Solving Pharma’s Post-Brexit Puzzle

Editor’s note: This article was published in Pharmaceutical Technology Europe.

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The United Kingdom’s ‘Brexit’ vote to separate from the European Union took the world by surprise and has left policymakers, business leaders, and bio/pharma companies with the task of piecing together a way forward for a range of business, political, and social issues, including affordable drugs, research and development funding, and a regulatory approval pathway.

While the business relationships between UK and EU companies and the status of EU nationals working in the UK are top issues for all industries, pharma faces fundamental industry issues, including the potential relocation of the London-based European Medicines Agency (EMA). Other challenges include establishing agreements between the UK and EU on the licensing and approval of new medicines; movement of drugs and active ingredients between countries; continued participation by the UK in the Innovative Medicines Initiative and the Unified Patent Court; funding for academic research; and access to capital for investment in drug development projects (1).

While EU regulations have defined how drugs for the UK market are developed, the future regulatory approval pathway for medicines in the UK may change. A “hard Brexit” could sever the UK from EU regulations and may require companies to file separate marketing applications for the UK and EU. Regulatory experts, however, argue that patients, payers, and drug companies would benefit if the UK remained a part of the European regulatory drug approval process (1).

On the other side of the Atlantic Ocean, the unexpected election of Donald Trump has created uncertainty for the bio/pharma industry and presents potential roadblocks to regional regulatory cooperation. A proposed mutual reliance agreement for GMP inspections between the US Food and Drug Administration (FDA) and regulatory authorities in Europe-part of negotiations for the Transatlantic Trade and Investment Partnership-made progress in 2016. Under the initiative, investigators and inspectors from FDA and other regulatory groups in the EU would rely on each other’s inspections for facilities making products for multiple markets, thus avoiding duplicating inspections, lowering costs, and concentrating resources in needed areas, such as China and India (2).

The initiative, however, is part of a trade agreement and may be subject to additional scrutiny under the Trump administration, which campaigned for closer examination of such agreements.

Drug approvals go down as demand shifts

Beyond the Brexit changes, the bio/pharma industry has other crucial productivity, financial, development, and regulatory challenges on its agenda. Drug approvals were down in 2016 in the EU, mirroring a drop of approvals in the US (3). In total, EMA’s Committee for Medicinal Products for Human Use (CHMP) recommended 81 drugs for marketing authorization in 2016, compared with 97 in 2015. Of this total, only 29 new, non-orphan drugs were recommended for marketing authorization in 2016 compared with 41 in 2015. The number of orphan drugs approved declined to 16 from 20 in 2015; and the number of approvals for generic drugs slipped in 2016 to 22 from 25 in 2015. Similar-biologic product approvals did increase, from two in 2015 to seven in 2016 (4-5).

While drug approvals were down, the global demand for medicines continued to increase. The QuintilesIMS Institute, in its annual projections for global drug sales (6), estimates that global medicine spending will reach nearly US$1.5 trillion on an invoice price basis by 2021; the total volume of medicines consumed globally will increase 3%. The types of therapies and use of innovator versus generic drugs, however, will vary depending on where patients live.

Consumption of newer drugs in developed markets, more generic drug use in pharmerging markets, plus patent expiries, discounts, and rebates will result in a 4-7% compound annual growth rate (CAGR) to 2021, slower than the nearly 9% CAGR in 2014 and 2015 when expensive new hepatitis drugs distorted the annual growth rates, but similar to the 5.9% growth during the past five years. Future growth will be generated by autoimmune, oncology, and diabetes treatments.

The report predicts that specialty drugs to treat chronic, rare, or genetic diseases will be more widely used, particularly in the US and European markets, thanks to the approval of breakthrough medicines and a greater focus by payers on drug value and performance. Spending on such therapies, which was 20% of all medicines spending 10 years ago, will rise to 30% in 2016 and to 35% by 2021 and will represent half of the medicine purchases in the United States, Germany, United Kingdom, Italy, France, and Spain.

