(Although, perhaps to correct the understanding, following note. Just a reminder, the current pharma market is close to $1.3 trillion but the following charts accound for less than half of that)
Here's a little more context on the industry:
The way pharma companies evolve, some focus on multiple products, some few.
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Here's a little more context on the industry:
The Pharma Industry today
"First, this is a unique moment. An unprecedented level of knowledge about human biology is converging with the rise of novel therapeutic modalities to enable the development of transformative and potentially curative treatments. Second, technologies such as artificial intelligence (AI) and advanced translational models are poised to accelerate drug discovery and development."
Scientific understanding of the biological drivers of disease, combined with the ability to influence human biology, has never been greater. Looking ahead, we expect new development to accelerate, delivering a wave of breakthrough drugs that will transform the treatment of diseases with significant unmet need. Momentum will be fueled by a surge in the identification of more compelling biological targets and the expansion of therapeutic modalities that enable modulation of both newly discovered and historically undruggable targets. Examples of current new treatments include gene therapies for spinal muscular atrophy, hemophilia A, sickle cell disease, and CAR-T therapies for multiple myeloma.
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The Pharma Industry
As with other industries, the driving force behind the pharmaceutical industry is economic. However, the economic influences affecting pharmaceutical companies differ markedly from those affecting other industries. Among the major differences are price controls imposed in some countries and threatened in others; the substitution of generic products for the innovator's product, once the original patent runs out; and the shrinking number of customers for drugs. Purchasing decisions are now being made primarily by formulary committees of hospitals, consortia, and managed care institutions.
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Understanding industry - Timeline and Evolution
Records of the use of medicines date back some 30,000 years, but pharmaceutical science is a far more recent phenomenon. The development of the modern pharmaceutical industry is relatively recent having originated in the early 19th Century.
Here's a little history timeline of key developments in the industry:
Second half of 19th century
But the industry as we understand it today really has its origins in the second half of the 19th century. Whilst the scientific revolution of the 17th century had spread ideas of rationalism and experimentation, and the industrial revolution had transformed the production of goods in the late 18th century, the marrying of the two concepts for the benefit of human health was a comparatively late development.
Merck in Germany was possibly the earliest company to move in this direction. Originating as a pharmacy founded in Darmstadt in 1668, it was in 1827 that Heinrich Emanuel Merck began the transition towards an industrial and scientific concern, by manufacturing and selling alkaloids.Similarly, whilst GlaxoSmithKline’s origins can be traced back as far as 1715, it was only in the middle of the 19th century that Beecham became involved in the industrial production of medicine, producing patented medicine from 1842, and the world’s first factory for producing only medicines in 1859.Meanwhile in the USA, Pfizer was founded in 1849 by two German immigrants, initially as a fine chemicals business. Their business expanded rapidly during the American civil war as demand for painkillers and antiseptics rocketed.A trained pharmaceutical chemist, Colonel Eli Lilly, an archetype of the dynamic and multi-talented 19th century American industrialist, who after his military career, and trying his hand at farming, set up a pharmaceutical business in 1876. He was a pioneer of new methods in the industry, being one of the first to focus on R&D as well as manufacturing.Edward Robinson Squibb, a naval doctor during the Mexican-American war of 1846–1848 threw the drugs he was supplied with overboard due to their low quality. He set up a laboratory in 1858, like Pfizer supplying Union armies in the civil war, and laying the basis for today’s BMS.Switzerland also rapidly developed a home-grown pharmaceutical industry in the second half of the 19th century. Switzerland’s total lack of patent laws led to it being accused of being a “pirate state” in the German Reichstag. Sandoz, CIBA-Geigy, Roche and the Basel hub of the pharmaceutical industry all have their roots in this boom.Germany. Baye 1863 (aspirin trademark)The unregulated nature of the trade in medicines during this period ensured there was a far less strict delineation between 'pharmaceutical' and 'chemical' industries than we have nowadays. These companies focused as much on cod liver oil, toothpaste, citric acid for soft drinks, and hair gel as on prescription medicines, as well as selling products like heroin on the over-the-counter market.
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Interwar Years
Key developments during interwar years 1918 -1939
1. Development of Insulin - The first was insulin – Frederick Banting and colleagues managed to isolate insulin that could treat diabetes, up until that point a fatal condition. But it was only in collaboration with the scientists at Eli Lilly that they were able to sufficiently purify the extract and industrially produce and distribute it as an effective medicine.
2. Development of Penicillin - a discovery of an impact possibly unparalleled by any other in medicine. After Alexander Fleming’s initial discovery of the penicillium mould’s antibiotic properties in 1928, and Howard Florey and Ernst Chain’s further experimentation, a government-supported international collaboration including Merck, Pfizer and Squibb worked on mass producing the drug during World War Two, saving thousands of soldiers’ lives. The immense scale and sophistication of the penicillin development effort marked a new era for the way the pharmaceutical industry developed drugs. The war had also encouraged research into everything from new analgesics to drugs against typhus, with a great deal of collaboration between the companies and government.
