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The Pharmaceutical Industry: Key trends and strategic issues shaping the industry.

Datamonitor has identified the key trends and events that impacted the pharmaceutical market on a macro-environmental and corporate strategy level in 2006. These range from the continuation of long term trends such as the focus on cost containment to more recent impacts such as the effects of Medicare Part D and the increasing power of the Democratic part in the US.

Scope

Overview of the key macro-environmental trends driving industry change in 2006 and going forward into 2007

Review of major M&A deals in the pharma, biotech and generic sector in 2006

Analysis of the corporate strategies that companies in the pharmaceutical market are using to counter the challenges that they face

Report Highlights
To overcome the poor R&D productivity that has characterized the pharmaceutical industry over the last few years, companies are being forced to re-evaluate R&D strategies. Companies are continuing to use licensing and acquisitions along with better prioritised spending and more structured decision making in an effort to deliver improved returns.

Pharma companies turned to a range of inorganic growth strategies in 2006 to improve sales and profit. This has allowed branded companies to expand their geographical presence, while enhancing the strength of their pipelines, frequently with the acquisition of small Pharma and biotechs providing additional products and supplementary technologies.

The role of emerging markets in the pharmaceutical industry is changing: not only do markets such as India and China represent significant targets for growth because of their rapid economic expansion, but with the globalization of the industry, manufacturers are increasingly outsourcing and offshoring numerous functions there.

Reasons to Purchase

Identify the key trends that have shaped the pharmaceutical industry in 2006

Weigh up which factors are likely to have a significant impact on the industry going forward into 2007

