Pharma/payer relationships: appetite for reconstruction

It is commonly accepted that health care systems are so large, complex and driven by vested interests that wrestling them into a sustainable future is more challenging than maneuvering the Titanic. But lately I get the impression that the many hands at the helm of health care systems are all reading from the same chart, and are learning how to work together to steer into calmer waters.

In March, I joined Sir Andrew Dillon, the CEO of NICE, and Josep Figueras, Director General of the European Observatory on Health Systems and Policies, on a panel at The Economist’s annual Pharma Summit to discuss changes ahead for national health care systems. When we were asked about the elements we wanted to see in health care systems in the future, Sir Andrew spoke of his desire to see more transparency around products, and for a broader view of the things that constitute “value” in health. Dr. Figueras talked of more engagement with patients, and better adherence to treatments. For myself, I would like to see a clearer path toward reimbursement of “pill-plus” services, as we move toward an outcome-focused future.

Each of the items on our wish list is underpinned by a common thread. To be achievable, they will require much greater degrees of conversation and cooperation between disparate players in health care. The Economist event was remarkable for the consistency with which this message came across. I don’t believe that a few years ago we would have heard senior pharma executives saying such things as:

  • “We need transparent and ongoing discussions with HTAs and payers, and alignment on common goals.”
  • “We need to be less protective about what we own. The risks are too big for us not to collaborate and share.”
  • “The elevation of payers is a proactive change, and industry has to adapt to the new payer environment.”

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Specialty pharma bulking up: US$100b boost in market cap in 2013 M&A driven by inversions and driving deals in early 2014

Represent 40% of all 2013 M&A by value

Specialty pharma dominates 2013 M&A: Specialty pharma companies, with far less firepower individually and as a group than traditional big pharma, have been more resourceful in using M&A to drive growth while simultaneously enhancing shareholder value. In 2013, nine companies collectively added US$100b of market valuation with shareholder returns up 82% for the year. Specialty pharma acquirers accounted for roughly 40% of all 2013 M&A by value, with no fewer than seven offshore deals totaling over US$35b. All of these deals resulted in increased 2014 guidance, driven in part by lower projected tax rates. Notably, this subset of specialty pharma companies, which entered 2014 with headquarters outside the US (mostly in Ireland), enjoyed shareholder returns averaging 130%.

But the real story going into 2014 is strategic. Specialty pharma has bulked up to unprecedented levels that will allow this most acquisitive group to pursue larger deals – the recent announcement that Actavis is acquiring Forest Laboratories for US$25b as an example – that would have been inconceivable just a few years ago. Consider this: during the last Winter Olympic Games four years ago, there was only one specialty pharma company with market capitalization over US$30b and just two over US$10b. As they lit the torch in Sochi, five specialty pharma companies are standing on the US$30b+ market value podium, with 10 over US$10b. So why is this relevant now?

Specialty pharma blog_firepower share chart2

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Precision medicine: a new business model for pharma

By now, you’ve probably heard that the pharmaceutical industry is going through a revolution. The rise and fall of one-size-fits-all medicine has left pharma reevaluating pipelines and searching for new ways to develop drugs that are safe and effective for patients.

Simultaneously, we have discovered the genetic underpinnings of some diseases and have used these discoveries to develop higher-efficacy treatments for targeted populations — treatments for particular patients, not just for particular diseases. This approach, called precision medicine (PM), uses diagnostics to identify and segment patients into targeted populations for specific drugs. PM allows pharma to develop drugs that link to better outcomes while cutting development time and cost. Pharma companies are collecting these targeted products into formidable and sustainable portfolios.

But PM requires a significant scientific and business model shift. To successfully develop patient solutions that include access to both drug and diagnostic, pharma companies must proactively seek out partnerships with a whole host of other entities. They need access to diagnostic testing, life science tools, reference labs and global distribution networks (to name a few). Continue reading

Ten things to know about the 2013 IPO class [INFOGRAPHIC]

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Drawing on the breadth of EY’s biotechnology database, my colleagues and I have created the infographic to the left (click to expand) to tell the story of the 2013 US biotech IPO class in 10 charts. As detailed in my recent post on this topic, the US$3.6 billion raised in 2013 represents the second-highest total in the industry’s history — second only to the genomics bubble of 2000.

Of the 47 companies that debuted in 2013, 37 were therapeutics companies, 6 were diagnostics firms and the balance were companies focused on animal health, synthetic biology, medical food and research supplies.

Taking a deeper dive into the therapeutics companies, approximately one-third of the class of 2013 had a lead product focused in oncology, and the vast majority had a lead product in Phase II development, with only two companies having a marketed product and only one company with a lead asset in the pre-clinical stage. Fifteen companies had licensed their lead asset (some retaining US marketing rights) to a larger company, while many of those that retained full rights disclosed their intent to seek collaboration partners in the future to either help fund later-stage trials, marketing and distribution, or both.

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