Press Release: Global Pharmaceutical Market to Double in Value to $1.3 Trillion by 2020

Global Pharmaceutical Market to Double in Value to $1.3 Trillion by 2020, Estimates PricewaterhouseCoopers, But Industry Must Change to Capitalize On Opportunities NEW YORK, June 13, 2007 -- The global pharmaceutical market will more than double in value to $1.3 trillion by 2020, according to a new report on the future of the pharmaceutical industry released today by PricewaterhouseCoopers. The increase will be driven by soaring worldwide demand for medicines as the population grows, ages and becomes more obese and as chronic conditions and infectious diseases tied to global warming increase. But PwC warns that the current pharmaceutical business model is unsustainable and the industry must fundamentally change the way it operates if it is to capitalize on future growth opportunities. By 2020 the E7 countries -- Brazil, China, India, Indonesia, Mexico, Russia and Turkey -- could account for as much as one-fifth of global pharmaceutical sales, up by 60 percent since 2004. Further, the chronic conditions in the developing world will increasingly resemble those of the developed world, with a significant rise in hypertension and diabetes as these countries become more prosperous. In addition, many scientists are predicting global warming and rise in greenhouse gases to have a major effect on the world's health, resulting in the spread of diseases such as malaria, cholera and higher prevalence of respiratory illnesses such as asthma and bronchitis. The PricewaterhouseCoopers report, entitled Pharma 2020: The Vision - Which Path Will You Take?, contends that despite unprecedented global demand for its product, the pharmaceutical industry is at a pivotal point. The current pharmaceutical industry business model is both economically unsustainable and operationally incapable of acting quickly enough to produce the types of innovative treatments that will be demanded by global markets. Pharmaceutical companies are facing a dearth of new compounds in the pipeline, poor share value performance(1), rising sales and marketing expenditures, increased legal and regulatory constraints and tarnished reputations. "The pharma industry will not be in a strong position to capitalize on opportunities unless R&D productivity improves," said Dr. Steve Arlington, global pharmaceutical research and development advisory leader, PricewaterhouseCoopers and principal author of the report. "The core challenge is a lack of innovation. The industry is investing twice as much in R&D as it was a decade ago to produce two-fifths of the new medicines it then produced. It is simply an unsustainable business model. "Over the next decade, the industry must shift its investment focus more toward research and less on sales and marketing. Pharma's traditional strategy of placing big bets on a few small molecules, marketing them heavily into primary care with the aspiration of achieving blockbuster sales, will no longer suffice," added Arlington. "It must focus on the development of medicines that prevent, treat or cure. These must demonstrate tangible benefits and tackle unmet medical needs. Governments and payers must play their part and ensure the industry is rewarded for these efforts." Some of the major changes which PricewaterhouseCoopers forecasts in the report are: -- The blockbuster sales model will disappear. It will be replaced by a smaller, smarter and more effective sales force, led by key account managers who will negotiate contracts based on therapeutic benefit and outcomes. The imperative will be who can add the most value, not who can sell the most pills. Under this model, most pharmaceutical companies will sell integrated packages of medicines and services, and some services, such as personalized patient monitoring and disease management, may be more valuable than the medicines themselves. -- Emphasis on outcomes to increase. The focus on outcomes and measurement of outcomes data will drive product development, pricing and reimbursement decisions and risk-sharing agreements between industry, health care payers, providers and regulators. Successful companies will prove that their products really work and add value. Companies also will be financially rewarded for developing new therapies versus me-too medicines. Risk-sharing agreements will become more mainstream with drug manufacturers adjusting prices according to the results of outcomes analysis data that demonstrates drug efficacy. -- Compliance monitoring becomes win-win for patients, payers and providers. Solutions to monitor and ensure that patients are fully compliant with their medications could generate more than $30 billion of revenue a year in new sales, and would improve outcome and patient safety. One U.S. study found that one in five Americans never fills their original prescriptions, or they use other people's medicines. Six in ten patients cannot identify the drugs they are taking. This not only affects safety and outcomes, it also creates risk and revenue loss for pharmaceutical companies. Pharmaceutical companies will revise their proposition, employ new technologies and develop personalized compliance monitoring techniques as a value-added service to patients, payers and providers. Improved patient compliance would also help clinical studies and outcomes. -- Focus