Frost & Sullivan

By Sylvia Miriyam Findlay – Industry Analyst, Pharmaceutical and Biotechnology, Healthcare, EIA

Introduction

Pharmaceutical industry has been experiencing a turbulent ride in the recent past. Though the major pharmaceutical companies have projected great growth potential, recent turn of events prove that the future greatly rests on the generic and biotechnology participants. Frost & Sullivan research estimates that the pharmaceutical industry is likely to experience very conservative growth in the range of 8- 10 % each year in the next decade. However, only a few companies are estimated to withstand the anticipated downfall in the pharmaceutical industry. The pharmaceutical growth is likely to be fuelled only by companies which have drugs catering to the fast growing markets like diabetes or cardiovascular.

A stark contrast is seen in the outlook towards the biotechnology firms. Growth rates in the biotech sector are forecasted to be around 15-20% each year during the next decade. Even medical devices are likely to grow at the rate of 10-15% per year. Medical device companies have the potential and the opportunity to bring forth innovate medical treatment to enhance the growth curve of the medical device industry.

Challenges in developed markets

Developed markets like the US, Western Europe and Japan have been the focal point for majority of the companies. The growth rates in these developed markets are witnessing stagnation mainly due to price and regulatory constraints. The major challenges currently by the pharmaceutical industry in the developed countries are ranked based on their impact

• Constraint on drug prices are hindering the faster revenue generation because the patients are demanding low cost drugs. The future is not likely to witness much increase in the drug prices in these markets.

• Low reimbursement scenario is estimated to have a negative impact on the drug sales. Though the manufacturers have the option of negotiating the price with the governments in Europe and Japan, while in the US, it is not regulated.

• Generic drugs are likely to experience tremendous growth in the coming years. The large number of drugs that are coming off patent by 2010, this market is estimated to cannibalise a major portion of the pharmaceutical market.

Moving away from developed markets…

The immense interest that emerging markets have created among the industry participants is currently fuelling a revolutionary change in the life sciences industry. However, emerging markets like India and China are proving to be very attractive in terms of life sciences investment. Growing economy, infrastructure, low cost, human resources and regulatory policies that are conducive for investment are luring most of the industry participants. Due to immense interest shown, various companies have started off-shoring activities in these countries. More than 15% growth rate is expected from these markets in the coming years.

Innovation is the key

The life sciences industry is banking on the biotech sector to churn out innovative products and thereby address the unmet needs. It is anticipated that almost 90% of the innovations are to come from the biotech enterprises in the US, Europe and Japan markets. Genomic and proteomics are likely to catalyse the R&D innovations in the biotech sector. These technologies are likely to exert a positive influence on the growth of the life sciences industry on a global scale. The innovations will speed up the drug discovery process, target niche markets, bolster the concept of personalised medicine, improve the current therapeutic methods and eventually will have a part in reducing the cost of drug development.

Industry Landscape

With the identification of new diseases, untapped markets and the growing demand for medical attention, various factors aid in the growth of the drug industry. However, the growth in life sciences industry is likely to be propelled by the biotech and medical devices sector rather than the pharmaceutical industry. 

The industry landscape is very dynamic and is to witness aggressive consolidation of the market players (mergers and acquisitions), increased competition, increasing demand from the patients due to higher incidence of diseases, and heightened demand from doctors for innovative drugs and explosive move towards outsourcing to developing countries to curb the rising drug development costs. Companies are likely to channel funds from marketing towards R&D and thereby increase the production of innovative drugs to treat unmet medical needs. The challenge would lie in the interface between the pharmaceutical and biotech companies in introducing a blockbuster. Though biotech sector is likely to spearhead innovations, they require the aid of pharmaceutical companies to pick the blockbuster drug and make it a reality.

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