Pharma Market Trends 2010

The product mix of pharmaceutical companies' pipelines and commercial drugs is of crucial importance to contract development and manufacturing organizations as they evaluate their service capabilities and tailor them to demand. Market fundamentals are changing. The erosion of the blockbuster-drug model, traditionally supported by small-molecule drugs (i.e., drugs with a molecular weight of < 500 Da), in favor of an increased emphasis on biologic-based development is an important consideration not only for pharmaceutical companies' product strategies, but for contract service providers that offer drug-substance and finished-product manufacturing. Although small-molecule drugs will continue to dominate the overall pharmaceutical market, market growth in small-molecule drugs will contract in the near term. Growth for monoclonal antibodies (mAbs), therapeutic proteins, and vaccines is expected to be strong.

Big Pharma's growing focus on biologics

In 2009, the value of the small-molecules market was $411 billion. The biologics market, on the other hand, was only valued at $124 billion. By 2014, the small-molecule market will contract by $17 billion as a direct result of the 2011 patent cliff and heavy erosion of branded-drug sales caused by generics (1). This large sales decline is the driving force behind the pharmaceutical industry's shift in strategy to focus on high-growth markets such as biologics. mAbs alone will generate an additional $23 billion between 2009 and 2014, thus enticing a growing number of companies to expand in this field with the hope of ensuring long-term growth. In fact, 36 of the top 50 pharmaceutical companies (excluding generics companies) will have a presence in the mAb, therapeutic protein, or vaccines sector by 2014. Currently, 32 of the top 50 companies are now in those sectors. Vaccines will grow at a 5.5% compound annual growth rate (CAGR) between 2009 and 2014, partly because of the emergence of new technologies and the recent commercial success of several novel products such as Pfizer's (New York) pneumococcal vaccine Prevnar and Merck & Co.'s (Whitehouse Station, NJ) human papillomavirus vaccine Gardasil (see Table I).

Table I: Combined global prescription sales for the top 50 pharmaceutical companies (excluding generic-drug companies) by molecule type (2009–2014).

More biologic licenses and fewer new molecular entities

Reflecting the pharmaceutical industry's burgeoning interest in high-growth biologic markets, 27% (seven out of 26) of US Food and Drug Administration new drug approvals in 2009 were for biologic license applications (BLAs). This number represents the highest proportion of biologic approvals since 2003 (2). In fact, the growth in approved BLAs offset the decline in approved new molecular entities (NMEs). Furthermore, the number of US orphan-drug designations has more than doubled in the past decade, from 208 (2000–2002) to 425 (2006–2008) (3). The number of orphan drug approvals grew from 32 to 47, an increase of 47%. In 2009, the European Medicines Agency (EMA) granted orphan status to 103 medicines, the highest number since European orphan-medicines legislation was introduced in 2000 (4).

Injectable drugs set to drive market growth

Despite the current dominance of oral drugs, which typically are associated with small-molecule drug delivery, injectable drugs enjoyed strong growth between 2002 and 2008 at 20.8% CAGR. Injectables will continue to enjoy the fastest growth rate of all delivery mechanisms (i.e., 4.9% CAGR) until 2014, aided by the development of vaccines and mAb therapies which are typically delivered by this mechanism. The loss of patent protection for blockbuster brands such as Pfizer's Lipitor (atorvastatin) and Effexor (venlafaxine), and AstraZeneca's (London) Seroquel (quetiapine) will trigger strong generic-drug competition and sales erosion for oral drugs.

Secondary-care therapy areas become a priority

Historically, small-molecule drugs dominated therapeutic areas such as cardiovascular and central nervous system (CNS) conditions and contributed to significant sales growth. However, these markets are not only saturated with me-too drugs, but also suffer from rapid market erosion because of the influx of generic drugs after the patent expirations of key brands. For example, in 2009, sales of cardiovascular drugs totaled $99 billion; they are forecast to decline at 2.8% CAGR (2009–2014). The forecast contraction in this market is likely the reason for Pfizer's announcement in September 2008 that the company was ending its research and development (R&D) investment in this therapy area—a landmark move, given the dominance of cardiovascular drugs in Pfizer's portfolio.

