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Pharmaceuticals Sector Dampened by Lower Production

1172_1Lower production of active ingredients in 2017 saw Singapore’s pharmaceuticals output declining by 7.7% to S$16.9 billion (S$18.3 billion in 2016), to account for 5.3% of total manufacturing gross domestic product (GDP). A drop of 37% in output in the last quarter of the year weighed down the overall production performance of the sector.

Overall, the biomedical cluster’s manufacturing output in 2017, which includes pharmaceuticals, was up slightly at S$29.6 billion (S$29.5 billion in 2016) or 9.2% of total manufacturing GDP. The other biomedical component, medical technology, saw its output inch up marginally to S$12.7 billion (S$11.2 billion in 2016).

Biomedical’s total value added in 2017 was S$14.5 billion or 14.5% of the manufacturing total with value added per worker at S$653.30 while pharmaceutical total value added was S$10.3 billion or 13.6% of total value added.

In the first half of 2018, the pharmaceuticals sector’s output was better on average with four months of double-digit increases. As at June the biomedical cluster’s manufacturing half-year output increased 7.7% compared to the same period a year ago.

Pharma Majors Looking Forward to Sustainable Growth
In 2017, Roche overtook Pfizer to become the top pharmaceuticals company in revenue terms, when it registered a 5% increase in net sales to 53.3 billion Swiss franc (CHF) from 50.6 billion CHF in 2016. Pharmaceuticals Division sales were up 5% to 41.2 billion CHF from 39.1 billion CHF previously. International sales grew 4%, led by sales in the Latin America and Asia-Pacific sub-regions.

Its 2017 net income dropped 9% to 8.8 billion CHF from 9.7 billion CHF in 2016.

First-half 2018 group sales at Roche rose 7% to 28.1 billion CHF, with net income increasing 33%, “due to the underlying core results and lower impairment of intangible assets compared to 2017”. International sales grew at a higher notch by 5%.

At Pfizer, 2017 sales declined marginally by 1% to US$52.5 billion, compared to US$52.8 billion in 2016. The company said that although losses of product exclusivity impacted 2017 revenues by US$2.1 billion, it was still able to achieve 1% operational revenue growth in 2017. Its net income was US$21.3 billion, compared to US$7.2 billion for 2016.

Half-year 2018 revenues totalled US$26.4 billion, 3% higher from US$25.8 billion for the same period of 2017. Net income improved by 20% to US$7.4 billion from US$ 6.2 billion for the 2017 corresponding period.

Novartis kept its third placing with net sales growth of 1% to US$49.1 billion in 2017 with volume growth of 7%, impacted slightly by generic competition and pricing. Its net income increased 15% to US$7.7 billion from the previous year.

Novartis’ first half 2018 net sales saw a 9% jump to US$25.9 billion, with much higher net income at US$9.8 billion, compared to US$3.6 billion in 2016. It projected net sales in 2018 to grow in the low to mid single digit range for the whole of 2018.

Global Healthcare and Medicine Spending Slated to Rise Further
Combined healthcare spending in the world’s major regions is expected to increase by some 25% to reach US$8.7 trillion by 2020, from US$7 trillion in 2015, according to Deloitte’s 2018 “Global Health Care Outlook”. Healthcare spending in the United States alone exceeds US$3 trillion annually.

It said that the spending growth would be driven by increasing populations and aging, continued expansion of developing markets, advances in medical treatments, and rising labour costs.

IQVIA Institute for Human Data Science in its report “2018 and Beyond: Outlook and Turning Points” released in March 2018 estimated US medicine spending, not including discounts at US$466.6 billion in 2017. IQVIA projects compound annual growth rate (CAGR) of 4-7% for the US market, with some US$585-615 billion in drug spending in 2022.

Expenditure in the European Union (EU) is put at US$154.4 billion in 2017 with CAGR in the 1-4% range or US$170-200 billion through to 2022. Medicine spending in the “pharmerging” sector covering some 22 developing countries is estimated at US$270 billion in 2017, and would see a higher CAGR of 6-9% over the next five years to reach US$345-375 billion. IQVIA says that the majority of medicine use and spending in the pharmerging countries “continues to be for generic medicines”.

The report predicts that China, the largest pharmerging country will grow by 5-8% over the next five years to reach US$145-175 billion in 2022.

Specialty medicine represented 39% of spending, totalling US$297 billion, in 2017 in the developed markets led by the United States, with specialty share above 41%, as well as France, Germany, Italy, Spain, and the United Kingdom. IQVIA expects specialty medicine growth to reach 48% of spending in developed markets by 2022.

Pharmaceutical Prescription Sales Continue to Grow
Evaluate, a pharmaceuticals industry financial and technical information company, in its “EvaluatePharma World Preview 2018, Outlook to 2024” released in June 2018 indicates that worldwide prescription drug sales in 2017 totalled US$789 billion, up 2.6% from the previous year. Generics accounted for 10.2% of the 2017 sales, slightly lower than the 10.4% in 2016.