The US remains the top spender on drugs (US$461.7 billion), followed by China (US$116.7 billion), Japan (US$90.1 billion), Germany (US$43.1 billion), France (US$32.1 billion), Italy (US$28.8 billion), UK (US$27 billion), Brazil (US$26.9 billion), Spain (US$20.7 billion), and Canada (US$19.3 billion), QuintilesIMS reports.

Price controls limit EU growth

Price controls will contribute to limit drug sales growth in Europe to 1-4% to 2021, the report states. Estimated growth rates are 4-7% in the UK, 1-4% in Italy and Spain, 2-5% in Germany, and -1-2% in France. The impact of Brexit on the UK pharma market is expected to be “modest at worst with a 1.5% slower growth rate in the downside scenario” (6). Weak economic growth, unexpectedly high drug costs for innovator drugs in 2014 and 2015, and a desire to control costs will encourage Europe-based policymakers to be more cautious in adopting new medicines in the future.

R&D roadblocks

Amid the clamor about controlling drug prices, drug company executives are examining R&D methods and declining returns. The cost to bring a drug to market, as estimated by the Deloitte Centre for Health Solutions (7), declined slightly from US$1.576 billion in 2015 to US$1.539 billion in 2016, perhaps due to shorter cycle times for breakthrough designations. The study also concluded that companies with less volatility in the therapy-area focus of their late-stage development programmes outperform those that continually change the focus of their drug-development efforts. Company size is also a factor. The study of 12 leading biopharma companies revealed a negative correlation between company size and predicted returns, and indicated that scale is a barrier to creating value in an R&D organization.

Companies have demonstrated greater efficiency in drug development through “nimble decision-making, empowering key decision-makers, accepting greater risk, making quick kills, and embedding a rigorous but dynamic process for funding projects,” the study authors reported (7).

One anticipated source of gaining efficiencies-extensive outsourcing-has not delivered on expectations, the study authors report. Sub-optimal partner management by drug companies and operating models that hinder externalization contribute to less-than-expected results from outsourcing arrangements (7).

Perspectives from bio/pharma personnel

In the 2016 Pharmaceutical Technology/Pharmaceutical Technology Europe annual employment survey (8)-which was conducted after the Brexit vote, but prior to US presidential elections--respondents from around the globe shared similar perspectives about employment-related prospects, but also expressed varying opinions about business prospects for bio/pharma.

More respondents from Europe worked at generic-drug bio/pharmaceutical companies (28% in Europe vs. 14.5% in North American) than innovator companies (19.5% in Europe vs. 31.1% in North America). The respondents from Europe also worked for smaller companies, were slightly younger, and held more advanced degrees.

Business activity was up slightly 2016; 42.3% of the EU-based respondents reported an increase in business at their company over the previous year, similar to 2015 when 40% of EU-based respondents said business at their company increased (9).

More than one-quarter of the respondents (26.7%) reported that their company had been through a merger or acquisition in the past two years, nearly the same percentage as in 2015 and up from the 19.7% reporting in the 2014 survey. A similar number of respondents reported a company downsizing or restructuring (24.8% in 2016 vs. 28.2% in 2015).

Optimistic outlook

Respondents based in Europe were more optimistic about the 2017 prospects for their company; more than 60% the respondents predicted that their company’s business will improve this year, up from 50.4% last year. In contrast, only 54.8% of the respondents from North America said business at their companies would improve and 16.6% predicted business would decline.

The EU-based audience also was more positive in their outlook for the bio/pharma industry in general for 2017: 46.4% said business would improve in 2017, up from 39.5% in 2016. while the numbers were up for two consecutive years, the numbers are still down from the 55.3% who expected improvement for 2015.

Predictions for business growth in the bio/pharma industry as a whole over the next five years were more optimistic than for individual companies. Nearly two-thirds (62.9%) of the EU-based respondents predicted that business will improve; however, 14.4% expect business to improve overseas, but not domestically.