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Postwar Evolution of Pharma Industry
After the war, the arrival of social healthcare systems such as the UK’s National Health Service (NHS) in Europe created a much more structured system, both for prescription of drugs and their reimbursement. In 1957, the NHS brought in what was essentially a price fixing scheme to allow reasonable return on investment for drug manufacturers, solidifying the incentive to invest in new medicines.
US also - Govt spending on healthcare. National Institute of Health $100 million by 1956 govt spend. Fuelled drug development.
The Thalidomide scandal of 1961 ( drug that gained notoriety due to its devastating effects on fetuses, causing birth defects when taken during pregnancy in the late 1950s and early 1960s.)prompted an increase in the regulation and testing of drugs before licensing, with a new amendment to US Food and Drug Administration (FDA) rules demanding proof of efficacy and accurate disclosure of side-effects for new medications (the Kefauver-Harris Amendment) being implemented in 1962. Likewise, the 1964 Declaration of Helsinki put greater ethical structures on clinical research, clearly cementing the difference between production of scientific prescription medicines and other chemicals.
The list of novel drugs from the post-war era speaks for itself. The contraceptive pill, introduced in 1960, had an impact on society almost as massive as that of penicillin, enabling women to effectively control their fertility and enabling sexual equality for the first time. Valium (diazepam) was brought to the market by Roche in 1963, followed by the introduction of the monoamine oxidase inhibitor (MAOI) class of anti-depressants and antipsychotic haloperidol. These drugs ushered in a new era of psychiatric treatment, adding pill-based treatments to the psychoanalytic ones that had previously characterised psychiatry in this era
The 1970s provided a wave of cancer drugs, as part of the US government’s “war on cancer”, a recent report from Cancer Research UK showed that survival rates have doubled since the early 70s – due in large part to the massive innovation in oncology medicines that has occurred since then. ACE inhibitors arrived in 1975, improving cardiac health, and even drugs as ubiquitous as paracetamol and ibuprofen were developed in 1956 and 1969 respectively.
In 1977, Tagamet, an ulcer medication, became the first ever “blockbuster” drug, earning its manufacturers more than $1 billion a year and its creators the Nobel Prize. This marked a new departure as companies competed to be the developer of the next big blockbuster, and many achieved great success. Eli Lilly released the first selective serotonin reuptake inhibitor (SSRI), Prozac, in 1987, once again revolutionising mental health practice. The first statin was also approved in 1987, manufactured by Merck (MSD).
New Development
Eli Lilly was one of the big pharma companies that formed early partnerships with smaller biotech firms. Beginning in the 1970s, Lilly was one of the first drug companies to enter into biotechnology research. By the mid-1980s, Lilly had already put two biotechnology-based drugs into production: insulin and human growth hormone. Lilly produced human insulin through recombinant DNA techniques and marketed it, beginning in 1982, as Humulin. The human genes responsible for producing insulin were grafted into bacterial cells through a technique first developed in the production of interferon in the 1970s. Insulin, produced by the bacteria, was then purified using monoclonal antibodies. Diabetics no longer had to take insulin isolated from pigs.By 1987, Lilly ranked second among all institutions (including universities) and first among companies (including both large drug manufacturers and small biotechnology companies) in U.S. patents for genetically engineered drugs. By the late 1980s, Lilly recognized the link between genetics, modeling, and computational power and, already well invested in computer hardware, the company moved to install a supercomputer.
A new business atmosphere, first seen in the 1980s and institutionalized in the 1990s, revealed itself. It was characterized by mergers and takeovers, and by a dramatic increase in the use of contract research organizations—not only for clinical development, but even for basic R&D. Big Pharma confronted a new business climate and new regulations, born in part from dealing with world market forces and protests by activists in developing countries
Shape of industry evolution | Direct to Consumer marketing
By the end of the 1950s, 90% of big pharma marketing was targeted at doctors and in the 1960s, control of advertising was passed onto regulatory bodies. Cheap, generic drugs could no longer be marketed as expensive new ones under the guise of different names.
Spearheading the direct-to-consumer marketing movement in the 1980s were Pfizer and Eli Lilly advertising medications treating hair loss, erectile dysfunction, and depression on television networks and radio stations. In 1983, Merck ran the first ever major modern direct-to-consumer TV ad for a prescription painkiller and further controls gave rise to regulation-exempt reminder and help-seeking ads.
Today direct to consumer advertising spend is over $10 billion in the US itself.
This century:
The 2010s have seen the development of innovative new classes of medicines, building on the greater understanding of the body since the genome was first sequenced at the end of the last century. This knowledge of genetics and the underlying cause of many diseases, including cancer, has resulted in powerful new drugs.This deep knowledge of genetics has also led to the development of the first ever gene therapies, and there are now treatments capable of addressing the underlying causes of certain rare diseases with a single shot.This, along with other innovations such as antisense technology, has led to drugs for rare diseases that were previously considered untreatable.Meanwhile, in infectious diseases, the pharma industry has been able to produce effective drugs that could lead to the eradication of hepatitis C in the next few years.