Understand how these factors will impact drug developers

Table of Contents

• CHAPTER 1 EXECUTIVE SUMMARY - page 4
  • Scope of the report - page 4
  • Key findings - page 4
    • Key macro-environmental trends triggering industry changes - page 4
    • Corporate strategy trends shaping the way that drug developers will increase cost savings - page 5
    • Trends shaping the way that drug developers will drive revenue growth - page 6
• CHAPTER 2 KEY MACRO-ENVIRONMENTAL TRENDS TRIGGERING INDUSTRY CHANGES - page 13
  • Datamonitor believes there are three key macro-environmental factors that drove industry change in 2006 - page 14
  • Reference pricing is an increasingly dominant cost containment tool in Western markets - page 14
    • Reference pricing extends into new geographical markets and new drug markets - page 14
    • Reference pricing is set to become increasingly restrictive in Europe and play a more significant role in the US - page 15
  • Price cuts remain a key tool in containing pharmaceutical spending across Europe and Japan - page 16
    • A range of price cuts were extensively used in both the European markets and Japan in 2006 to contain costs - page 16
    • Price cuts are set to remain a leading cost containment tool in Japan and Europe going forward - page 17
  • Political/legislative events continue to significantly impact the healthcare industry - page 18
    • A number of political/legislative events have impacted pharmaceutical market dynamics in 2006 - page 18
      • By securing majorities in the House of Representatives and the Senate, the Democrats are set to have a more significant impact on healthcare in the US - page 18
      • With the implementation of Part D, Medicare patients received outpatient drug coverage for the first time in 2006 - page 19
      • The 2006 healthcare reform in Spain increases the government's focus on cost containment - page 21
      • The introduction of the AVWG prioritizes cost containment in the German pharmaceutical market - page 22
      • The Médecin Traitant scheme impacts healthcare provision in France - page 23
      • The introduction of rules and guidelines for DTC advertising in the US - page 24
  • Generic usage is being increasingly incentivized - page 25
    • Globally, a number of initiatives were used to boost generic uptake in 2006 - page 25
  • The introduction of biosimilars offers new opportunities for savings in the biologics market - page 26
    • 2006 saw the first biosimilars launched in Europe and the US - page 26
      • In Europe, the biosimilars environment is relatively advanced - page 27
      • The development of biosimilars is further behind in the US - page 27
    • Europe is set to lead the biosimilars market - page 27
  • European and US healthcare markets are becoming increasingly fragmented - page 29
    • Devolution in Europe, together with continued fragmentation in the US increase the complexity of the major healthcare markets - page 29
    • Drug companies need to devote greater resources to targeting the correct stakeholders to ensure strong profit margins and market penetration - page 30
• CHAPTER 3 CORPORATE STRATEGY TRENDS SHAPING THE WAY THAT DRUG DEVELOPERS WILL DRIVE COST SAVINGS - page 31
  • Changes to the R&D strategy will help drive up productivity - page 31
    • The need to develop efficacious innovative drugs prioritizes R&D spending as the industry transitions away from blockbuster development - page 33
    • More structured decision making in R&D is being introduced - page 34
    • Prioritizing pricing and reimbursement in clinical trial design will help rationalize and improve the drug development process - page 35
    • Licensing and alliance strategies have evolved for early-stage R&D - page 35
      • GSK's CEDDs and CEEDD have helped to build up the company's early-stage pipeline - page 36
  • Companies are set to improve internal infrastructure to better segregate and prioritize important functionalities and improve communication within the company - page 37
  • Increased globalization in the pharmaceutical and biotech markets in 2006 is set to continue - page 39
    • India - the partner of choice for contracting out manufacturing and research activities by Western manufacturers - page 40
    • China - a key country in which multinational pharmaceutical players are performing drug discovery - page 42
• CHAPTER 4 CORPORATE STRATEGY TRENDS SHAPING THE WAY THAT DRUG DEVELOPERS WILL DRIVE REVENUE GROWTH - page 46
  • Inorganic growth through M&A set to continue throughout 2007 and beyond - page 46
    • A number of types of M&A are used to allow drug developers to evolve - page 47
      • Big Pharma mergers: is the time for mega mergers over? - page 48
      • Mid-Pharma showing evidence of the next wave of consolidation - page 52
      • Pharma-Biotech mergers allow Big Pharma to capture greater innovation and revenue growth potential - page 53
      • Pharma turns to acquisitions of generics companies to support sales and buy into generics market growth - page 54
      • Pharma-Non-Pharma mergers: still rare, but may represent an alternative profit growth strategy in the future - page 56
      • Biotech-Biotech mergers help smaller-scale biotech companies achieve greater stability and give Big Biotech stronger pipelines - page 56
      • Generic-Generic mergers increase market consolidation - page 58
  • Increasing complexity of supplementary technology helps drug manufacturers stay ahead of the competition - page 60
    • New technologies make it easier to demonstrate comparability of biosimilars - page 61
    • Directed molecular evolution: lifecycle management for biologics - page 61
    • Novel diagnostics drive clearer market segmentation, and personalized medication in the future - page 63
  • Increasing impact of emerging markets on revenue growth in the Pharma industry - page 64
    • China is set to become the largest pharmaceutical market by 2050 - page 65
    • India is increasingly becoming an important source of Pharma revenue - page 67
    • Other emerging markets are also likely targets for global manufacturers in the future - page 67
    • Biosimilars and the emerging markets - page 68
  • Increased brand protection is essential in protecting future revenues - page 68
    • Merck's Zocor novel brand protection - page 70
    • The failure of a follow-on drug to support revenues: Pfizer's torcetrapib discontinued - page 71
    • Know your patent situation and don't make assumptions: BMS's patent problems with Plavix - page 71
    • Counterfeit medicines continue to threaten branded revenues - page 73
• CHAPTER 5 BIBLIOGRAPHY - page 75
  • Publications and online articles - page 75
  • Conference literature - page 80
  • Datamonitor resources - page 80
  • Suggested reading - page 80
• CHAPTER 6 GLOSSARY - page 82
  • Glossary of terms - page 82


• List of Tables
• Table 1: Forecast sales for specific pharmaceutical and biotechnology peer sets, 2005-2011 - page 32
• Table 2: Key Biotech-Biotech deals in 2006 - page 56
• Table 3: Key Generic-Generic deals in 2006 - page 58
• Table 4: Brand strategy selection - pros and cons - page 69


• List of Figures
• Figure 1: Seven factors triggering industry changes can be grouped into three key trends - page 13
• Figure 2: Driving cost savings, 2006 and beyond - page 31
• Figure 3: Pros and cons of drug discovery and clinical trials in China - page 44
• Figure 4: Positioning of emerging markets in terms of their outsourcing/offshoring potential, 2006 - page 45
• Figure 5: Driving revenue growth, 2006 and beyond - page 46
• Figure 6: Summary of M&A in the Pharma, Biotech and Non-Pharma sectors in 2006 - page 47
• Figure 7: Comparison of the major seven developed, and emerging pharmaceutical markets, 2001-05 - page 65

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