Biologics driving growth to 2010

The leading pharmaceutical companies have historically focused on developing small molecules to drive their bottom line growth. However, this is set to change, with around 60% of revenue growth for 'Big Pharma' companies forecast to come from biologic products. In fact by 2010, annual sales of biologics will have increased by $26 billion, compared to a $13 billion increase for small molecules.

Datamonitor defines 'Big Pharma' as non-biotech companies with annual revenues greater than $10 billion, and biologic products as therapeutic proteins and monoclonal antibodies.

Analysis of the Big Pharma peer set by drug technology reveals that biologics will drive the strongest year-on-year growth out to 2010. Approximately 60% of peer set sales growth will be driven by biologics to 2010, equal to a compound annual growth rate (CAGR) of 13%, which compares to a CAGR for small molecule products of 0.9% over the same period.

Within the biologics segment, monoclonal antibodies (mAbs) will act as the strongest driver of growth out to 2010, recording an absolute annual sales increase of $18 billion, equal to a CAGR of 26.2%.

A number of competitive factors are combining to stimulate stronger growth for biologics, and mAbs in particular, versus small molecules. These include exposure to generic competition, access to biologic drug technology suppliers and drug pricing leverage with healthcare providers.

Exposure to generic competition is arguably the most important of these competitive forces. Biologics, in general, face minimal exposure to generic competition going forward to 2010. While the prospect of bio-similars is emerging (as demonstrated by the recent US FDA approval of Sandoz’s growth hormone Omnitrope), this competition will only impact earlier-stage therapeutic protein drugs in the near future. Datamonitor believes mAb products will be protected from generic exposure in the foreseeable future.

In contrast, small molecule products face heavy exposure to generic competition, perhaps most graphically illustrated by the imminent loss of patent protection for the world’s second best-selling drug, Merck's Zocor (simvastatin). Datamonitor's analysis of revenue growth for Big Pharma reveals that the peer set will be effectively 'treadmilling' out to 2010, with generic erosion to sales negating the majority of sales growth forecast to be driven by new product launches and existing brands.

Roche/Genentech making strides

Analysis of the Big Pharma peer set by company reveals that Roche will record the strongest year-on-year sales growth out to 2010. This performance will be driven by the company’s strong presence in the biologics market, and the mAb market in particular.

By acquiring Genentech in 1990, Roche has effectively 'locked in' the global leading player in mAb drug development. This has had a two-fold impact: While Roche has gained access to a highly successful mAb R&D pipeline, the remainder of Big Pharma has been unable to secure development partners of a similar size or expertise to Genentech in order to form competing alliances.

Within the mAb market Roche/Genentech hold a significant lead over any rival player, thereby allowing them to develop a leading position within the global oncology market. Oncology remains a disease area of significant unmet patient need and Roche is therefore able to leverage high prices and reimbursement rates for its products.

It is, however, evident that other players within Big Pharma have sought to replicate Roche’s strategic move into biologics. Abbott, Johnson & Johnson and Wyeth are among those forecast to record strong sales growth out to 2010 via biologic drugs.

In contrast, a number of players are forecast to generate no sales growth from biologics in 2010, instead relying on revenues from small molecule product sales. Among these players are AstraZeneca and Merck & Co. which, tellingly, have both made recent bids to acquire biologic drug development companies.

But all is not lost…

While biologics will play an integral role in the performance of the Big Pharma peer set going forward, there is evidence to suggest that sales growth will also be driven by small molecule products.

Novartis, which is forecast to record the second strongest growth rate within Big Pharma out to 2010, actually has minimal interest in the biologics market. However, the company has made a radical decision (within the traditional parameters of Big Pharma business etiquette) to enter the generics market and has positioned itself as a strong contender to enter the emerging bio-similars market. This ‘biologics by the back door’ strategy will complement sales growth driven by innovative small molecule drugs and a leading presence in the traditional small molecule generics market.

While Roche and Novartis appear to be implementing quite different business strategies, one similarity is clear: both are moving away from the traditional patent protected small molecule stronghold market which has historically acted as the mainstay for Big Pharma.

Related research:

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§          Biogenerics 2005: A New Level of Complexity priced $11,400

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