Now pharmaceutical companies are shifting their R&D focus toward developing novel—often biologic—therapies for the treatment of niche indications, which should ensure longer-term growth given biosimilars' minimal impact to date. Examples of target therapy areas are oncology, immunology and inflammation, and endocrine diseases, which are forecast to grow at rates of 5.9%, 4.0%, and 6.3% CAGR, respectively, between 2009 and 2014.

In 2009, several noteworthy therapies were launched, representing truly novel drugs that target unmet needs. Johnson & Johnson's (New Brunswick, NJ) Stelara (ustekinumab) for plaque psoriasis stands out as a first-in-class agent with efficacy superior to that of traditional therapies. Also, Takeda's (Osaka) Uloric (febuxostat) is the first new treatment for gout in 40 years, and Forest's (New York) Savella (milnacipran) is the first drug indicated solely for fibromyalgia (1).

In addition, these target markets—oncology, endocrinology, and immunology and inflammation—will experience the highest sales growth and become the principal growth drivers for the top 50 pharmaceutical companies (excluding generic-drug companies), collectively generating an additional $45 billion by 2014. It is therefore expected that an increasing number of companies will focus on these more profitable markets (see Table II).

Table II: Combined global prescription sales for the top 50 pharmaceutical companies (excluding generic-drug companies) by therapeutic area (2009–2014).

Factors driving the shift away from the primary-care model

With cash-strapped payers now scrutinizing drugs' costs and clinical benefits, it is not surprising that the pharmaceutical industry is now focused on biologic therapies in secondary care and niche markets (5). Additional factors that attract pharmaceutical companies toward niche indications include the faster and cheaper R&D process that results from the smaller patient populations and clinical-trial sizes. In addition, several regulatory agencies provide incentives and subsidize R&D in the development of orphan drugs. The agencies offer tax credits, regulatory assistance, and accelerated approval. Also, one of the largest cost-saving factors for companies with a niche product is that large-scale patient and physician marketing through various channels is largely irrelevant. In fact, annual average marketing costs for an orphan drug are seven times lower than those for nonorphan products. Figure 1 summarizes the factors inspiring the shift away from the primary-care blockbuster model toward niche indications.

Figure 1: Factors inspiring the shift away from the primary-care blockbuster model toward niche indications. (ALL FIGURE ARE COURTESY OF DATAMONITOR GROUP)

Big Pharma will remain dependent on small molecules, but biologics will spur growth

The Big Pharma business model essentially was built on small-molecule products, which are relatively inexpensive to develop and manufacture, thus allowing companies to concentrate on fueling growth with an assertive sales and marketing strategy. However, once patent protection is lost, small molecules are easy for generic-drug companies to manufacture. Manufacturers of generic drugs do not have to support large R&D teams and they are able to compete aggressively on price. The resulting commoditization of the small-molecule market has forced the Big Pharma players to seek diversification into areas of high unmet need (e.g., oncology) or, in terms of molecule type, into biologics. The Big Pharma shift to biologics will be led by mAbs, which are forecast to grow by $22.1 billion during 2008–2014 at a 9.5% CAGR, thus making them the biggest growth factor for this sector. Therapeutic proteins also will experience strong growth during 2008–2014, contributing an increase in sales of $9.2 billion at a CAGR of 3.6%. By contrast, small molecules—which accounted for 80.4% of Big Pharma's 2007 sales—will decline by $25.6 billion during 2008–2014. Despite these shifts, Big Pharma will remain dependent on small-molecules, which will account for 71.4% of its sales in 2014. Biologics (i.e., mAbs and therapeutic proteins combined) will account for 21.8% of sales, up 6.7% from 2008 (see Figure 2).

Figure 2: Molecular-class focus by company type, 2002–2014. mAb is monoclonal antibody, sm is small molecule, TP is therapeutic protein, and Vacc is vaccine.

At a company level, a clear correlation can be drawn between small molecules and declining sales versus biologics and sales growth. Of the top 16 Big Pharma companies, only Novartis (Basel), Bayer (Leverkusen, Germany), Merck & Co, and Boehringer Ingelheim (Ridgefield, CT) will see net positive growth from their small-molecule portfolios. By contrast, the remaining 12 companies are forecast to see a net growth in their biologics portfolios.

