Pharma's Trillion-Dollar Sales Trophy: Will Payers Pony Up?

A combination of factors – strong science, internal asset management efficiencies, risk tolerant regulators and willing patients – are pushing the biopharma business toward a fresh landmark: $1 trillion in global sales by 2020. That’s the main finding from UK market analytics firm EvaluatePharma’s “World Preview 2015 - Outlook to 2020” report released at the BIO International Convention in Philadelphia last month. Payers are the debutante at the party who may not choose to dance, but so far the impact of pricing pressures on revenues and profits has been manageable, particularly in the US, which the report contends will remain dominant in driving industry growth through decade’s end.

Evaluate bases its trillion dollar projection on a 5 per cent annual CAGR for medicines through 2020, fueled by a large number of new biologic and small molecule products that together represent significant advances against the current standard of care. “After years of relative drought, the pharma pipeline is nearly fully replenished,” Evaluate Pharma Head of Research Anthony Raeside told PharmExec. The report estimates the total net present value [NPV] of products in the pipeline at $493 billion, up from $418 billion last year. Topping the list is the next stage combination small molecule Gilead is finalizing for treatment of Hepatitis C.

Eight of the top 20 R&D products by value in 2014 have subsequently received market approval, which Evaluate estimates will unlock $129 billion in value worldwide as these new medicines are adopted in clinical practice.  With some 50 NME and biologics approved by the US FDA in 2014, prospects for further augmentation of the “from potential into profit” cycle look very good indeed.

Another factor is the decline of patent expirations as a big drag on revenues and profits. Through end of decade, the “patent cliff” will be concentrated on those first generation biologics, with the industry facing as much as $197 billion in exposure to off-patent competition. But the Evaluate report concludes that the true effect will be more modest – less than $100 billion - due to the difficulties of substituting biologics in a manner compliant with regulations and that resolves provider/patient concerns about the safety and efficacy of biosimilars.

The third factor is the positioning of these products in meeting a real medical need. Support from regulators and payers has allowed launch performance to trend up, with the report predicting that eight of the top 10 new medicines approved by the FDA in 2014 will graduate to $1 billion plus “blockbuster” status by 2020.  And average worldwide sales of the top 50 drugs have passed the $500 million mark.

Looking at therapeutic areas, the hot spot remains oncology; sales of cancer meds will nearly double over the next five years, from $79 billion in 2014 to $153 billion in 2020. Roche is slated to remain the lead producer in this space, but Celgene advances to number two, above BMS and Pfizer. Overall, the 10 top selling medicines in 2020 has Humira still retaining first, followed by Revlimid, Opdiva, Januvia, Xarelto, Embrel, Tecfidera, Remicade, Avastin, and Prevnar 13. What’s interesting is there aren’t a lot of newcomers on the list [Opdiva, BMS’ anti-cancer drug is the notable addition], a fact that suggests that in this industry it still takes time for a brand to build dominance in the marketplace.  The same holds true for companies: Novartis will keep the global top rank in sales in 2020, followed by Pfizer, Roche, Merck, Sanofi, J&J, GSK, Actavis [now Allergan], Astra-Zeneca and Gilead.

The key downside raised by Evaluate Pharma analysts is the “mob with the pitchforks” politics of payers and patients rebelling against nosebleed prices and the margins that go with them: paced by its hepatitis C cure, Gilead’s average net margin is currently well in excess of 50 per cent. Says Raeside: “to avoid friction with payers getting out of hand, companies will have to differentiate their offerings and embellish this with costly investments in the right evidence that appeals to multiple stakeholders. Tough conversations with payers have to take place; there is no alternative.” One key unknown is how biosimilars will play into the dialogue. “Opinion remains divided as to whether these new products will turn out to be an easy and significant source of savings on the drugs bill. In the US, particularly, the level of provider and patient acceptance has yet to be factored in.”