PharmExec Blog

European Pharma 1981-2011: Survival of the Fittest?

This month sees Pharmaceutical Executive magazine reach its 30th birthday. In line with that milestone, Reflector assesses what the last three decades have meant for European pharma — and shows how the game has changed beyond recognition.

EU-flag2Thirty years is a long time in any industry. The coalmining industry, the market for air travel, or telecommunications and computing technologies each offer compelling demonstrations of how much can change in such a short period. Few market leaders in those sectors have survived.

Against that background, the pharmaceutical industry has done pretty well over the last thirty years — and so have many of its players. Eli Lilly, Pfizer, Boehringer Ingelheim, Hoffman-La Roche, Merck Sharpe and Dohme — all were big beasts, and they still are. The industry was one of the darlings of the investment community back then, and still today it is seen as one of the safer counter-cyclical havens. And the industry’s enduring qualities as a powerhouse of scientific advance and a generator of high-quality jobs and exports continue to assure drug firms of sympathetic ears in many of the corridors of power.

Survival has, however, been very much the prize of the fittest. In a world grown harshly competitive, many firms have fallen by the wayside, been trampled underfoot, or have simply been lost without trace. Three decades of successive concentrations have thinned the ranks of the industry to a mere shadow of its former self. The roll-call of once-illustrious names has been abbreviated by bankruptcy, mergers and acquisitions. Who now recalls Richardson, which merged with Merrell before being taken over by Dow? There are many working in the industry today who are unaware that a proudly independent Beecham – with its breakthrough work on antibiotics – merged with SmithKline and French before its name was obliterated altogher from the marquee when Glaxo took over the entire operation. The French industry was dominated by Rhône Poulenc and Rousel Uclaf when Sanofi was still a struggling adolescent.

The relentless search for efficiencies, for leaner management, for shareholder value, and for  market share has hit the pharma sector hard. Gone are many of the notorious extravagances of the past. Product launches on the Orient Express or on yachts in the Mediterranean attracted hostility and accusations of a greater focus on marketing than on research. Armies of highly organised sales forces provoked questions among the sceptical about how much success had come to depend on science, and how much on subversion. The rise of a new and assertive form of consumer activism in the 1980s found ample fuel here, and prompted deeper soul-searching among the organisations that were paying for medicines — the consequences of which are still being played out today.

Major advances in diagnosis and treatment (AIDS was an ill-understood but fatal condition in the 1980s) tend to obscure the fact that it is some thirty years since the first blockbuster medicines emerged. Huge optimism was created by the revenues from innovations like cimetidine and ranitidine. But the resulting search for world-beating products not only led to some revolutionary earnings by revolutionary products. It also imposed new economic strains that took their toll of the sector. For many, the development costs and high risk were more than they could comfortably sustain.

In parallel, the operating context was changing rapidly. High-profile cases of big new products with big adverse effects led to some conspicuous withdrawals from the market — and to constantly-rising requirements from regulators who had burnt their fingers through injudicious authorisations. Extensive demands for greater preclinical and clinical testing tightened the screws still further on the industry’s business model, just as the opportunities opened up by biotechnology applications were also making research more expensive and unpredictable. And alongside the strains on innovation, challenges multiplied in the marketplace, from increasingly adventurous generic producers, and the still-sharper elbows of the burgeoning parallel trade sector.

The spectacular increase in international products and international marketing exposed as never before the fundamental weakness confronting the industry in Europe: the divergent national requirements, which split a potentially large market into a patchwork of distinct fragments and hindered the continent-wide launch of innovations. This was the background to the development, throughout the 1980s, of the first attempts at a pan-European system of obtaining marketing authorisations. It was, at times, a painful experience, handicapped (and occasionally even sabotaged) by resistance from national authorities to what they saw as an erosion of their prerogatives, and boycotted by some major firms fearful of concentration of power at European level.

The deficiencies of those initial procedures led to the construction of the more robust mechanisms of the European Medicines Agency. This has, over the fifteen or so years of its existence, brought a new degree of harmonization to product authorization — and extended its authority to a wide range of related issues that have arisen, from advanced therapies to the promotion of smaller biopharm companies.

Over the same period, the industry in Europe managed to persuade the European Union to take action to compensate firms for the growing delays in bringing new products through the ever-lengthening development periods. Patent term restoration legislation and subsequently data protection rules provided some relief for innovators against the depredations of generic competitors.

But if the industry had some success in winning arguments about the merits of innovation, it was conspicuously less successful in convincing national or European authorities to put their money where their mouth was. Attempts by brandname companies to contain the rampant growth in parallel trade  failed repeatedly — and on more than one occasion, spectacularly. European court rulings consistently upheld the EU doctrine of free movement of goods within the EU, and when one European Commissioner acceded to industry urgings to raise the question of overturning this sacrosanct principle, he was left high and dry because industry failed to deliver on its promise to provide him with the supporting evidence. It took years for the industry’s credibility to recover.

More significantly, European countries, even within the EU, retained absolute sovereignty in their decisions on pricing and reimbursement. So the best that the industry was able to obtain was an EU directive requiring national authorities to operate in a transparent fashion about their reasoning for decisions – but the decisions nonetheless remained entirely autonomous, and increasingly parsimonious, so industry gained little or nothing.

This divergence in economic decision-making continues to bedevil the operating climate for the industry — and all the more so as the winds of economic crisis whistle more threateningly. The assumptions that had prevailed for so long, that healthcare spending should continue to rise, are now subject to open challenge. The pressures on drug budgets — which have in any case been an easy target in healthcare financing over recent years — are inevitably increasing as a consequence.

The industry in Europe has been engaged for more than two decades in a protracted  lobster quadrille of round tables, forums and high-level groups with politicians, payers and patients, ostensibly to build a European policy for pharmaceuticals that can guarantee access to medicines while promoting research. But the overall effect has been to blunten rather than sharpen industry arguments for better treatment in terms of market access and adequate pricing and reimbursement.

The recent emphasis on ensuring the sustainability of healthcare systems — a constant theme now in European political debate — is not helpful to industry’s renewed bid for recognition of the importance of innovation.  There is plenty of talk on all sides about the need to promote innovation — in Europe this type of rhetoric has attained epidemic proportions — but the talk is yet to produce any real shift in attitude among healthcare payers. The debates are complicated by new uncertainties over the prospects and perils from advances in areas such as personalised medicine or e-health, or the challenges of providing care for increasing numbers of old people. But it will be unwise of Europe to spend another thirty years looking for solutions. The game has been changed out of all recognition, and the schedule dramatically abbreviated, by the rise of the new economies. No longer will the debate focus on the decline in Europe’s performance compared to the US and Japan. Now the industry lives under the shadow of China and India’s might — and they will not stand patiently aside while Europe reflects on how to maintain industrial competitiveness.

Reflector is Pharmaceutical Executive’s EU correspondent.

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