It expects the total global sales to accelerate to US$1.2 trillion by 2024, at CAGR of over 6%, to meet increasing needs.

Orphan drugs, developed for rare conditions and diseases, are forecast to remain one of the fastest growth areas of the global pharmaceutical market according to Evaluate’s report. The rare disease segment is predicted to capture 20% of the total US$1.2 trillion market in 2024. Supporting this growth are the launches of novel therapies, including gene and cell therapies, as well as increased access to medicines globally.

“Much of the expansion of the market will be driven by continuing unmet need in a number of disorders, as demonstrated by sales forecasts for the orphan drug market reaching US$262 billion in 2024, accounting for 20% of the total prescription drug market,” says Evaluate in the report.

Evaluate’s report also highlights factors that could hamper the industry’s growth, including the threat of biosimilars or genericisation for some of the industry’s biggest products. The report shows US$251 billion of sales at risk between 2018 and 2024, setting the industry up for a likely second patent cliff.

Additional findings from the report include:
• Research and Development (R&D) spending is forecasted at 16.9% of prescription sales in 2024, down from 20.9% in 2017, suggesting a focus on improving R&D efficiencies, or companies directing less revenue towards replenishing pipelines.
• Oncology continues to be a key industry driver, with a forecasted CAGR of 12% from 2017 to 2024.
• Evaluate projects biotechnology products to account for 31% of market in 2024, from 25% in 2017.
• Novartis will be the leading prescription drug company in 2024 with sales of US$53.2 billion, ahead of Pfizer and Roche, both of whom are closely competing for the second spot.

Including over-the-counter (OTC) sales, worldwide drugs sales (biotechnology, conventional and unclassified) reached US$825 billion in 2017, from US$804 billion in 2016. Excluding prescription drugs, OTC sales figures for 2017 would be US$36 billion, says the Evaluate report.

As for biologics, Transparency Market Research said it has become the fastest growing sector with revenues of US$231.2 billion in 2017. It is projected to reach US$479.7 billion by 2024 at a CAGR of 10.9%.

R&D Spending
Evaluate estimates global pharmaceutical R&D spending at US$165 billion in 2017, an increase of 3.9% on the previous year’s figures. It forecasts R&D spending to grow at a CAGR of 3.1% to 2024, lower than the 3.6% between 2010 and 2017.

The Pharmaceutical Research and Manufacturers of America (PhRMA), which represents the country’s leading biopharmaceutical researchers and biotechnology companies, said in August 2018 that its survey showed R&D spending totalled US$71.4 billion in 2017. Domestic US spending by PhRMA members reached US$55.8 billion in 2017, a 6.4% increase from US$52.4 billion a year earlier.

The PhRMA survey also reported that “R&D intensity remains consistently high in the US, with approximately one in every five dollars of biopharmaceutical companies’ revenue dedicated to R&D”.

“In the last decade we have invested half a trillion dollars, and these investments are just beginning to pay off, opening the door to entirely new ways to tackle some of the most complex and difficult to treat diseases of our time,” it said.

According to the association, there are about 7,000 medicines in clinical development around the world, and 74% has the potential to be first-in-class treatments.

FDA New Drug Approvals Hit a Record in 2017
The US Food and Drug Administration (FDA) Centre for Drug Evaluation and Research (CDER) approved a record 46 novel drugs comprising new molecule entities (NMEs) and therapeutic biologics in 2017, from 22 in 2016. The second highest was 45 approvals in 2015.

CDER said that it identified 15 of the 46 novel drugs approved in 2017 (33%) as first-in-class, indicating that they would have a “strong positive impact on the health of the American people”. The number approved for treating rare or “orphan” diseases was 18 (39% of the total). It qualified that many of its new drug approvals “are not novel drugs, but still offer important medical value to patients in need”.

The Centre also approved five new biosimilars in 2017.

Meanwhile, the FDA had in July 2018 issued the framework on Real-World Evidence (RWE), “to support regulatory submissions and drug safety monitoring”. The FDA also said that it would expand the opportunities it has “to use real world evidence (RWE) in support of our decision-making”

More widespread use of RWE can make the “medical product development process more efficient, and help lower the cost of development”, it added.

It has already been reported that an increasing number of pharmaceutical companies are raising their spending on talent and technology to support the development of their data analytics capabilities to gather and analyse RWE. They are also beginning to leverage real world data (RWD) across their organisations to obtain evidence in order to support patient research more effectively.

The FDA said that between five and eight next generation biotherapeutics would be approved and launched in 2018.

“Over the next five years, 20% of the 40–45 New Active Substances (NAS) projected to be launched each year will come from this group of drugs. The pipeline of 142 next generation drugs in late-stage research represents just five percent of ongoing late stage research but will be more successful than other areas and will reach the market in large numbers,” the FDA said.

