Keeping an eye on the competition

The pharmaceutical trade has a competitive streak. As an industry leading the way in improving the health and wellbeing of people the world over, this is no surprise.

The rivalry among competitors has long been a force for innovation and development, something we are seeing most recently in the development of biological drugs. These include a wide range of products such as vaccines, blood components, allergenics, somatic cells, gene therapy, tissues, and recombinant therapeutic proteins.

Biologics can be composed of sugars, proteins, or nucleic acids or complex combinations of these substances, or may be living entities such as cells and tissues. They often represent the cutting-edge of biomedical research, offering untold potential to combat a variety of currently untreatable medical illnesses and conditions.

As these new drugs come onto the market, biosimilars are also being developed – near-identical versions that can be sold at a reduced price. Long awaited, the first US biosimilar – Sandoz’s Zarxio, which prevents infections in cancer patients – received FDA approval in 2015, and entered the market at a 15 per cent discount.

Four biosimilars have now been approved, while a further 50 are at varying stages in the process. According to PwC, this trend has the potential to be as disruptive as generic drugs following the Hatch-Waxman Act of 1984.

Proposed by Senator Orrin Hatch and Representative Henry Waxman, the bill altered the pharmaceutical field substantially as it made it easier for generic drugs to enter the market, at a lower cost than their branded counterparts.

Biosimilars are expected to bring significant price discounts compared with branded versions of biologics. This is set to have a big impact on the traditional pharmaceutical space, shaking up the market and complicating pricing structures.

So, is the pharmaceutical industry ready? Recent Tungsten research on UK businesses found that the healthcare and pharma industry was the least likely to reduce prices to undercut competitors (38%, compared to the average of 50%) and the least likely to devote time to analysing competitors.

But will this need to change? Drug prices face considerable public and political attention. In 2007, the patent rights to 42 blockbuster products ran out, representing $82 billion in sales. Copycat Viagra and the like are now commonplace and the market has shifted fundamentally.

In response to pressure, many foresee the pharmaceutical industry taking preventative action and regulating itself more. In its review of the top industry issues in 2017, PwC predicts that drug companies will put the brakes on price increases.

In September 2016, Allergan CEO Brent Saunders published details of a plan to limit price increases to single digits, once a year. Similarly, in April that year, KaloBios Pharmaceuticals announced a new pricing model that would limit price increases to no more than the rate of inflation, no more than once a year.

Speaking to The New York Times in October, GlaxoSmithKline CEO Andrew Witty said: “We have to be thoughtful and engaged about how we explain our position and how we try and make the [pricing] situation better.”

With these limits on price increases will likely come a focus on transparency and accountability, predicts Ruud van Hilten, Tungsten Network’s SVP Sales, as businesses seek to get their hands on the information they need to stay one step ahead of the competition.

“Pharma businesses would do well to look closely at opportunities to reduce unnecessary outgoings,” he said. “While keeping one eye on the competition, the other could delve deeper into the supply chain, which is only going to get more complicated. This has the knock on effect of making cost management more complex. Key to combating this is good quality data on the competition.”

Spend analytics technology has been around for some time, however it has historically been geared towards providing buyers with insight on how money is being spent. Current developments could see analytics being used to strengthen the supply side, for example by providing insight on what competitors are charging.

“With the new competitive landscape, what will become more important than ever is intelligence on competitors’ pricing,” said Ruud. “As a business uniquely positioned to connect buyers and suppliers, this is an area we are particularly interested in, and where we can see some great applications in the future.” Keeping an eye on the competition could become an easier task.