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GLOBAL INVESTOR 2.12 — 18 A recent examination of the “innovation deficit” of large cap pharma revealed an interesting insight. A group at the University of British Columbia looked at the regulatory approvals of drugs over the past 60 years in the USA and classified them according to their novelty status. They made the observation that the number of true first-in-class drugs that were approved every year exhibited only minor fluctuations, whereas many of the drugs launched in the 1980s and 1990s were follow-on products, or “me too” products. Thus, the recent decline in approvals cited by industry observers is mostly due to a decline in “me too” drugs. The underlying pace of true innovation has remained remarkably stable. Personalized and targeted treatments are on the rise Photo: Martin Stollenwerk Thomas C. Kaufmann joined Credit Suisse Private Banking in 2006 as an equity analyst for nanotechnology in the healthcare sector. He is now senior equity analyst for the global pharmaceuticals sector, and is also in charge of research on the Innovation megatrend theme. He holds a master of science in biochemistry and a PhD in biophysics, both from the University of Basel. It has become more difficult to bring better products to the market for indications that are already well-served by established drugs. The low-hanging fruits have already been harvested. Nevertheless, the ever-increasing understanding of the molecular causes of diseases and the genetic variations among patients should lead to the identification of many new targets and to more tailored (or “personalized”) treatments. Oncology is a prime example: the level of detail with which tumors are characterized nowadays has contributed to a significantly improved outcome for patients. The blood cancer drug Gleevec, from Novartis, is often used to illustrate this. The drug is only given to patients who exhibit a specific variation in their genome. It is in this sense that the treatment is personalized. The resulting outcomes for patients are truly stunning: with the introduction of Gleevec, the five-year survival rate increased to close to 90%, compared to 30% previously. This example shows how the understanding of the biology of a disease is an important determinant of the level of success one can expect from a treatment. In this context, it is not surprising that, in view of the remarkable advances in the understanding of tumors, just less than one-third of all medicines in development are geared toward cancer. With the surge in molecular biology and the completion of the Human Genome Project in 2003, the stage is set for other spectacular findings. It is noteworthy that it takes 14 years on average to bring a new medicine to market. Thus, today’s marketed products are mostly based on biological insights that date back to the late 1990s. In the meantime, a lot more has been learned. Another very promising development has occurred in the area of antibody-drug conjugates, as demonstrated by recent data for Roche’s T-DM1 for the treatment of breast cancer. Basically, the idea is to use an antibody’s specificity to direct a potent chemotherapy molecule to the targeted tumor, and only to the tumor, so that the drug develops its deleterious effect only at the desired site. T-DM1 has been shown to dramatically reduce classic side effects, such as hair loss, which arise from the systemic activity of conventional chemotherapy. This is as close as one can get to the “magic bullet” Paul Ehrlich once envisioned. The combination of biology and chemistry around 1900 was crucial for the successes of the pharmaceutical sciences in the 20th century. Similarly, at the beginning of the 21st century, the disciplines of biotechnology, molecular biology, genomics and bioinformatics could provide an equally fertile ground for breathtaking advances in medicine. While it is impossible to predict the exact timing of any future breakthroughs, research requires patience, perseverance as well as continued investment. As Louis Pasteur once said: “Luck favors the
GLOBAL INVESTOR 2.12 — 19 14% 7% 7% 43% * The Pharmerging group consists of China, Brazil, India, Russia, Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan and Vietnam. ** The EU5 group consists of France, Germany, Italy, Spain and United Kingdom. Source: IMS Market Prognosis, May 2012 8% 10% 7% 19% 36% 20% Rest of Europe 5% Rest of the World 9% North America 33% 12% 17% Pharmerging* 30% EU5** 13% Japan 10% 2006 USD 658 bn 2011 USD 956 bn 2016E USD 1175–1205 bn A truly global expansion Today, somewhat more than 10% of the world popu lation accounts for roughly twothirds of the worldwide pharmaceutical market – a ratio that serves as an indication of the theoretical expansion potential for drug sales. This is expected to shift dramatically over the coming years as emerging market (EM) governments continue to expand access to healthcare, and due to a growing middle class that increasingly demands state-of-the-art medical treatments and is willing to pay for these out of pocket. Emerging markets are currently undergoing the same transition from acute / infectious diseases to chronic /lifestyle diseases as the leading cause of death, as did developed markets in the middle of the 20th century. The adoption of a western lifestyle leads to a rise in diseases, such as diabetes, high blood pressure and cancer. Already today, China is among the largest markets for diabetes treatments. Over recent years, pharmaceutical companies have started to allocate significant resources to emerging markets, in part to overcome an increasingly challenging environment in developed markets and in part triggered by improved protection of intellectual property. The expansion into EMs is not only seen as an opportunity for significant volume growth, but also as a means to tap into the local talent pool. Most large pharmaceutical companies meanwhile have R&D sites in China, for example. Even though governments in EMs are striving to contain healthcare cost inflation at an early stage, EMs nevertheless represent a significant and welcome source of growth, accounting for a growing share of sales.
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