The changing biopharma risk equation 2016.pdf

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A report from The Economist Intelligence Unit
The changing
biopharma
risk equation
Sponsored by
The changing biopharma risk equation
Contents
Preface
About this report
Executive summary
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10
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15
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Growth strategies
Geographic risks
Product development risks
Managing the risks to make strategy pay off
Conclusion
Appendix: survey results
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© The Economist Intelligence Unit Limited 2016
The changing biopharma risk equation
Preface
As pharma companies expand, they are looking more and more to biologics for their next
potential blockbusters. However, this class of product—ranging from well-established large-
molecule drugs to truly novel therapies—poses major challenges because of their scientific
complexity and sophisticated development requirements. Furthermore, expanding the drug
pipeline isn’t the only growth strategy most companies are pursuing: They are also planning to
expand geographically and expect to face various risks doing so, including unfamiliar
regulatory environments, shifts in pricing and customers’ ability to pay.
All this means that risk management is rising in pharma executives’ agendas. To manage
risks, companies are developing strategies that involve both building internal capabilities and
reliance on external expertise.
This paper, which incorporates the results of a survey of 254 pharmaceutical executives from
around the world and a range of interviews with industry experts, explores in detail global
pharmaceutical companies’ growth strategies and their plans for managing the associated
risks.
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© The Economist Intelligence Unit Limited 2016
The changing biopharma risk equation
About this
report
The changing biopharma risk equation
is an Economist Intelligence Unit (EIU) report sponsored
by Merck. It draws on a multinational survey conducted in March 2016 of 254 pharmaceutical
executives. The respondents represent a range of companies that are currently involved in or
planning to engage in biopharmaceutical development.
Half the survey respondents are C-level or equivalent executives; the remainder hold senior
vice-president, vice-president or director positions. Of the sample, 30% are North American,
30% are from across Europe, 30% are from the Asia-Pacific region, with the remaining 10% from
the rest of the world. Executives at companies of all sizes responded, with 50% coming from
companies with global revenues of US$500m or less, 37% from organisations with $500m to
$5bn in annual revenues and 13% whose annual global revenues exceed $5bn.
The report includes insights from a range of pharmaceutical development experts. The EIU
would like to thank the following interviewees for their input:
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Steve Bates, chief executive, BioIndustry Association (UK)
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Andrew Baum, managing director of equity research, Citi
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Ralph Marcello, principal, Deloitte Consulting’s life sciences consulting practice
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Tom Ransohoff, vice-president and principal consultant, BioProcess Technology Consultants
The findings and views in this report do not necessarily represent the views of the sponsor.
The report was written by Sarah Murray and edited by Rebecca Lipman.
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© The Economist Intelligence Unit Limited 2016
The changing biopharma risk equation
Executive
summary
Pharmaceutical companies are in an expansive mode. With rapid advances being made in
the development of new therapies, including stem-cell derived therapies and gene therapies,
and a growing cohort of potential customers in the burgeoning middle classes of emerging
markets, expansion into both new product categories and geographic regions is a priority for
most companies.
“In many ways, the industry has never had it so good,” says Andrew Baum, managing
director of equity research at Citi. “It’s got great science, helpful regulators and a growing
elderly patient population.” Steve Bates, chief executive of the UK’s BioIndustry Association
(BIA) agrees. “People think there’s lots of exciting science that can be translated into new
products and services.”
The survey found that companies are pursuing different classes of new biopharmaceuticals
(also known as biologics) as part of their expansion. These drugs fall into two distinct
categories. First, large-molecule biologics, such as monoclonal antibodies used to treat
chronic diseases including, diabetes, cancers, and rheumatoid arthritis. Although these
complex therapies have been in use for more than 30 years and are already well-established,
the category continues to experience significant growth based on scientific and technical
innovation. Second, novel therapies that are truly cutting edge, such as gene and cell
therapies. Therapies in this category are still largely in experimental phases and not readily
available to the market. However, expectations of widespread adoption are at the core of
many visions of personalised medicine.
In terms of geographic expansion, companies report that they are typically following a
two-pronged approach, with a relatively even mix of expecting to grow market share in other
countries and expecting to increase production and development capacity there. This is
typical for the industry, according to Mr Baum. “If you’re a multinational, geographic
expansion goes with products in your portfolio—the two are rarely decoupled,” he says.
Companies indicate that they plan to add production and development capacity in all
global regions over the next five years. The survey also showed strong anticipation for entering
Asian markets in the same time period, particularly in Indonesia, South Korea and Taiwan.
Although the mood of the industry is expansive, such advances bring with them a range of
familiar and new risks—and companies are aware of a range of challenges ahead. In the
survey, the top risks to growth strategy include regulatory uncertainty and lack of investment
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© The Economist Intelligence Unit Limited 2016

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