Global sales of pharmaceutical products tend to increase year on year whatever the financial weather. That’s due to the importance we place on our health and the constant product innovation inherent in the sector.
The industry response to COVID-19 has been one of the biggest stories in drug development over recent years, seeing some companies rewarded with bumper sales and profits. But as the pandemic has faded, sales of these products have started to dramatically fall away with it, although past performance isn’t a guide to the future.
Added to the fall in sales, an ominous ‘patent cliff’ that the industry is facing. Some $200bn of revenue is at risk out to 2030, as some of the world’s best-selling drug patents exit their exclusivity periods, introducing the prospect of generic competition.
But there’s some hope in the sector’s worrying prognosis. In previous cycles, periods of significant patent expiration have seen a lull rather than a slump in the spending on prescription medicines.
And this time round, there’s a key difference. Many of the treatments are biologically derived, not chemically synthesised. This could mean that would-be competitors face greater obstacles as lots of biologically derived medicines are difficult to interchange, making doctors reluctant to switch prescriptions.
Population growth and a continuing need to address unmet patient needs should see the long-term growth trend in pharmaceutical sales continue. But this needs a constant lineup of new launches in the development pipeline and record investment in Research & Development gives some cause for optimism.
R&D spending by big pharma
IQVIA Institute global trends in R&D 2023, February 2023.
Here are the key areas where we see opportunities for lucrative product development.
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Cancer treatment
Cancer is by far still the busiest area for pharmaceutical research. Advances in care have seen survival rates in some common cancers close to double or more since the 1970s.
Some of this is down to the commercialisation of immunotherapy, where the body’s own immune system is honed to fight cancerous cells. This area of therapy has given rise to one of today’s biggest selling drugs, Keytruda.
We see more opportunity in this space, especially for combination therapies. This can improve the efficacy of immunotherapy and increase the number of people and cancers it can be used on.
Cancer is also a prime area for the increasing use of personalised medicine. Where medicine has typically been dominated by a one-size-fits-all approach, personalised medicine is an approach where treatments can be optimised for individuals. It’s based on their risk factors and genetic profile.
Key technologies being developed in this field include gene therapy and stem cell treatments. Beyond cancer, the potential applications here are wide.
Personalised medicine is somewhere artificial intelligence (AI) could improve patient outcomes but it’s important to see through the hype. In terms of drug discovery, it’s only this year that the first fully AI-designed medicine entered clinical trials.
Autoimmune conditions and neurology
Another area of high unmet need is autoimmune conditions, where deficiencies in our defence mechanism cause it to attack the body’s own tissue. Examples include rheumatoid arthritis, multiple sclerosis, and type one diabetes.
Immunology treatments are the second highest-selling category of therapy globally, and we think there’s plenty of room for even more growth.
The brain has been described as representing the last great frontier of medicine. After cancer, more research programmes are underway for neurology than any other therapeutic area. With that comes not just great opportunity, but also challenges.
Clinical trial failure rates are relatively high. But headway is being made. Leqembi, the first marketed medicine which can slow the progression of Alzheimer’s, was recently approved by the US Food & Drug Authority.
Vaccines
Vaccines have been one of the highest-profile therapeutic areas in recent memory, it’s the key that released the world from house arrest after unprecedented lockdowns.
Even before the pandemic struck, infectious diseases were responsible for 14% of global deaths. Increasing levels of antibiotic resistance reinforces the argument that prevention is better than cure.
But commercial vaccines can be a victim of their own success. The need for a jab every few years doesn’t generate the same recurring revenues as lifelong treatments for chronic conditions. So, any claims about their market size need to be carefully examined.
Unless you’ve been hiding under a rock, you’ve probably heard about the booming market in GLP-1 obesity treatments. This class of drug was first used to treat type two diabetes and clinical evidence suggests they’re very effective at helping weight loss.
The commercial potential is huge, with some estimates suggesting a market size of $100bn.
Worldwide obesity rates have nearly trebled since 1975 and are a major contributing factor to cardiovascular diseases and type two diabetes. This is putting healthcare systems under huge pressure.
These new treatments offer some hope, but are far from the perfect quick fix. There are rising concerns about the potential for their misuse and, indeed, their long-term safety profile.
What to make of it all
Modern medicine is one of humankind’s greatest endeavours and has made an impressive contribution to increasing longevity and quality of life.
Drug development can be very lucrative. But, finding new effective treatments can be like finding a needle in a haystack, and companies need to be in good financial health to keep replenishing the pipeline.
Those candidates with the potential to create a ‘pipeline in a product’ have particular commercial appeal. Medicines that have the potential to treat multiple diseases can generate a higher return on investment. The chances of approval also rise significantly in drugs that have already received their first marketing authorisations.
We think the risky nature of drug development can be reduced by focusing on companies with strong earnings streams, robust balance sheets, and diverse research programs.
Stay tuned, next week we’ll look at a few companies making the most of some of these evolving trends.