Provided by GBI Research.
We discussed some of the key challenges facing the pharmaceutical industry in Wednesday’s blog. Companies have responded to these issues in several ways. These have primarily involved investing in new technologies and strategies, outsourcing, and position consolidation through mergers and acquisitions (M&A).
Increasing Investments in Real World Data Collection
In order to tackle issues with R&D productivity and to optimize drug development, some companies have increased their investments in real-world data (RWD) collection. RWD is collected in real-world health environments, as opposed to controlled clinical trials. The inherent limitations of randomized clinical trials (RCT) and the complex characteristics of novel medical interventions have driven interest in RWD studies.
RWD collection enables the capture of information relating to a drug’s performance in normal clinical practice, within different age groups, genders, disease severities and associated comorbidities, which is not possible with RCT methodologies. RWD studies can, therefore, help optimize drug development by providing deeper insights into patient behavior, enhancing disease understanding and identifying unmet needs.
Clinical trials and protocols can be designed to align with current real-world clinical pathways and facilitate new trial designs, such as ‘pragmatic’ clinical trials. Pragmatic clinical trials enable companies to measure the effectiveness of medical intervention, and they provide insights into variations between patients that occur in real clinical practices. These trials are carried out post-approval. This type of evidence is very important for payers and regulators, and therefore companies will continue to adopt these types of strategies in order to optimize their market access – as well as enhancing communication and collaboration with payers. Studies have suggested that if pharmaceutical companies are able to implement an integrated development model that brings together RWD-based approaches and RCTs, R&D productivity can be significantly revitalized by reducing cycle time and the required R&D investment per product.
In the face of rising costs, increasing pricing pressures and the evolving regulatory landscape, many pharmaceutical companies have begun to form strategic partnerships in order to outsource significant parts of the value chain – from drug discovery and manufacturing, to sales and packaging. Outsourcing helps companies address these issues, as it enables them to focus on core competencies, access cheaper and more-specialized expertise, and achieve cost-saving benefits. It has therefore become a major trend in the pharmaceutical industry.
There has been significant growth in the pharmaceutical services sector – particularly in contract research and manufacturing – and most of the significant private equity buyouts in the healthcare sector in recent years have focused on services. For example, the largest private equity buyout in the healthcare sector in 2013 was Kohlberg Kravis Roberts’ (KKR) $1.3 billion purchase of PRA International, a contract research organization, from Genstar Capital. The high level of interest in the pharmaceutical services sector is likely to be maintained in the foreseeable future, as companies continue to seek cost reductions – particularly with the ongoing introduction of more complex and expensive therapies.
Merger and Acquisition Activities
M&As have been gaining significant traction across most sectors of the pharmaceutical industry, and there have recently been some high-profile, industry-transforming transactions. Notable deals have included Actavis’ acquisition of Allergan for approximately $70.5 billion, creating one of the world’s top 10 pharmaceutical companies by revenue. The company later sold its generic business to Teva for approximately $40.5 billion, creating the largest generic drug company in the world.
Top companies have undertaken high-profile acquisitions to help mitigate declining revenues and productivity, counteract the increasing bargaining power of providers and payers, and consolidate their position in the market in the face of increasing competition. Mergers between rival companies can also provide other benefits, including access to previously untapped geographic markets, and reduced costs through operational synergies.
Pharmaceutical companies have also begun to focus more on their core competencies, by exiting slow-growing markets and sectors, divesting assets, and splitting up companies – with the aim of creating more value for shareholders. Notable recent examples include:
- GlaxoSmithKline (GSK) undertook a three-part transaction with Novartis, completed in 2015. GSK acquired Novartis’s global vaccines business, created a leading consumer healthcare business through a joint venture, and divested its oncology business for approximately $16 billion.
- Abbott Laboratories split into two companies at the beginning of 2013, with AbbVie becoming the pharmaceutical business and Abbott Laboratories focusing on medical devices.
- In 2013 Pfizer announced plans to split into two separate companies, to separate its Global Established Products business from the rest of the company.
Pharmaceutical companies will certainly continue to look for new avenues to innovation and growth, in order to preserve and build shareholder value. Strategies such as outsourcing, increasing collaboration with a wider range of stakeholders throughout the drug development process, and strategic M&A activities have already had a positive effect on R&D productivity – as evidenced by recent increases in new molecular entity approvals and reports of expanding product pipelines.
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