The future is bright for the pharma industry, but maintaining public trust and preventing millions of deaths from antibiotic resistant bacterial strains are two major challenges it must overcome as the century progresses.
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Understanding industry - Superset of US Healthcare Spend
And for more context, here's US spend on healthcare.
Where it was $74 billion in 1970, it was close to $4.9 trillion in 2023
Out of the $4.9 trillion, Pharma is ~$0.6 trillion in the US
Here following gives a sense of the industry growth over the last 25 years:
The market seems to like the higher concenteration companies or more focused companies.With fewer products. May be it sees it as technical prowess for future development? My frst reaction was that given patent cliffs, the more diversifed sets are better (?). Some reasoning:
"These companies often hold a leadership position in select therapeutic areas (TAs), anchored by a few blockbuster assets and a positive flywheel effect, deriving meaningful expertise, cost, and relationship benefits from their scale. In light of this, we believe that concentrating R&D and commercialization resources and expertise on areas of core strength is the most effective way to cut through complexity, de-risk investments, and deliver results for patients and shareholders alike."
See the second chart in following.
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A look at some of the largest drugs:
Merck's Keytruda (cancer therapy) delivered $29.5 billion in revenue. For context, Merck's total revenue is $64 billion. In 2028 the patent expires opening it up to biosimilar market.
Novo's Ozempic (Type 2 diabetes drug) delivered $18.9 billion in revenue. Total Novo revenue $42 billion. Other uses too.
Perhaps here a little case history of Humira, once-dominant anti-inflammatory therapy. It was the largest selling drug until 2022 and then its patent protections expired:
Apart from the biosimilars, what also impacts: "Another major driver of Humira’s market erosion is CVS Caremark’s move in April 2024 to remove the branded drug from its major national formularies in favor of biosimilars, including its own adalimumab brand Hyrimoz."
For context CVS is the largest drug retailer in the US. And US is by far the largest biopharma drug market in the world.
Lifetime sales
Some of the highest lifetime sales of drugs, following are indicative charts since they include projections:
Lipitor is the oldest with lifetime sales in top 3.
"Lipitor, which was introduced by Pfizer back in 1997, is expected to be the drug with the third highest lifetime sales at the end of 2028. As of end-2022, the cholesterol-lowering drug aggregated lifetime sales of 172 billion U.S. dollars, which is expected to increase for some additional six billion dollars until 2028."
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In terms of patent cliffs, see following chart to get a sense of the space:
(LoE = Loss of Exclusivity)
Pharma is fast approaching a steep patent cliff, as drugs representing some $350 billion in annual worldwide revenues will lose their exclusivity through 2030. The top 20 pharma companies account for 80% of this revenue loss. Although the percentage of cumulative branded drug revenue at risk appears similar to that in the most recent previous major wave of loss of exclusivity (LoE)—8% for the period from 2026 to 2030 compared with 12% from 2010 to 2015—there are at least two major differences this time.First, as many biologics face LoE, the rise of biosimilars is adding competitive pressure, particularly in the US, where biosimilar adoption has been slower but is now accelerating, and branded companies can no longer rely on long tails of post-LoE revenue retention. Second, pricing tailwinds in the US were crucial to overcoming the last period of LoE. Similar price increases are unlikely today, and the Inflation Reduction Act, passed during the Biden Administration, puts additional pressure on future revenue streams by shortening the exclusivity period for many drugs.
A rethink or a paradigm shift in Pharma business models:
Compounding the revenue pressures from LoE, the period of market advantage for new drugs is shortening as rapid innovation fuels heated competition in key disease areas. (See following chart) Treatment paradigms are evolving quickly as new therapies with varying mechanisms of action (MoAs) come to market in rapid succession.
In addition, the amount of time between new entrants coming to market within the same MoA is shortening: the typical span between FDA approval of the first and second new molecular entity with the same MoA dropped from about eight years in the early 2000s to less than one year in 2020. As a result, the leading product's average market share in each class has declined from about 90% to about 70% over the past three decades. In essence, speed of innovation is outpacing the traditional product life cycle for many disease treatments. These developments are forcing companies to rethink innovation models, commercial strategies, life-cycle planning, and business development. To maintain market leadership, individual companies must accelerate life-cycle management, next-generation therapies, and combination treatments.
Pharma has dealt with the challenges of change before—many times. The revenue pressures may be more powerful, but the opportunities, especially for transformative treatments and cures, are bigger than ever before.
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Here's a look again at the top companies and their research. Dated chart. For updated revenue, see earlier post on pharma.
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Here following, for further exploration. The healthcare sector economics. Each country is different. US is the largest in terms of dollar value. But the facilities or services are similar although of different scale in other countries. And here is the indirect chain - patient perhaps bears the OOP, and private insurance payments, and pays govt taxes. (Hospitals, prescribers, pharma companies, -- sometimes they are not directly in the payment chain with the patient). - The first chart presented again to see in context with second.
Service providers and Payment providers =>
Here, to see the following two charts: evolution in time, both per capita and share of that per capita payment:
In terms of treatments, following is the mix:
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