will shift from treatment to prevention. Preventive health care represents a huge opportunity for both health care providers and the pharma industry. Recognizing the cost effectiveness of preventing diseases among healthy populations rather than treating sick populations, pharma will enter the realm of health management, with wellness programs, compliance monitoring and a significant increase in the production of vaccinations. Already, there are 245 pure vaccines and 11 combination vaccines in clinical development, and the market is estimated to grow to $42 billion by 2015. -- New technologies will drive R&D. Transformational technological changes in the pharmaceutical industry will reshape the business strategies of pharmaceutical companies. The role of genetic-based diagnostics in the development of personalized medicines has already shortened the R&D cycle for those products. Further research into the human genome will open up a new world of opportunities in molecular science and new ways of looking at targets. These new technologies will be used to improve understanding of diseases and link genomic and clinical data. The development of molecular delivery platforms could speed the development of new products that leverage existing/approved platforms. The convergence of therapeutics and medical devices, which started in earnest with the drug releasing stent, will continue and become increasingly sophisticated, improving efficacy and reducing the risk profile of many existing therapeutic agents. -- The current linear R&D process will give way to in-life testing and live licensing. The current R&D model, involving phase I, II III and IV clinical trials that typically end in submission for a drug license and market approval, will be replaced by collaborative in-life testing and `live license' issued contingent on the ongoing performance of the drug over its lifecycle. The industry will conduct smaller, more focused clinical trials, continuously sharing results with regulators. If testing confirms that a medicine is safe and effective, a live license will be issued, permitting the company to market the drug on a restricted basis. Further in-life testing will extend the license to cover a larger number of patients or a different patient population. -- Greater international regulatory cooperation. Already, several national and regional regulators have begun to collaborate by sharing safety and efficacy data. There may well be one global regulatory system by 2020, administered by national or federal agencies responsible for ensuring that new treatments meet the needs of the patient populations within their respective domains. Such a system would help to reduce the spiraling costs of regulatory compliance and reduce time to market. -- The supply chain functions will become revenue generating. The future supply chain will be responsible not only for distribution of all products and services, it will also create new channels through which to market products, becoming revenue generating rather than a cost center. Furthermore, 2020 will likely give rise to `made to order' therapies rather than `made to forecast' using just-in-time manufacturing and delivery techniques learned from other industries such as the automotive sector. -- More sophisticated direct-to-consumer distribution channels will diminish the role of wholesalers. The industry's heavy reliance on wholesalers for distribution will be supplanted as the over-the-counter (OTC) self-medication sector grows and new technologies enable automated dispensing of medicines direct to consumers. Fulfillment of prescriptions for most primary-care medications will be fully automated, whereby doctors will write prescriptions, check reimbursement criteria and download the script to the patients' smart health card or email account. Patients will be able to forward the script to an online pharmacy, which checks their identity using a web-based biometric device and mails the medication to their specified address. "The entire global health care system is undergoing a seismic shift that will upend pharmaceutical companies unless they change they way they operate," said Anthony Farino, US Pharmaceutical and Life Sciences Advisory Services Leader, PricewaterhouseCoopers LLP. "Pharmaceutical companies are being held far more accountable -- for products that demonstrate outcomes at reasonable prices -- by all players across the continuum: patients, clinicians, insurers, regulators and governments. To flourish, companies will need to invest more in research, understand and demonstrate the value of their products, lower the cost of distribution, collaborate with partners at home and abroad, and provide value-added services to customers. The challenges are steep, but the rewards could be significant." About PricewaterhouseCoopers PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 140,000 people in 149 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. "PricewaterhouseCoopers" refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. Note to Editor: (1) In the six years to March 30, 2007, the FTSE Global Pharmaceuticals Index rose 1.3% while the Dow Jones World Index rose by 34.9%. To download a copy of Pharma 2020: The Vision - Which Path Will You Take? and a related podcast, please visit www.pwc.com/pharma

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