job target.
However, loss of market sales will clearly impact on trade figures and tax revenues. The Irish Pharmaceutical Healthcare Association (IPHA) notes that the pharmaceuticals sector accounts for roughly half of all exports and is the largest contributor to corporation tax, accounting for roughly 50 per cent of the €3.5 billion collected last year.
In employment terms, IPHA president and Pfizer country manager David Gallagher says that about 25,000 people are employed directly in the industry, with a roughly similar number working in related sectors. He notes that pharmaceuticals has been more resilient than other sectors of the economy during recent “economically challenging times”.
The message is pointed, especially at a time when the sector is locked in a dispute with the Government over access to market for its new drugs and the contribution it can make to savings in the health budget sought by the State.
David Gallagher noted recently that an increasing number of innovative medicines are currently not being reimbursed by the Department of Health, despite being approved by regulators and meeting health technology assessments.
He recently accused the department of acting in bad faith by refusing to approve drugs for reimbursement as provided for under the industry’s current pricing agreement with the Department, even though the industry had delivered savings of about €540 million over the past five years, a figure he says equates to a 20 per cent cut.
Even before the latest row, the IPHA said the delay between approval and market access had jumped by over 50 per cent to 157 days in recent years, and only 64 per cent of drugs that received market authorisation in the EU between 2007 and 2009 were made available to patients here.
Matt Moran, director of Ibec group PharmaChem Ireland, said Government policy “needs to urgently recognise the very serious challenges facing the industry”.
“A number of blockbuster drugs are coming off patent and healthcare spending in Ireland has been cut by €600 million in the last five years,” he said. “The future success of the sector must not be taken for granted.”
In a speech last year, Gallagher said further price concessions were “simply untenable”, citing preliminary 2011 figures pointing to a 5.2 per cent decline in the value of the Irish market. “There is a limit to the amount which can be taken out of a market without its effective operation and employment being jeopardised,” he said.
Ireland is not alone. The commercial prospects for big pharma were also thrown into sharp focus with a report on the UK’s pharmaceuticals price regulation scheme, which reported collective industry losses of £142 million in 2009 despite rising sales.
For its part, the Department of Health needs to find cuts in its budget. In a recent report on pharma pricing, the Economic and Social Research Institute (ESRI) said that drug costs account for about 17.5 per cent of public health expenditure in Ireland, up from 14 per cent in 2000.
In 2009, the ESRI says, spending per head of population in Ireland on pharmaceuticals was “amongst the highest in the OECD”.
It is understood the Department of Health is targeting a saving of about €112 million from the drugs bill – either in terms of pricing and access for new medicines or pricing of generics.
The ESRI report recommended a number of approaches. These included pricing drugs on the basis of the lowest cost in a basket of European markets rather than the average, and more regular price updates to capture the impact of falling prices earlier.
The industry says that, despite the small physical size of the Irish market, such a move would be negative in two ways. First, Ireland is itself a component of pricing baskets in eight other larger EU markets. A “match the lowest” price here will inevitably further eat into prices in other more important markets.
Secondly, the industry points to Ireland’s importance as a base of operations for most of the main players in the sector. An increasingly adversarial approach with the State will only damage the prospects for future investment, they say, with one industry source saying the recent approach of the department to market access for new drugs was creating a very poor impression in a number of important boardrooms State-side.
The seriousness with which the pharmaceutical sector views the current price negotiations in Ireland – where eight of the top 10 global players have operations – is highlighted by the engagement of some of the industry’s leading figures with the Government.
The chief executive of one major global player has made a point of briefly visiting Ireland next week. The message in his first visit to the State will not be lost on ministers. The following week, leading executives from another top 10 drug manufacturers gather in Dublin for a meeting at which the attitude of the State to the sector is certain to figure.
On the Government’s side, there is concern too at any adverse impact on such a major employer and contributor to the exchequer. Taoiseach Enda Kenny has recently engaged directly in private meetings with top industry figures here to assure them of the Government’s support despite the ongoing budgetary squeeze.
For their part, the drug companies say that current pricing pressures are restricting innovations. Without adequate compensation, they say, companies simply will not be able to invest in new products given the costs involved and the risk of failure.
This isn’t unique to Ireland. Reporting annual results earlier this month, Bayer chief executive Marijn Dekkers expressed concern “about the side-effects” of health service reforms taking place around the world “because the money we earn from today’s medicines pays for the development of tomorrow’s medicines”.
Pointing to the €2 billion research and development cost of Xarelto, a new drug developed with Johnson Johnson to prevent blood clotting, he said: “We need innovative pharmaceuticals more than ever, because so many known diseases still cannot be treated adequately, or at all, with medicines.”
But that’s part of the problem for the major pharmaceutical companies. Many of the easy treatment areas are now well catered for. A good portion of the drugs that do so are shortly coming off patent and are easily accessible to generic competition.
The opportunities of the future lie in increasingly niche conditions or very high risk areas such as oncology and, especially, neurology. Added to this is the move to biologics and the trend towards more personalised medicines.
The challenge is evident in the fact that, last year, the US drug regulator, the Food and Drug Administration, licensed just a handful of new pharmaceutical therapies. Getting this more select group of drugs to as many markets as possible is increasingly critical for big pharma.
The age of the blockbuster is fading, along with the fat profit margins it offered. That presents major issues for the sector. Over time, through consolidation and acquisition, they have grown into massive unwieldy entities with poorly directed research failing to deliver sufficient pipeline.
In recent years, much effort has been devoted to streamlining operations and increasing productivity, especially on the research side. Thousands of jobs have been shed worldwide, and greater emphasis placed on outsourcing much of the early-stage RD work.
A case in point is Elan’s prospective Alzheimer’s treatment bapineuzumab. Originally developed by the company in association with Wyeth, it is now controlled by Pfizer (which acquired Wyeth to fill a perceived weakness in its biopharmaceuticals operations) and Johnson Johnson, which bought an 18.4 per cent stake in Elan in 2009 in a deal valued at $1 billion. Its interest was driven largely by the Irish company’s pipeline – particularly bapineuzumab which is seen as one of the more promising candidates to address a disease with limited treatment options at present and which reports critical Phase III trial data later this year.
The second focus is on developing new markets. But that presents its own problems, not least with business practices that have reflected poorly on the industry.
Several of the largest drug companies have been implicated in an ongoing legal action in Serbia in which a group of 10 doctors and drug company officials were charged with taking, or offering, more than €500,000 in bribes to use specific products. While all deny guilt in this case, an examination of US Securities and Exchange Commission (SEC) filings by the world’s top 10 drug companies has found that eight of them recently warned of potential costs related to charges of corruption in overseas markets.
Life is unlikely to get any easier for the sector over the coming two or three years. That raises the stakes in the ongoing price negotiations. The new accord was due to come into force yesterday and, as the leaked Commission assessment this week illustrated, pressure on the Government to deliver the necessary savings to ensure their budgetary projections is only likely to intensify.
Friday, March 02, 2012
Is big pharma about to take a fall? - The Irish Times