Pharma’s capital equipment spending has slowed but remains robust, focused on optimizing manufacturing supply chains through highly targeted technology and services purchasing
Pharmaceutical companies operating on a global scale continue to refine their business models, defining and executing strategies that their boards and executive management hope ultimately will lead to market success and sustained revenues. No one can argue that over the last decade or so the pharmaceutical industry has experienced dramatic change, change that has reordered the status quo and added new and challenging topography to the competitive landscape.
According to Price Waterhouse Cooper’s (PWC’s) 17th annual Global CEO Survey, Key Findings for the Pharmaceutical & Life Sciences Industry: “Pharma’s future has never looked more promising — or more ominous.” Certainly to most pharmaceutical professionals that conclusion is an obvious truth, but it does reflect the seriousness of what’s at stake. So while Pharma CEOs are, say the survey’s findings, “confident about their own future revenue prospects,” they are also concerned with economic conditions and the impact of government on growth. Based on interviews with 90 Pharma and Life Sciences CEOs from 37 countries, PWC’s study revealed that executives are working hard to meet the demands of patients and society, acknowledging that growth markets are critical to future success, cost cutting is an imperative and R&D and innovation remain top priorities.
Pharma companies’ chief executives are bullish, say PWC analysts, on their own prospects as far as achieving growth, but not so confident in the industry as a whole in achieving aggregate growth in the face of shifting global macroeconomic forces. Of those Pharma CEOs surveyed, nearly 50 percent expect middle-term growth for their own company while 29 percent feel the same about overall industry growth. This attitude helps affirm the perception that Pharma’s leaders are seeking market and financial success via careful capital investment and attention to operational excellence, understanding that competitive agility and profit will come from investing time, money and effort into enhancing and refining their own operational and organizational resources regardless of this new era of “stable instability” as PWC characterizes the pharmaceutical and life sciences industry. “Risks that once seemed improbable, even remote, have become the norm,” say PWC analysts. “For CEOs across the world, ‘expect the unexpected’ has become the mantra.” So where is Pharma finding its agility? Increasingly they are recognizing it can be mined from within operations and from from the operational excellence of carefully selected partners.
Traditionally, “innovation” in the Pharma universe was understood as a given company’s ability to develop new therapies and compounds and to keep its R&D pipeline filled with potential blockbusters. But most Pharma CEOs are well aware that no matter how much they spend on R&D, creating opportunities to innovate a profit-sustaining blockbuster are getting more rare every day.
But this doesn’t necessarily translate into fewer drugs being developed. In the study “Trends in the 2013 Pharmaceutical Pipeline,” from the American Health & Drug Benefits (AHDB) association, the study’s authors noted that judging by the number of drugs that are currently in the pipeline, the nature of drug development may be changing, but is not showing real signs of slowing down, despite the many marketplace uncertainties and recent economic instability in the U.S. and around the world.
According to Anthony D. Sabatelli, a pharmaceutical intellectual property expert with Dilworth IP, “the FDA is optimistic about the trends from the 2013 numbers. The Agency reports that the ’27 NMEs approved in calendar year 2013 is similar to the average totals approved in the past decade.’ The Agency also reports that from 2004 through 2012, CDER averaged 26 approvals per year and that the 39 approvals seen in 2012 ‘was an unusually high number,’ however, others are less complimentary and have cited higher development costs, lower rates of return on these costs, and lower peak sales, as possible causes for the less than stellar performance of 2013.”
In Sabatelli’s January 2014 blog “The Scorecard – Fewer New Drug Approvals in 2013: What’s in store for 2014?” he notes that one cannot readily read a trend into 2014. “If anything, the more pertinent information from the FDA is that the number of new drug applications has not been consistently and significantly increasing.” Sabatelli said that from 2004 through 2012 the FDA reported an average of 34 NME applications have been filed per year.
And while the pursuit of blockbusters may or may not be waning, ABDH and others recognize that the more apparent growing trend in drug development “is the accelerating rate of growth of specialty drugs in the pipeline, with an increasing role for the use of genetics and biologic processes.”
By 2018, consumer and payer spending on specialty drugs is expected to exceed the spending on small-molecule drugs.” From another one of its studies PWC found there are about 460 therapies for rare diseases in the pipeline.
Pharma’s executives, say PWC analysts “believe that technology is transforming the sector and they are using ‘strength in innovation’ to make the most of it.” Yes, Pharma is finding strength in innovation and investing in the technologies to fuel it. But recall that the specialty drugs and biopharmaceuticals that are framing drug development require “high cost” and more likely highly optimized processes to help them get them to market and Pharma’s capital spending behaviour is reflecting the ongoing enhancement and redevelopment of pharmaceutical processing capacity to improve throughput and quality while supporting cost containment.