The pharmaceutical, biotechnology and medical device industries are going through major changes:

1) the recession, 2) the patent cliff or expiration of patent-protected drugs (loss of $125 B ) for big pharma, 3) the saturated US market for existing drugs and devices, 4) the stricter regulatory environment resulting from increase public scrutiny, 5) the rising cost of health care, 6) the proposed healthcare reform - (with expected lower reimbursement for drugs, devices and procedures, tax on medical device sales, federal mandate for generics and biosimilars, and greater transparency in the industry), and 7) the enormous pressure from investors and shareholders for the industry to launch more products and increase growth.

Many companies in the industry have implemented business models they may not have considered before to combat the changes that would result in lower or loss of revenue.  Four examples are discussed below.  Please see News Link on the right for more industry information.

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For many companies, emerging markets (BRICK -Brazil, Russia, India, China, Korea- South) are the primary focus for growth and for running clinical trials.  China is among the fastest-growing drug markets in the world and the second-largest consumer health market. Sanofi-Aventis bought BMP, a Chinese consumer-drugs operations for $520 million greatly extending the French drugmaker's reach in China. In addition, Nycomed made a $210 million deal for a majority stake in Guangdong Techpool Bio-Pharma, a maker of protein-based biotech drugs for sale in China and several Asian countries, including Japan and South Korea.

In addition, major pharma companies are slashing prices to gain entry into emerging countries hoping for significant sales volume to make up for the lower prices. For example, GlaxoSmithKline has slashed the price on all its drugs in Indonesia by 30 to 50 percent.  GSK had previously slashed prices of Augmentin in the Philippines and sales grew by 50%.

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The smaller disease markets and orphan disease markets are becoming more appealing to many companies.  These markets offer a step towards personalized medicine allowing companies to focus development on specific disease rather than broader solutions for the general population. Also, because these markets are smaller it may be faster to achieve better efficacy with smaller trials and thereby bringing drugs to the market sooner.

Targeting orphan disease with market exclusivity has become more attractive and the FDA is encouraging this focus by advocating more flexibility with trials for rare diseases that require as few as 10 patients and one trial. In addition, Congress is trying to pass a bill encouraging drug makers to target rare children diseases (see Regulatory link). GSK recently agreed to pay $60 million up front and up to $170 million in milestone payments for Amicus Therapeutics' Fabry disease (an orphan disease) drug Amigal (migalastat HCl).

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Generics and mandatory substitution have forced a number of pharma companies to have a generic pharmaceuticals division but Novartis is the first company to be successful in the biosimilar business. Momenta pharmaceuticals and Sandoz, the generic division of Novartis has successfully developed and marketed enoxaprin, taking significant market share from Lovenox, Sanofi Aventis' anticoagulant.  Pfizer has also entered into the biosimilar market with Biocon, an India-based company to sell insulin and other diabetic products that will go off patent in 2014.

The FDA has not finalized their guidelines on biosimilars - whether they will require clinical trials or follow the same path as generic drugs.  Clinical trials will delay biosimilars from entering the market.

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The Patient Protection and Affordable Care Act or healthcare reform act proposes a 2.3% excise tax on US revenue for medical devices. According to a roundtable discussion with three medical device CEOs from Medtronic, Stryker and Abiomed, this excise tax will have several negative impacts including slower hiring, benefits cuts, and an increased focus on developing business overseas.

To make up for the loss revenue, companies may be forced to cut or delay hiring employees, implement higher deductible and premium contributions from employee for healthcare benefits, and focus on less risky technology such as upgrades rather than innovation. An increased focus on developing business overseas will also drive jobs and innovation there.

Countries such as France and Germany are already encouraging US companies to set up offices in their country by giving tax incentives and providing resources to make it economically and culturally easy to do business there while helping to grow their economy.  Outsourcing parts of product development may become more prevalent to cut cost and remain profitable.

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