Future Pharma - Challenges & Trends MES Process & Minds Conference Berlin, Germany, 28-29 September 2015 (PhD)
Agenda Key challenges facing the Pharmaceutical Industry 1. Delivering shareholder/stakeholder value 2. Moderate growth business environment 3. R&D productivity 4. Increased M&A activities 5. Rising risks and loss of trust Selected Manufacturing and Technology Trends Summary of major trends: How could Future Pharma look like? Conclusion 1
1. Delivering Shareholder/Stakeholder Value the pharmaceutical industry has performed disappointingly over the last 5-10 years relative to other industries both in Europe and US 2
Factors influencing revenues, earnings and finally shareholder/stakeholder value Positives Strong growth in Emerging Markets Aging populations Willingness of payors to support innovation Improved efficiencies and operating margins Influenza pandemics Negatives Increasing speed of product competition Price reductions and rebates Higher regulatory hurdles, fewer product approvals Declining R&D productivity Increased clinical trial demands Increased legal settlements M&A activity is adding complexity whilst rarely generating better returns 3
Emerging Markets are growing more rapidly than pharma s Emerging core markets markets are in growing the US and more Europe rapidly than our core markets in the US and Europe Sales growth, 2008-2013 CAGR 10% 8% 7% 3% Emerging markets US Europe World wide 9 PEM J Reinhardt 15 October 2014 Business Use Only 4
Todays Emerging Markets will represent 50% of the Healthcare Market in 2020 5
Aging population and people with multiple diseases Cancer One person in three will have cancer Heart Disease 1 person dies from CVD every 33 seconds Brain Disorders 20% aged 75-84 with Alzheimer s disease 900 million people in Asia to move from poverty to middle class in 2020 by 2030 the number of people >65 will - increase 51% in developed world - increase 140% in developing world almost half of lifetime healthcare expenditure is made after age 65 6
Increasing speed and intensity of product competition the average time a medicine is the only drug available in its therapeutic class declined dramatically from more than 10 years in the 1970s to less than 2 years by 1998. 7
2. Moderate growth business environment Global pharmaceutical sales surpassed 1 trillion $ in 2014... but CAGR has reduced and Pharma has become a more normal business with +3-6% growth 8
Global margins will come under pressure due to lower margins in EM Changing Geographic Contribution to Global Pre-R&D Operating Profit Region % 2010 global revenues Revenues ($bn) Est. Pre-R&D margin Pre-R&D op. profit ($bn) 19% 12% 21% 48% 201 0 21% 21% 16% 42% 2015 E 21% 30% 13% 36% 2020 E Other EM EU US US 36% 308 65% 200 EU 24% 205 43% 88 EM 18% 154 33% 51 Other 22% 188 40% 75 Total 100% 856 48% 415 $856 Pre-R&D Profit Margins Pressured due to Emerging Markets Pre-R&D Margin: 48% Pre-R&D $1'081 Margin: 44% $1'318 Pre-R&D Margin: 43% Revenue growth 2010-2020: +54% $415 $474 $566 Ops. profit growth 2010-2020: +36% 2010 E Revenues 2015 E Pre-R&D op. Profit 2020 E
3. R&D productivity rising costs and constant output level resulting in exponential decline in R&D productivity despite major advances in basic science 10
Number of FDA NME/BLA approvals and first-world launches 2005 2014 2014/15 may be special as 11 NMEs were indicated within oncology of which seven received orphan drug status 67% of the first launches were specialty drugs indicated for the treatment of diseases such as cancer, HCV, eye disorders and other rare diseases 11
4. Increased M&A activities 12
Total deal value and deal volume by deal size and quarter 13
5. Rising risks and loss of trust Rising scientific risk Rising political risk Rising legal risk Loss of trust 14
Rising scientific risk Simultaneous development of new drugs in the same class in several companies Need to demonstrate value of a new drug early in the development process Personalised medicine based on biomarkers will replace trial-and-error approach: if no suitable biomarker can be found risk of non-approval with Health Authorities or low prices Biological variability will result in benefit for only a subset of patients Biomarker-based prediction of treatment response will allow selection of patients Examples: Trastuzumab (Herceptin, breasts cancer); Cetuximab (Erbitux, CR/HN cancer) Biomarkers are an opportunity for Diagnostic companies 15
Rising political risk Pressure from governments to reduce costs of medicines and chronic treatments will continue as Pharma Industry is cash rich Staying close to governmental thinking will be critical especially in Emerging Markets (local manufacturing, create jobs in health sector, affordable prices etc) 16
Rising legal risk there is a rapid increase of legal cases since 2003 17
Loss of trust Perception that Pharma puts commercial goals above the interests of governments, payors, doctors and patients Investors remain sceptical of the longer term value due to the R&D pipeline disappointments Generally sceptical audience due to - integrity of commercial practices, - golden parachutes for top-executives - Warning Letters and product withdrawels 18
Agenda Key challenges facing the Pharmaceutical Industry 1. Delivering shareholder/stakeholder value 2. Moderate growth business environment 3. R&D productivity 4. Increased M&A activities 5. Rising risks and loss of trust Selected Manufacturing and Technology Trends Summary of major trends: How could Future Pharma look like? Conclusion 19
Selected Manufacturing and Technology Trends Productivity improvements Flexible Manufacturing in Biotech Biosimilars Industry 4.0 and Factory of the Future 20
