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Challenges for Global Pharma: An Interview with Graham Lewis, IMS Vice President Europe Pharma Strategy

Graham Lewis, an economist with a degree from the London School of Economics, is a senior consultant and strategic thinker with more than thirty years of experience in the global pharmaceutical industry. In 2002, Lewis was the first recipient of the Pharmaceutical Business Intelligence and Research Group’s “Mary Clement Lifetime Achievement Award,” recognition by his peers of his outstanding contributions to his profession.

Although we’d like to discuss the challenges facing today’s pharmaceutical industry, we’ll ask you to set the stage by taking a look back at the 1990’s. What developments during the past decade will have the greatest impact on the pharma marketplace in the years ahead?

Lewis: In the 90’s, one very significant factor driving pharma industry growth was demographics: an aging population in virtually every strategic geographic region, with all the health problems that are invariably associated with aging. And with birth rates declining, particularly in the Developed World, the over-65’s will continue to be an increasingly important demand driver for pharma products.

Although drug companies recognize the potential of this growing market segment, they face three immediate challenges. The first is a pharmacological issue: as people grow older, as their metabolism slows down, their response to drugs changes. And they often take more than one kind of pharmaceutical product at the same time. To date, there has not been enough research on this phenomenon. It is a complex issue, but we do know this: adverse drug reactions are four times greater than average in people over 70 years old.

What are the other issues associated with this trend?

Lewis: Now we move from pharmacology to politics and economics. As new drugs are developed to meet the needs of an aging population, most of whom are pensioners, new products must combine efficacy with affordability. Pharma companies and budget holders can’t ignore the increasing political influence of the elderly: Gray Power is a reality and it can have a profound impact on government regulators and legislators. So it’s clear that demographics is much more than a buzzword for the pharma industry and will continue to significantly affect our industry over the next 20 years.

What other major trends of the 90’s are still influencing today’s pharma market?

Lewis: There were several key developments in the United States, which differentiated it increasingly from other pharma markets. A cost-sharing arrangement between the pharma industry and the U.S. Food and Drug Administration speeded up the FDA’s drug-review process and thereby accelerated the movement of new products from R&D to launch. There was also an extension of the patent-protected life of new compounds. A longer patented life cycle was an additional incentive for U.S. pharmas to get their products to market as quickly as possible, so they could earn more from each drug over the long term.

U.S. pharma companies also have the freedom to price their drugs without interference, and to change the price during product life cycles.

Why haven’t the pharma markets outside the U.S. developed in the same way?

Lewis: Outside the United States, healthcare is usually a socialized, government-controlled process. Although drug expenses are only a small portion of the total healthcare budget, they are highly visible and easily measured—and a sensitive political issue. In the EU and Japan, drug prices are subjected to stringent evaluation, usually leading to a lower entry price than in the U.S., and this initial price generally cannot be raised during product life cycles.

The other major difference is that direct-to-consumer advertising is allowed in the U.S., but not in Europe or Japan. Indeed, the European Parliament has recently rejected a pilot scheme for such advertising, covering a few important disease areas. So by comparison, European consumers are prevented from knowing about pharma industry innovations and improvements in healthcare and having some sense of the incremental value which the industry is undoubtedly delivering.

Have these differences, which are clearly advantages for the U.S. pharma industry, flowed through to the bottom line?

Lewis: Yes, they have. The U.S. pharma market grew more rapidly than the rest of the world during the 90’s. In 1992, for example, the U.S. accounted for 34 percent of audited pharma revenues. By 2002, U.S. audited revenues had risen to 50 percent. The advice I have been giving to pharma companies for years is that if you win in the USA, you win globally. Drugs first launched in the U.S. generally achieve higher market shares globally than drugs first launched elsewhere. Last year, 75 percent of blockbuster sales (> $1 billion annual sales) were in the U.S. From a global perspective, this is undesirable, but it does emphasize the strength of American R&D, and the impact of informed consumers who are willing to pay premiums for innovation.

Do you expect that dominance to continue?

Lewis: Yes. The U.S. pharma industry will continue to be the largest, by far, in the world, and may continue to grow at the fastest rate. In 2002, there was a temporary lull in new product introductions which, combined with some major patent expiries, has reduced growth in the U.S., but this is likely to be just a temporary blip.

People in the U.S. tend to be better informed about health issues, more likely to adopt new drugs and new treatment regimes, and more likely to influence their doctors’ choice of medications. In other parts of the world, physicians still tend to be put on a pedestal by their patients. That’s certainly not the case in the U.S.

What’s more, this more pro-active attitude among U.S. consumers is fostered by the increasing volume of direct-to-consumer advertising.

In recent years, the pharmaceutical industry has often been in the news, not always in a flattering light. What affect has this had?

Lewis: During the past decade we have witnessed a dramatic change in public attitudes toward the pharmaceutical industry. The magic is gone. The image of pharmas – particularly in their relationship to the Developing World – has been damaged by a perception that their response to the HIV health crisis in that part of the world has been inadequate. Pharmas have been accused of being interested solely in profits. Generic manufacturers in Eastern Europe, India and China have offered to provide cheaper versions of HIV drugs and argue that production of these new products is relatively simple. This is significant because consumer opinion has historically been based on the need for exceptional skill and complexity in developing and commercializing new drugs. While the former remains true and increasingly so, the latter has been challenged.

Can the industry restore its lost “magic”?

Lewis: I do believe that pharmas can reinvent themselves and regain lost ground during the next ten years or so, and re-establish themselves as a core partner in creating and sustaining healthy societies, with a good quality of life for seniors. But it won’t be an easy task and it will involve complex, sensitive, give-and-take negotiations with a variety of stakeholders. And, of course, the issue of patent-protection and generics will continue to be a major challenge to the industry as a whole.

In terms of the product pipeline, what new kinds of drugs are likely to come to market in the 21st century?

Lewis: Although there have been many new drugs developed during the past twenty years, they have not, for the most part, been curative. They have slowed down the progress of diseases, alleviated symptoms, helped to prevent dangerous sequelae, provided remedies rather than cures.

Looking ahead, with the help of new disciplines such as genomics, I foresee advances on several fronts over the next 20 years. First, there is an impressive drive to improve and extend diagnostics, so that drug intervention can occur earlier and thereby alleviate chronic degenerative processes. Osteoporosis, many forms of cancer and Alzheimer’s are all significant disease areas which are likely to benefit. Improved diagnostics, however, may result in a need to develop more targeted therapies, supported by clinical trial data that better differentiates and segments patients.

What about healthcare trends in the Third World?

Lewis: The growing tendency for populations in the developing world to urbanize and adopt Western dietary habits will result in a surge of respiratory and cardiovascular disease globally, as well as an increase in diabetes. The pharma industry faces a challenge here to meet these growing needs in the developing world at prevailing price levels.

There has been significant investment in vaccines over the last 10 years, and this is likely to continue to keep infectious diseases under control. There are also some interesting expansions in vaccine development against certain types of cancer.

How would you summarize the outlook for the pharmaceutical industry in the new century?

Lewis: Overall, I think there is every chance that the industry can come to be seen as an essential partner in the prevention and alleviation of disease on a global basis, and a fundamental contributor to a good quality of life across the extending life expectancy of people throughout the world. The greatest challenge will be to find effective, profitable ways to make these innovations as widely available as possible, to everyone who needs them.

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