Roche (Basel)—primarily through its acquisition of Genentech (South San Francisco, CA)—contributes about 51.4% of the mAb growth for Big Pharma. Aside from Roche, Abbott Laboratories (Abbott Park, IL) also will exhibit strong growth in the mAb sector. Its growth is attributable to its acquisition of Knoll and its licensing of international rights to Synagis and Numax from MedImmune (Gaithersburg, MD). Johnson & Johnson also will exhibit strong growth, spurred by the growth of Simponi (golimumab), Stelara (ustekinumab), and its share of bapineuzumab sales.

Growth from therapeutic proteins will be spread more evenly across Big Pharma. Sanofi-Aventis (Paris), primarily through insulin analog Lantus; Pfizer, through Enbrel; and Bristol-Myers Squibb (New York), through Orencia and belatacept, will make significant contributions. Novartis also will report growth in therapeutic proteins, primarily attributable to its launch of biosimilar drugs through its generic-drug division Sandoz. However, none of these companies will experience biologics growth remotely close to the level of mAb growth forecast for Roche.

Midcap companies stick with small molecules

Datamonitor defines a midcap pharmaceutical company as one that has annual prescription sales below $10 billion, derives >50% of sales from biologics, and is not headquartered in Japan. Midcap pharma is entrenched in the small-molecule market and accounts for $46.7 billion or 93.8% of total sales in 2008. This percentage is expected to remain relatively unchanged. Interestingly, Gilead (Foster City, CA), Actelion (Allschwil, Switzerland), and Celgene (Summit, NJ), the strongest performing midcap pharmaceutical companies until 2014, will derive all of their growth from small-molecule sales. However, these companies will expand into other molecule types only at a low level. UCB (Brussels) will expand through the growth of its mAbs Cimzia and epratuzumab, and Allergan (Irvine, CA) through the growth of therapeutic protein Botox. By 2014, mAb and therapeutic proteins will account for 1.7% and 5.9% of midcap pharmaceutical sales, respectively (see Figure 2).

Therapeutic proteins dominate, but mAbs gain ground

Biotechnology companies focus primarily on biologics, but from 2008 to 2014, the dominance of therapeutic proteins within the molecular class mix will decline steadily as mAbs gain market share. Nevertheless, therapeutic proteins will remain the dominant molecule type throughout, accounting for 68.0% of 2014 sales. This shift in focus toward mAbs will be spurred by this molecular class's relatively strong growth of $4.4 billion in 2008–2014, which resulted primarily from the launch of Amgen's (Thousand Oaks, CA) Prolia and continued sales growth of Merck KGaA's (Darmstadt, Germany) Erbitux. Interestingly, therapeutic proteins will deliver greater sales growth until 2014 (i.e., $5.2 billion) because of Novo Nordisk's (Bagsvaerd, Denmark) insulin-analog portfolio, which includes NovoRapid, NovoMix, and Levemir. Small-molecule growth will total less than half of that delivered by biologics, at $3.1 billion.

Biogen Idec has the biggest mAb focus and also the biggest biologics focus; mAbs and therapeutic proteins accounted for 98.9% of its 2008 sales. Novo Nordisk will account for the majority of the peer set's therapeutic-protein sales growth, with an increase of $4.7 billion forecast between 2008 and 2014, to be supported primarily by Genzyme (Cambridge, MA, $1.3 billion). By contrast, declines of $741 million and $221 million are forecast for Biogen Idec and Amgen's therapeutic-protein portfolios, respectively (see Figure 2).

Looking forward

For the foreseeable future, blockbuster drugs will provide the bulk of sales for the top 50 pharmaceutical companies (excluding generic-drug companies). These drugs generated $344 billion collectively in 2008, representing 66% of prescription sales. However, the outlook for these drugs is less than stellar; 66 drugs with blockbuster status in 2010 will see a sales decline of more than $200 million by 2014, in response to me-too and direct or indirect generic competition. As a result, total forecast sales for blockbusters will decline by 2.1% CAGR from 2009 to 2014. Pfizer will be the hardest hit, with 2014 blockbuster drugs sales forecast to decline by $8.3 billion versus its 2009 level. The Wyeth merger will soften the blow slightly for Pfizer, but the company will remain the most strongly affected in terms of blockbuster expirations and total sales losses over the 2009–2014 period. Bristol-Myers Squibb and sanofi-aventis are also forecast to experience losses of $5.0 billion in blockbuster-drug sales by 2014 versus 2009 because of the generic erosion of blockbuster brands.