Selected Manufacturing and Technology Trends Productivity improvements Operational Excellence and Lean Six Sigma will become the way of living To adress: operations/shopfloor management systems behavioural change Standardisation of process/unit operations most powerful on shopfloor optimisation Footprint optimisation will continue Leverage Corporate Procurement Benchmark with peers 21
Selected Manufacturing and Technology Trends Flexible Manufacturing in Biotech Classical biomanufacturing ( stainless steel cathedral ) is capital intensive, has long construction lead time, is fixed costs dominated and mostly single product Single Use Systems(SUS) or disposable technology has high flexibility, saves time, better matches output /demand, needs less space, 50% lower capital investment SUS mainly suitable for smaller quantities and therefore ideal to transfer biotech to Emerging Markets 22
Selected Manufacturing and Technology Trends Biosimilars Biosimilars are similar, not identical to their reference products 23
Numerous patent expirations of biologics will fuel market growth in biosimilars USD 89 bn of originator sales to expire until 2020 Sales USD billions 2010, based on year of US patent expiration Worldwide sales of expiring biologics 1 1.7 2010 0.6 11 7.0 12 12.1 13 11.9 14 13.0 15 6.9 16 1.7 17 16.3 18 12.7 19 APPROXIMATION Number of 3 1 2 6 8 15 5 6 8 12 5 73 products 2 5.2 2020 89.2 Total Top product 3 Novo- Bene-FIX En- Epo-gen Ritu Seven brel -xan Lantus Humira Tysabri Avastin Herceptin Lucen-tis 1 Analysis does only include products with available sales and patent expiry information in Evaluate 2 Products only counted if sales reported in database 3 According to sales in 2010 Source: Evaluate 2011 24
Biosimilars players are diverse and numerous 25
Selected Manufacturing and Technology Trends Industry 4.0 and Factory of the Future 26
The evolution to Industry 4.0 in production 27
Readiness check for EU countries Source: Roland Berger 28
Some ideas with regard to the smart Pharma- Factory of the Future We will have miniaturised processors, storage units, sensors and transmitters embedded in various types of machines and unfinished products New software for structuring data flows around a manufacturing facility Intelligent use of accurate and timely data to achieve consistent product quality, agility and validation transparency to satisfy regulatory pressures True integration of technology/process and systems by e.g. connection of QbD with production set limits, adjust when OOS release online by using PAT (Process Analytical Technology) faster change over times, frequent use of single use systems (SUS) 29
Some ideas with regard to the smart Pharma- Factory of the Future (cont.) We will have virtual systems and simulation tools for processes and projects We will see more continuous manufacturing in Pharma MES can be one key building block to drive these objectives a fully flexible system with open interfaces for virtual simulation fully validatable and regulatory compliant 30
For me the main challenges are Involve regulatory agencies (e.g. FDA) early enough in the Industry 4.0 discussion and already ongoing development in the industry Industry needs to help agencies to learn, to get them up to speed and ultimately to trust the Cyber Physical Systems- approach Industry needs to build-in auditing functionality for agencies so they can verify compliance Demonstrate the benefit and competitive advantage for a pharma company by embarking to the Industry 4.0 journey 31
Agenda Key challenges facing the Pharmaceutical Industry 1. Delivering shareholder/stakeholder value 2. Moderate growth business environment 3. R&D productivity 4. Increased M&A activities 5. Rising risks and loss of trust Selected Manufacturing and Technology Trends Summary of major trends: How could Future Pharma look like? Conclusion 32
Summary of major trends: How could Future Pharma look like? Trends Aging population with increasing healthcare needs Consequences /Options Persistent medical need especially in chronic diseases Emerging Markets will drive the growth of the pharma industry Portfolio- and project decisions based on EM requirements Rising costs and pressure on healthcare industry Increasing pressure on margins and drive to increase efficiency Strong demand on product value by regulatory agencies and payors Higher risk in R&D leading to increasing need for focused resources cont. 33
Summary of major trends: How could Future Pharma look like? Trends From product mindset to value mindset Pharma industry is lagging social media (blog, facebook, twitter) More strategic partnerships and acquisitions will continue Moving from selling drugs to enabling health outcomes Impact of «Industry 4.0» currently in Pharma underestimated Consequences/Options Cultural change in executives and staff Accelerate development and integration of social media and mobile-health policy Products and services complementing the traditional pharma portfolio will move into the focus New partnerships with IT-, retail- and financial companies IT companies need to customise value proposition for pharma clients 34
A vision of Future Pharma generating value is emerging 35
Conclusion Predicting the future is a risky business but we know that demand for health treatments will be huge A possible way forward for the Pharma Industry: 1. Strive for achieving breakthrough innovation 2. Strengthen position in non-mature Emerging Markets 3. Transform business model beyond a purely R&D driven approach 4. Embark on the journey of Industry 4.0 now! we are privileged to work in an exiting business! 36
Thank you for your attention! References: Contact: Future Pharma KPMG, 2011 Dr. Pharma X.0? Dr. J. Reinhardt, June 2012 Chemin des Macherettes 28 BioPharma 2020 GE Healthcare Life Sciences, 2012 1172 Bougy-Villars Roland Berger Think Act, March 2014 Switzerland PwC - Deal Practice, May 2015 E-Mail: hanns_erle@yahoo.com Phone: +41 79 827 50 38