Less innovation, generic pressure could stymie Rx

SAN DIEGO —The slowdown in the branded drug industry isn’t going to speed up any time soon.

That was the prediction from Doug Long, vice president of trade relations for IMS Health, in a highly anticipated presentation at the National Association of Chain Drug Stores’ 2008 Pharmacy and Technology Conference on Aug. 26. With relatively little in the way of innovative drug development and slower growth for the branded pharmaceutical industry, look for the makers of high-ticket specialty medications and generic drugs to produce most of the heat in the U.S. pharmaceutical market, Long told pharmacy leaders.

Long said the pharmaceutical industry in the United States is undergoing wrenching change as the product pipeline dries up, safety concerns continue to make headlines, caution prevails at the Food and Drug Administration, and frenzied generic competition leads to rampant price-cutting and slower dollar growth.

“This is very different times from what we’ve seen before,” Long said. “Last year at this meeting, we were coming off a fairly strong first half for 2007. And basically the second half went sour. So 2007 got off to a great start and had a very poor finish, and this year got off to a poor start and we have yet to see it recover.”

The bottom line, Long said, is that “we’re dealing with a very different world today.”

This new pharmaceutical marketplace, he went on, is driven by three fundamental trends. “One is innovation, or lack thereof. It’s been a very poor period for innovation in the pharmaceutical marketplace,” Long said.

The second underlying trend, he said, is “a safety overhang over this industry over the last couple of years,” thanks to the damaging publicity and patient-safety concerns surrounding the recalls of major drugs, dosing restrictions and other factors.

The third factor weighing heavily on the industry is what Long described as “the rapid genericization of many blockbuster products,” which he said is impacting revenue growth for both suppliers and retailers.

“We’ve seen countless blockbuster products go off patent over the past eight years, and you have a very ultra-competitive generic market where some generic molecules [copycat drug entities] have 40 different generic players in the molecule,” Long said. “So it’s a very competitive marketplace, and it drives the cost down, down and down.”

The result is lackluster dollar growth averaging just 1.4 percent overall for U.S. pharmaceuticals over the last 12 months, the IMS expert told pharmacy leaders. That compares with 3.7 percent growth for the previous 12 months ended mid-2007, Long said, “which was coincidentally the lowest rate of dollar growth in the marketplace since 1961. So clearly, we are in a different market than most of us in the pharmaceutical industry have ever experienced.”

The slowing trend began in 2003-2004, Long noted. That slowdown in the prescription cycle was “briefly interrupted” by the launch of Medicare Part D drug benefits in 2006, he added, but otherwise, “the slide has continued in 2007 and 2008,” resulting in what Long called an “anemic” market.

Year-to-date, he added, “we’re only at 1 percent growth through June 2008, so that means that we have not yet reached the bottom of this marketplace.”

As for Part D, Long said the rollout of drug benefits for seniors now has become “business as usual.” The Medicare drug benefit program captured 19 percent of all prescriptions dispensed in the United States in 2007, up from 15 percent in 2006, but that share came “mostly from third-party [plans] and Medicaid,” he said.

Although the market is currently in a plateau, however, Long was quick to take a long-term perspective. “Keep in mind that this is a cyclical business. It always has been, and always will be. And if you look at the [long-term trends], there’s probably no better place to be than the pharmaceutical industry with the growth that’s been sustained since the late 1950s.

“Right now, we’re at a historically low period of growth,” Long said. “But we have to remind ourselves we’re coming off the single best period in the history of the U.S. pharmaceutical marketplace in terms of dollar growth, which was the late ‘90s and early 2000s. We’ve had other cycles; it’s just that this is a particularly vicious cycle.”