Pharma M&A deals to Pick up in 2018
According to Ernst & Young (EY), the value of aggregate mergers and acquisitions (M&A) was reported to be some US$200 billion in 2017.

In its “2018 M&A Firepower Report: Life Sciences Deals and Data”, EY said that M&A in 2017 “featured a pronounced shift away from the typical epicentres of the biopharma sector and the United States. Biopharmaceutical acquisitions accounted for roughly only a quarter of all M&A value, as compared with almost 80% in 2016”. US deals represented only 30% of 2017 M&A value.

Johnson & Johnson's US$30 billion acquisition of Actelion for its pulmonary arterial hypertension portfolio gave an encouraging kick-off for pharma M&A activity in 2017. The next biggest deal was Gilead Sciences’ nearly US$11.9 billion purchase of Kite Pharma for its recently approved Chimeric antigen receptor T-cell therapy and related manufacturing and technology.

Takeda Pharmaceutical came in third with its acquisition of Ariad Pharmaceuticals for US$5.2 billion, picking up two approved cancer drugs in the pipeline. It was followed by Novartis’ US$3.9 billion buy of Advanced Accelerator Applications with its radiopharmaceuticals for cancer diagnosis and treatment. Another above US$2 billion acquisition was by Bristol Myers-Squibb, which took over IFM Therapeutics and its small molecules targeting innate immune system.

EY was bullish about the prospects for M&A deals in the second half of 2018 and into 2019. There is an indication that the projected strong growth in emerging markets will drive growth globally.

EY has cited the availability of overseas capital as a key to M&A activity in 2018, and it expected the volume to exceed the US$200 billion mark achieved in 2017.

With healthcare convergence threatening traditional business models, M&A has become essential for growth. Continuing pricing pressure by payers has limited larger pharma firms’ ability to grow the sale of their existing products, thus spurring interest in M&A. The change in US corporate tax laws, particularly a lower tax rate for the repatriation of cash held offshore, has also been a push factor.

PricewaterhouseCoopers (PwC) reported that second quarter 2018 M&A deals had returned to the volume of “average historical levels”. It said that the increased activity was “in line with expectations due to pent up demand and surplus cash”.

The quarter’s M&A included Takeda Pharmaceutical’s announced US$81.7 billion acquisition of Shire plc., and Novartis AG’s acquisition of AveXis, Inc. for US$8.7 billion.

Singapore Future-Proofing its Pharma Industry
The Republic today boasts about 30 pharmaceutical manufacturing facilities making active pharmaceutical ingredients (API), biologics and drug products. It has continued to score well for its competitiveness and attractiveness as a pharmaceuticals investment destination.

It is ranked at the top of the 2017 Biopharmaceutical Competitiveness and Investment (BCI) Survey by Pugatch Consilium, scoring 87 out of 100 in the new markets category for its high level of competitiveness and support for innovation. The other country with the same score was the United States (in mature markets).

In its report, BCI said that “countries with strong policy environments are those considered most competitive for biopharmaceutical investments. According to BCI, “the outstanding feature among those rated as most attractive (those scoring at least 75 out of 100 for ‘newcomer’ markets and at least 80 for ‘mature’ markets, measured using different surveys) is a clear, systematic and ongoing commitment to a policy environment that supports biopharmaceutical innovation”.

Singapore is said to be future-proofing its biotech and pharmaceuticals industry cluster to meet increasing expectations of speedier drug development and higher manufacturing efficiency to bring products to market faster.

More and more data analytics, automation and robotics are expected to push the transformation of the manufacturing activities into the next decade.

An article in Scientific American in June 2018 said: “Singapore is consolidating its global position as a pharmaceutical manufacturing hub through a supportive pharma ecosystem and a focus on people and partnerships.”

It said that Singapore is future-proofing its industry by emphasising having a strong pipeline of talent.

The government has launched the Pharma Innovation Programme Singapore (Pips) that aims to “bring together Singapore’s public-sector research capabilities and the domain expertise of key players in the pharma industry to improve and transform the manufacturing operations and technologies of the industry”.

Pips involves collaboration with major pharmaceutical players to jointly develop new technologies and enhance productivity. GlaxoSmithKline (GSK), MSD International and Pfizer Asia-Pacific were the first three companies to join in the effort spearheaded by the Agency for Science, Technology and Research (A*STAR) and the National University of Singapore (NUS).

The determination and commitment of the Singapore government to push its Industry 4.0 effort has reinforced confidence in the life sciences sector here. In May 2018, Johnson & Johnson officially opened its new Asia-Pacific headquarters in Singapore to drive the development of new healthcare solutions for the future.

Furthermore, an increasing number of R&D facilities are setting up in Singapore for its excellent environment for biomedical science companies, especially its strong intellectual property protection regime. Its biosciences hubs such as MedTech, Biopolis and Tuas biomedical park that have been specially designed and created to provide companies with convenient access to multi-disciplinary capabilities at a single location are not only attractive for major players and start-ups, but global researchers and talent as well.

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