The dearth of new products continues to cast a long shadow over the pharmaceutical industry. “2005 was another poor year for new product launches by the pharmaceutical majors: just four new molecular entities (NMEs) were introduced in Europe and seven in the US,” according to the annual review of Pricing and Market Access, published by IMS Consulting’s Pricing & Reimbursement practice (formerly Cambridge Pharma Consultancy).

R&D pipelines

The decline in R&D productivity is concentrated in the leading companies – alarmingly so in the case of Europe. “In Europe, Big Pharma is launching a declining proportion of NMEs,” says the report (see Figure 1). In the US, by contrast, the proportion of NMEs from Big Pharma is declining more gradually. There are three main conclusions to be drawn from this. First, leading multinationals appear to be experiencing diseconomies of scale in their R&D investments. Second, the contribution of licensed products to revenues has never been more important. And, third, the industry needs a sustained improvement in R&D productivity to maintain historic growth rates – and to offset the next round of patent expiries on blockbuster products.

Figure 1: Proportion of NMEs launched by big pharma

Source: IMS (analysis covering top 14 pharma companies, consolidated from top 20 in 1990)

Companies must also respond to the difficult operating environment by looking beyond their traditional strongholds in the world’s leading markets – for example, by integrating smaller European countries into their launch and post-launch pricing strategies. This is especially important because of the increasing pressure on post-launch prices, as payers get more creative in their design and deployment of cost-containment measures. Beyond that, more and more companies are investing in developing markets with strong growth potential, such as China, India and Brazil. China alone is forecast by IMS to climb to seventh in the world rankings by 2010, with annual sales of around $24 billion.

Oncologicals

With new opportunities for high value, high volume primary care blockbusters fast becoming exhausted, the big sellers of the future will tend to be in specialist-driven, low-volume indications. “All EU approvals [in 2005] were high-tech specialist products,” the IMS report says. Many of these specialist niches are in oncology, where much therapeutic need remains unmet. This creates a broadly favourable reimbursement environment, notes the report, as payers are more reluctant to restrict patient access than in other therapeutic areas. Witness the recent success of targeted therapies such as Avastin, Eloxatin, Glivec, Herceptin and Rituxan.

If, as many optimists believe, the industry is about to reverse the decade-long trend in R&D output , then new oncologicals will play a key role – provided pricing and market access issues can be resolved to the industry’s satisfaction. On the one hand, the report warns that “payers may take a more vigorous stance on price when products are subsequently reviewed for an expansion of their indications”. On the other, it notes “the oncology pipeline is the richest in the industry, with 50-55 new launches expected over the next five years… Oncology is forecast to become the world’s biggest therapy area with sales of $55 billion by 2009”.

Price premiums

The trend to more specialist products will not only shift the marketing model away from standard physician detailing in the primary care sector; it will also change the requirements of successful market access strategies. The evidence from 2005 is that companies are aiming for premium prices, though most of the new launches (e.g. Avastin, Tarceva, Xolair) are still awaiting reimbursement decisions in the key regulated markets of Europe.

As in Europe, most of the new launches in the US have taken a premium to current price benchmarks. The one exception is Takeda’s Rozerem (the first non-scheduled prescription sleep medication, which is priced at a discount to Sepracor’s Lunesta and is the most likely of the new launches to be initiated by a non-specialist.

Price differentials

Contrary to the received wisdom, the IMS analysis revealed relatively small price differences between the EU and US (see Figure 2). Although the sample was small, only Avastin had a significantly higher price in the US than Europe. This is consistent with the narrowing of average price differentials in EU member states over recent years. An IMS analysis of more than 50 recent launches found that the average price difference across the top five EU markets is now less than 15%. Several factors are driving the trend:

• Pharmaceutical companies are trying to avoid parallel trade by narrowing their price corridors.
• Greater pricing pressure within the EU is making it harder to set significantly higher prices in Germany and the UK.
• Greater price referencing across countries tends to bring prices closer together.

Figure 2: Price Differences for 2005 Launches in EU16, US and Canada

Average European price for countries in which product was launched by the end of 2005, manufacturers’ selling prices, base currency US$

Source: IMS (analysis covering top 14 pharma companies, consolidated from top 20 in 1990)

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