As the industry moves away from the old primary-care blockbuster model toward targeting specialty secondary-care indications, several novel drugs launched in 2009 still have the potential for blockbuster status, including sanofi-aventis's antiarrhythmia agent Multaq (dronedarone), Johnson & Johnson's Simponi (golimumab) indicated for rheumatoid arthritis, and Bristol-Myers Squibb and AstraZeneca's Onglyza (saxagliptin) for the treatment of type 2 diabetes. Nevertheless, entering a multibillion-dollar therapy area cannot guarantee blockbuster status, particularly in today's price-conscious environment.

Key factors that will be important for determining blockbuster success within the biologic markets include the ability to gain first-mover advantage within a given indication, the subsequent horizontal expansion across disease stages and indications, and the creation of high barriers to competition through the accumulation of clinical safety and efficacy data. In addition, with the increasing cost pressures facing payers, manufacturers will need to demonstrate comprehensive pharmacoeconomic data and drug benefits for these therapies in relation to the disease frequency and severity. They may also need to demonstrate an advantage in comparative effectiveness over existing products. This competitive advantage may be achieved best through coupling drugs with companion diagnostics or creating disease-management solutions. Pharmaceutical companies frequently employ risk-sharing agreements as a means of securing a place on reimbursement lists, thus sharing the risk between the payer and the manufacturer. These schemes also encourage responsible prescribing by healthcare professionals and ensure that resources are not wasted on ineffective treatments. By addressing payer concerns regarding both economic and clinical outcomes, risk-sharing schemes have the potential to change the pricing landscape of high-cost drugs.

These very factors have led to the dominance of mAb products such as Roche's Avastin (bevacizumab), Herceptin (trastuzumab), and MabThera (rituximab); Abbott's Humira (adalimumab); and Johnson & Johnson and Merck & Co's Remicade (infliximab), which together accrued a 72% share of mAb sales in 2008. However, the market share of these top five brands will fall to 57% in 2014 because of increasing competition from newly launched mAbs. In fact, from 2008 to 2014, the number of mAbs achieving blockbuster status will increase from five to 15. Nine other mAbs will generate sales of more than $500 million in 2014. Overall, the mAbs market will remain healthy.

Clearly, a paradigm shift is taking place in the pharmaceutical industry, as the small-molecule business model that historically inspired sales growth is replaced by a high-value specialty-biologics model to fend off further sales erosion. As the patent cliff approaches, it will be increasingly important for all pharmaceutical companies to consider putting a biologics strategy in place, either through organic means or through partnerships, to avoid being left behind in this dynamic, competitive environment.

Bornadata Bain, PhD,* is vice-president and global director of research and analysis, healthcare, and John Shortmoor is head of company analysis, both at Datamonitor Group, 265 Franklin St., 4th floor, Boston, MA 02110, tel. 617.722.4606, fax 617.523.6993, bbain@datamonitor.com.

*To whom all correspondence should be addressed.

References

1. R. Whitman, "Pharmaceutical Company Outlook to 2014," (DMHC2591, Datamonitor, London, December 2009).

2. B. Silverman, FDC Rep. Drugs. Cosmet. 72 (3), 3–8 (2010).

3. Tufts Center for the Study of Drug Development, "US Orphan Product Designations More Than Doubled from 2000–02 to 2006–08," Impact Report 12 (1), (2010).

4. J. Smith, Euro Pharma Today, www.europharmatoday.com/2010/01/emea-after-highest-year-for-orphan-drug-designations-recommends-four-more-.html, accessed June 21, 2010.

5. M. Musciacco et al., "Pharmaceutical Key Trends 2010" (DMHC2599, Datamonitor, London, March 2010).