The Pharmaceutical Company Outlook to 2012

A Report by Datamonitor

Strategic Analysis of the Sales Outlook for Big Pharma, Mid Pharma, Japan Pharma and Biotech

The pharmaceutical industry faces a muted outlook with ethical sales forecast to grow at a 2006–12 CAGR of only 3.2%. However, behind this disappointing industry average figure there are strategic segments of the market that offer companies double-digit growth rates through barriers against generic competition and the opportunity for aggressive indication broadening.

Executive Summary

Key findings

• Based on an analysis of 43 companies spanning Big Pharma, Mid Pharma, Japan Pharma and Biotech, Datamonitor forecasts that prescription pharmaceutical sales across the seven major markets (France, Germany, Italy, Japan, Spain, UK and US) will increase at a modest 3.2% CAGR 2006–12 ;
• The Big Pharma peer set is forecast to see sales increase at a 2.3% CAGR over 2006–12. The primary theme for this peer set is the continued onslaught of generics eroding sales of small molecule gastrointestinal, cardiovascular, central nervous system and respiratory blockbusters. The fastest growing Big Pharma companies will include those with a substantial position in oncology such as Roche (Avastin, Rituxan, Herceptin, Tarceva) and Novartis (Glivec);
• The Mid Pharma peer set will see ethical sales grow at a CAGR of 6.2% over 2006–12. This peer set has been swept by a wave of M&A in recent years including Merck KGaA + Serono, UCB + Schwarz and Nycomed + Altana. The faster growing members of this peer set derive their superior growth from one of two themes: robust CNS launch products (such as UCB-Schwarz’s Vimpat and Neupro) or positive sales growth from products that have reached patent expiry but are unlikely to suffer generic competition due to their biologic nature (Merck-Serono’s Rebif, Erbitux and Novo Nordisk’s insulins);
• Biotech will be the fastest growing peer set, increasing sales at an 8.1% CAGR 2006–12. Amgen and Genentech cast a long shadow over the rest of the peer set with the two companies accounting for c.70% of biotech revenues in 2006. The biotech peer set derives over 80% of 2006 revenues from biologics (monoclonal antibodies and therapeutic proteins) with monoclonal antibodies forecast to act as the primary growth driver molecule type out to 2012;
• The Japan Pharma peer set is forecast to barely expand at a 2006–12 sales CAGR of 1.7%. The fastest growing Japanese company will be Chugai primarily due to its access to Roche/Genentech’s portfolio of oncology monoclonal antibodies. The rest of the peer set remains entrenched in cardiovascular, gastrointestinal and central nervous system markets which face intensifying generic competition out to 2012;
• While the growth outlook for the industry as a whole is muted, there are strategic segments of the market that offer double-digit growth rates through barriers against generic competition (biologics-based products, most notably monoclonal antibodies) and the opportunity for indication broadening (Oncology and Immunology & Inflammation);

Introduction to the PharmaVitae Universe

The Datamonitor PharmaVitae pharmaceutical company analysis product monitors the ‘company universe’ of 43 companies listed in Table 1. The company universe is composed of four peer sets: Big Pharma, Mid Pharma, Japan Pharma and Biotech.

These four peer sets each sample the major players in a different area of the prescription pharmaceutical market.

Individual product forecasts (spanning the period 2007–12) are created by the PharmaVitae analyst team for every company in the PharmaVitae universe, such that there are over 1,200 individual product forecasts in total (c.28 individual product forecasts per company). This forecast sales database of 1,200+ individual branded prescription pharmaceuticals is a powerful tool for the quantitative analysis of future trends of the prescription pharmaceutical market as a whole and also for the analysis of key segments within the market such as a particular peer set, therapy area or molecule type segment.

For the purposes of this sector report, Big Pharma has been defined as all European/US pharmaceutical companies (excluding biotechs) that have 2006 prescription pharmaceutical sales across the seven major markets (France, Germany, Italy, Japan, Spain, UK and US) in excess of $5 billion as measured by IMS Health MIDAS sales data. It should be noted that the set of 15 companies identified as Big Pharma by this criterion is identical to the set of 15 companies identified by applying a 2006 $10 billion threshold to company-reported global sales.

2007 has seen two Big Pharma players make significant corporate acquisitions. AstraZeneca purchased the Biotech company MedImmune and Schering-Plough purchased the Mid Pharma company Organon Biosciences. Throughout this report all AstraZeneca sales data includes MedImmune (and also Cambridge Antibody Technology) and all Schering-Plough sales data includes Organon Biosciences.

Roche is unique within Big Pharma in that it has pursued a ‘hub and spoke’ nonintegrative acquisition strategy. Roche holds a majority stake in both the Biotech player Genentech and Japan Pharma player Chugai. However, Roche has been careful to avoid integrating Genentech and Chugai and has instead deliberately left the two companies to operate as independent corporate entities. To reflect the true nature of Roche’s corporate structure this report will analyze (1) Genentech, (2) Chugai and (3) Roche (excluding Genentech and Chugai) as three separate companies in the respective peer set chapters. Genentech is analyzed in the Biotech chapter, Chugai in the Japan Pharma chapter and Roche (excluding Genentech and Chugai) in the Big Pharma chapter.

