25th Anniversary series: The Pharmaceutical Industry in 2040

The global research-based pharmaceutical industry saw a big expansion in the later decades of the twentieth century, driven by a pharmacological revolution in drug discovery; public demand for better health care; and willingness by affluent countries to invest in health systems. However, in more recent years, this model has been put under strain through pricing pressures on drugs; and the increasing costs of R&D.  Will there by 2040 be a major transformation to a substantially different mode of operation and existence for the global pharma industry?

On the positive side, the intrinsic demand for health and pharmaceutical expenditures continues to rise, as greater longevity has led to an increase in more chronic conditions; rising expectations of what should be available from healthcare systems; and new areas for intervention have been identified, for conditions that were not acknowledged in the past.

Traditionally, chronic diseases predominated in developed economies; less developed economies experienced more acute conditions. However, as the emerging economies have developed and their populations have aged, they have begun to adopt the disease characteristics of the more advanced nations, with a growing proportion of chronic disease such as diabetes and hypertension.

In many parts of the developing world, infectious disease is still rife and climate change is likely to alter disease patterns among countries. Resistance to anti-infectives remains a key challenge – as was seen in the recent Ebola outbreak – and the risk of pandemics is still an underlying threat in the world.

The prospects for the pharmaceutical industry are being transformed as a result of the completion of the human genome-mapping project, which has led to greatly improved understanding of the genetic basis of disease and the potential to design therapeutic interventions to tackle the root causes. These therapies could be fundamentally more effective than treatments of the past, particularly in identifying which patients will respond to which therapies.

This has raised the issue of the cost of drug discovery and marketing, given the need to develop a range of targeted therapies, rather than a single therapy for a population. Against this, the costs of development could be significantly lower than with a standard new entity since the proof of concept could be much more easily validated. There are not yet sufficient empirical examples that could verify whether the new economic model can work. However, it is not difficult to understand the long-term logic of this therapeutic revolution in drug development and delivery.

The slowdown in the developed markets has shifted the emphasis towards the emerging areas, as a source of both revenue growth and research. The quality of science and technology in countries such as India and China has given new impetus to the diversification of R&D investments. Moreover, the potential new R&D model need not require the traditional huge scale of investment. New skills in such fields as bioinformatics lower the entry barriers for new firms in emerging markets.

The industry globally is still dominated by US and European firms. Other countries have not made it into the upper echelons. The major global firms have been able to entrench their through their dominance of the sales and marketing networks. This latter aspect may become less important as more targeted therapies lessen the effectiveness of mass-marketing sales force muscle. The question is what it will take for an emerging country firm to achieve global success? If future industry success factors are now being changed by the scientific cost function, then a wider range of capabilities will be required, with more alliances, collaborations and global networks, and new entrants might well enter the market.

The future from now towards 2040 will be dominated by these two big uncertainties – science and economics – and their interaction. A decade after the sequencing of the human genome, the benefits in terms of targeted therapies are starting to appear and the pharma industry could also be revolutionised by new drugs derived from genetic breakthroughs. However, the rate at which new treatments arrive is very uncertain.

The other major uncertainty is the ability of the public sector to continue to fund the provision of drugs, given the pressure on government budgets in many developed countries. The need to reduce budget deficits in the face of growing demands from ageing populations will create significant problems in those countries where healthcare provision is mainly a responsibility of the public sector.

The interaction between these forces will be pivotal in shaping the global pharmaceutical industry, bringing a sea change in the industry’s operating model and its relationships with its key constituents – payers, healthcare professionals and patients.

A challenging issue that will play out significantly looking towards 2040 is different levels of access to medicines between the developed and developing world. Health priorities in developed and emerging countries are likely to remain rather different over the next 25 years, though the differences will become less marked. Companies will try to alleviate some of the disparities through donations, concessionary pricing and out-licensing. However, if access to medicines on a broad scale in emerging markets is not possible via the normal commercial model, since the supply prices of Western-made drugs are unaffordable, then a different mechanism might be needed, such as a charity or NGO model.

While the drivers and uncertainties can be mapped, assumptions made and projections scoped out, the timing and dynamics of the precise future path for the global pharmaceutical industry remain open questions. The forces of innovation and globalization are likely to take the industry to new horizons over the coming decades.

Written by Mike Owen, SAMI Fellow.

The views expressed are those of the author and not necessarily of SAMI Consulting.

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