Uncertainty across the pond

The election of populist candidate Donald Trump as president of the United States shocked many and created unease in the public and private sectors, but it also boosted the financial outlook for bio/pharma companies, at least in the short term. The investment community initially viewed a Trump administration as more pharma-friendly compared to a potential Clinton administration. Bio/pharma stocks rallied after Election Day; however, ongoing concern about drug pricing, payer pressure, and economic questions still created uncertainty (10).

During the presidential campaign, candidate Trump and the Republican Party promised to repeal and replace the Affordable Care Act (ACA) of 2010, which extended healthcare to millions of Americans. Bio/pharma companies benefited from the increased pool of patients requiring medicines, but also paid higher fees and made concessions on drug prices.

US drug industry performance

Drug approvals did not live up to expectations in 2016. Only 22 new drugs received US Food and Drug Administration (FDA) approval, compared to 41 in 2014 and 45 in 2015. Fewer submissions and more complete response letters contributed the lower number of approvals, FDA noted. The number of applications received by FDA through 9 Dec., 2016, however, surpassed the average number of new molecular entity filings for the past decade (11) suggesting a steady pipeline of new applications for 2017.

Regulatory outlook

Another campaign theme-reducing the number of federal regulations perceived as roadblocks to business-may impact FDA and its efforts to expedite the approval of innovator and generic drugs. The number of warning letters issued by FDA for adulterated APIs or drug products nearly doubled from 2015 to 2016 (12), with many letters addressing data integrity issues and citations at overseas operations. The agency also worked to clear the backlog of generic-drug applications, but has been hindered by ongoing staff shortages.

The 21st Century Cures Act, signed into law by President Barack Obama in December 2016, includes support for research on regenerative medicine and development of antibiotics and treatments for rare conditions. Other provisions are designed to streamline the drug approval process using novel clinical trials designs and study modeling and permit drug companies to use real-world evidence to support approval of added indications for marketed medicines.

References

1. Evaluate Pharma, Brexit: Laying Out a Path for UK Healthcare, Report, (London, 2016).
2. D. Corrigan, “The Mutual Reliance Initiative: A New Path for Pharmaceutical Inspections in Europe and Beyond,” FDA Blog, 7 Dec., 2016 accessed 20 Dec., 2016.
3. C.A. Challener, Pharmaceutical Technology 41 (1) 26-29 (January 2017).
4. European Medicines Agency, Monthly Statistics Report: November 2016,  accessed 10 Jan., 2017.
5. European Medicines Agency, Meeting Highlights from the Committee for Medicinal Products for Human Use (CHMP) 12-15 December 2016, Press Release, (16 Dec., 2016).
6. M. Aitken, M. Kleinrock, and D. Nass, Outlook for Global Medicines through 2021, Balancing Cost and Value, Report, QuintilesIMS Institute, (Parsippany, NJ, December 2016).
7. K. Taylor, M. Stockbridge, and S. Shah. Balancing the R&D Equation, Measuring the Return from Pharmaceutical Innovation 2016, Report, Deloitte Centre for Health Solutions
(London, 2016).
8. 2016 Pharmaceutical Technology/Pharmaceutical Technology Europe Annual Employment Survey.
9. 2015 Pharmaceutical Technology/Pharmaceutical Technology Europe Annual Employment Survey.
10. A. Brown, EP Vantage 2017 Preview, Report, Evaluate Pharma (December 2016).
11. C.A. Challener, Pharmaceutical Technology 41 (1) 26-29 (January 2017).
12. FDA, Inspections, Compliance, Enforcement, and Criminal Investigations, , accessed Dec. 20, 2016.

Article Details

Pharmaceutical Technology Europe
Vol. 29, No. 1
Pages: 24–26

Citation

When referring to this article, please cite it as R. Peters, “Solving Pharma’s Post-Brexit Puzzle," Pharmaceutical Technology Europe 29 (1) 2017.