Big Pharma Stuck Between Investors and the Public

Big Pharma currently comes across a range of pressures from generics manufacturers, governments, patient advocacy groups, investors, physicians, and even other pharmaceutical or biotechnology firms. In dealing with these pressures, companies are trying to focus upon the needs of their key stakeholder, the investors, or shareholders, according to recent market research.

As the timeframe of exclusivity shortens and regulatory requirements increase, companies are faced with declining profits and decreasing brand cachet, particularly in emerging markets, according to GlobalData, an international market research firm (London, UK). On top of this, they have to deal with reference pricing and rigorous healthcare cost controls being set up by various governments, particularly in Europe. According to Sanofi’s CEO, Chris Viehbacher, the financial situation in Europe has been costing Sanofi EUR 200-300 million a year as a result of governments’ healthcare spending cuts.

Sanofi has faced an interesting year in the limelight, with their latest hurdle being Sanofi’s pricing strategy in Japan coming under question. Sanofi’s IPV (inactivated poliovirus vaccine) Imovax Polio SC injection is currently priced at almost JPY 5,500 per syringe, which comes at an almost 270% price premium compared to the cost of the same vaccine in the United States. Japanese officials at the Ministry of Health, Labor, and Welfare (MHLW) have issued repeated letters to the executive board of the pharmaceutical behemoth, requesting that they revise prices prior to entry into the market.

Sanofi’s executives have held fast, and have issued strong statements to indicate that the price points instated for the IPVs were needed to recover costs incurred to enter the Japanese market. However, Sanofi faces the looming threat of new entrants from domestic combinatorial vaccine manufacturers that are ready to enter the market in the very near future, and will likely usurp Sanofi as the leading IPV vaccine manufacturer in Japan. Consequently, the company has little time to earn significant revenue from the sale of its polio vaccine in Japan.

In the case of vaccines, manufacturers are less and less inclined to invest because of reasons as simple as a poor business model. The vaccine segment, seen as a silver bullet by global health initiatives, is no cash cow for pharmaceutical companies. The one glitch to this oversimplification would be the influenza market, which benefits from antigenic shift of the virus, thereby resulting in the need for a new annual vaccine against the viral strain in circulation. As a company attempts to recoup costs of development, one sees this reflected in the price of each vaccine. However, as manufacturers reach superior levels of effectiveness with their vaccines, they are forced to substantiate the changing costs as patients move from one therapy to another, according to GlobalData analysts.

Now, one sees companies such as Sanofi that are finding themselves into a corner by a number of different stakeholders. Sanofi is currently in a lawsuit against physician buying groups, who maintain that Sanofi’s contracts imitate antitrust laws and limit healthy market competition. Novartis is also currently entangled in a lawsuit with Indian courts over the prices of cancer drug Gleevec, with the company emphasizing that most patients who participated in the trial did not have to pay out of pocket for the expensive drug treatment.

Gilead, a leader in HIV therapeutics, has similarly been pressured by health advocacy groups and other lobbyists to provide their therapies at a discount to patients in countries with a low annual gross domestic product (GDP). Gilead, potentially forced into responding to these claims, has surrendered to these external pressures, and agreed to participate in the transfer of technology to promote the distribution of their drugs as generics. In August 2012, the company signed deals with Mylan, Strides Arcolab, and Ranbaxy to manufacture low-cost generic versions of its HIV drug, Emtriva (emtricitabine).

Clearly, drug makers have to walk a fine line while attempting to please both investors and the public--two parties with contrasting expectations and demands. In spite of the efforts of companies like Gilead and Roche at running “access” programs, which aim to make their drugs affordable for developing countries, the public still winces at the massive profits announced by these drug makers every quarter. How profitable should pharmaceutical companies be in order to satisfy both sides? Should there be a limit to their profitability, keeping in mind the expensive, long, and risky drug development process? How do pharmaceutical companies validate that they care about patients if the very life-saving treatments they develop are too cost-prohibitive by those who need them the most? How involved should patient advocacy be in drug pricing, bearing in mind that with every “victory” they get, they come back with even more aggressive demands?

These are some of the imperative questions begging to be answered. Regardless of the enthusiasm shown during the launch of a new drug or vaccine, it all comes down to one thing in the end: pricing. Will pharmaceutical companies stand their ground or will they yield to the demands of the public? Sanofi has chosen the former, according to GlobalData, at least for now.

GlobalData is a global business intelligence provider. The company’s research and analysis is based on the expert knowledge of over 700 business analysts and 25,000 interviews conducted with industry insiders yearly.

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