Mid Pharma has been defined as a set of 13 major European/US pharmaceutical companies (excluding biotechs) that have 2006 prescription pharmaceutical sales across the seven major markets (France, Germany, Italy, Japan, Spain, UK and US) under $5 billion as measured by IMS Health MIDAS sales data. The composition of the Mid Pharma peer set has been sculpted by a combination of promotions to Big Pharma and Mid Pharma-to-Mid Pharma M&A over recent years. Former Mid Pharma members Bayer Schering (Bayer + Schering AG), Schering Plough and Boehringer Ingelheim were all promoted to Big Pharma status in 2006 as a result of their growing size. Of the current four largest Mid Pharma companies (on the basis of 2006 sales), two have been recently formed through M&A (Merck KGaA + Serono) and (UCB + Schwarz Pharma). 2007 also saw the acquisition of Altana Pharma by Nycomed to produce a significant player in gastrointestinal disorders. Furthermore, Organon Biosciences has been stripped from the peer set due to its acquisition by Schering- Plough. To compensate for the depletion of Organon, Sepracor has been added to the PharmaVitae Mid Pharma peer set.

The PharmaVitae Biotech peer set includes the leading biotechs Amgen, Genentech and Biogen Idec together with genetic enzyme disorders company Genzyme and the infectious disease-focused biotech Gilead. The biotech peer set has been depleted in recent years with the 2005 acquisition of former biotech peer set member Chiron by Big Pharma member Novartis, the 2006 acquisition of Serono by Mid Pharma member Merck KGaA and the 2007 acquisition of MedImmune by Big Pharma member AstraZeneca. This trend of biotech acquisitions by larger players looks set to continue into 2008 with the potential sale of Biogen Idec. To offset the depletion of biotech members, Datamonitor has added two new companies to the peer set – the CNS-focused biotech Cephalon and the CV-focused biotech Actelion.

The PharmaVitae Japan Pharma peer set samples eight Japanese-headquartered pharmaceutical companies spanning Takeda, Astellas, Daiichi Sankyo, Eisai, Mitsubishi Tanabe, Chugai, Dainippon Sumitomo and Shionogi. In response to pressures on growth in recent years, the Japanese peer set has been swept by a wave of M&A consolidation including the formation of Astellas [Yamanouchi + Fujisawa], Daiichi Sankyo [Daiichi + Sankyo], Mitsubishi Tanabe [Mitsubishi + Tanabe] and Dainippon Sumitomo [Dainippon Sumitomo].

Throughout this report all prescription pharmaceutical sales data will be based on IMS Health MIDAS (2006) sales data and Datamonitor forecasts (2007-12) for the seven major markets (France, Germany, Italy, Japan, Spain, UK and US). PharmaVitae classifies company’s products into 11 different therapy areas which will be referred to in charts and tables according to the abbreviations presented in Table 2.

Summary of analysis

Table 3 summarizes the key 2006 and forecast (2012) data points covered in this report. The first column ‘universe’ presents data for the PharmaVitae universe as a whole and is then followed in successive columns by data for each component peer set.

There are five broad categories of data presented in summary Table 3: total peer set sales, company performance, therapy area sales, molecule type focus and finally balance of growth contributions from launch and expiries. The key observations made in this report for the company universe as a whole will be considered first, followed by an overview of each peer set in turn. More in depth analysis of peer set data points can be found in the corresponding peer set chapter.

PharmaVitae Universe and Peer Set overviews

Fig 1: PharmaVitae Universe overview

Figure 1 provides an overview of how the PharmaVitae company universe is forecast to evolve over 2006–12. Total company universe sales stood at $330 billion in 2006 and are forecast to grow at a modest 3.2% CAGR to reach $399 billion in 2012. Big Pharma accounted for 73.0% of total sales in 2005, but is expected to grow slowly at a 2006–12 CAGR of 2.3% to reach $277 billion in 2012. Japan Pharma is forecast to grow very slowly, barely rising from $32 billion in 2006 at a CAGR of 1.7% to reach $35 billion in 2012. Mid Pharma is expected to grow significantly faster than both Big Pharma and Japan Pharma, increasing from $27 billion in 2006 to $39 billion in 2012, equivalent to a 2006–12 CAGR of 6.2%. The fastest growing peer set in the company universe will be biotech, which is expected to grow at a healthy CAGR of 8.1% from $31 billion in 2006 to $50 billion in 2012.

The four largest therapy areas in the company universe (on the basis of 2006 prescription pharmaceutical sales across the seven major markets) were cardiovascular & hematology (CV), central nervous system (CNS), infectious diseases (ID) and then oncology (onco). These four therapy areas combined accounted for 66.4% of total sales in 2006. The largest therapy area, CV, is forecast to face a gentle sales decline at a 2006–12 CAGR of -1.1%. The second largest therapy area, CNS, will barely register positive growth with a forecast 2006–12 CAGR of 1.5%. The Infectious diseases market is expected to fare better with a 2006–12 CAGR of 5.7%. However, oncology will be the top growth area with a forecast doubledigit 2006–12 CAGR of 11.4%. As a result of oncology’s strong growth, it is expected to overtake infectious diseases to become the third largest therapy area by 2012.

In terms of molecule type, the company universe derived 80.5% of 2006 revenues from small molecule products. Therapeutic proteins, monoclonal antibodies (mAbs) and vaccines accounted for 12.6%, 4.7% and 2.2% of 2006 revenues respectively. A key agent of change in molecule type sales composition over 2006–12 will be Roche/Genentech’s monoclonal antibodies Avastin, Herceptin and Rituxan. Continued explosive sales growth of these mAbs will help raise the share of monoclonal antibody sales to 11.0% in 2012. Coupled with the onslaught of small molecule patent expiries over 2010–12, these mAbs will be a major factor in reducing the share of small molecule sales to 71.2% in 2012. The majority of vaccine sales growth 2006–12 is due to only two products—the novel HPV/cancer vaccines Gardasil and Cervarix.