Big Pharma is facing big changes. While the global pharmaceutical market is forecast to more than double in value to $1300bn by 2020, PricewaterhouseCoopers (PwC) contends that the current pharmaceutical business model is unsustainable and the industry must fundamentally change the way in which it operates if it is to capitalise on future growth opportunities.

The industry is challenged by significant decreases in revenue growth, fewer drugs in the pipeline, and blockbuster drugs coming off patent, while the cost of bringing new, innovative drugs to market is increasing. PwC contends that Big Pharma must increasingly collaborate with life sciences companies. This means that more mergers should be on the way.

PwC also predicts that by 2020, the E7 countries (Brazil, China, India, Indonesia, Mexico, Russia and Turkey) could account for one-fifth of global pharmaceutical sales, up by 60% since 2004. That is because, as developing nations’ economic conditions improve, their populations will face the kind of chronic health issues that are common in prosperous countries. There are worries that global environmental changes could also spread diseases such as malaria and cholera, and create more respiratory illnesses. Another factor is longer life expectancy.

Consequently, the market for health care advancement is ever-expanding. How the bio-pharma world responds boils down to issues of talent, R&D, and money, as well as public acceptance of treatments.

Life sciences clusters

The US remains the world’s top location for life sciences clusters, followed by the UK, ranked first in Europe. Both benefit from a mature market and a significant number of products in their pipelines. UK companies account for 40% of biotech products in the pipeline by European public companies, and 45% of new biotech drugs in late-stage clinical trials in Europe are from the UK.

Boston, California, Maryland and New Jersey remain US hotbeds for life sciences and pharmaceuticals, mainly due to access to university collaboration and talent, but activities are widespread across the country. Cost is a big driver. For example, Genencor International chose Cedar Rapids, Iowa, for its $35m expansion, largely due to the lower operational and manufacturing costs.

Cost-effective locations are increasingly appealing, particularly with moves by the pan-European drug regulator, the European Medicines Agency, and recent political manoeuvres in the US to clear the way for the wider use of generic drugs. This led Barr Pharmaceuticals, headquartered in Woodcliff Lake, New Jersey, to acquire Croatian generics company Pliva for $2.2bn in 2006. The acquisition created a powerful, global pharmaceutical company that has its sights on the booming central and eastern European generics market among other targets.

World contender

In its report, Gearing up for a Global Gravity Shift: Growth, Risk and Learning in the Asia Pharmaceutical Market, PwC identifies the Asia-Pacific region as a world contender for attracting the largest share of the global pharmaceutical industry. It says that, in addition to becoming the largest market in the world for drugs, led by growth in China, India and Singapore, there is an influx of multinational companies into Asia-Pacific and the region’s own pharmaceutical companies are stealing international market share.

Intensified competition in the region will be spurred on by grants, incentives and infrastructure support, the report contends. But PwC points to operational risks, such as intellectual property rights, corruption and pricing, despite progress in strengthening regulatory standards and intellectual property protections across Asia.

Dan Bartholomew, senior managing director of PwC’s life sciences practice, suggests that if companies want to have part of that market, they will need to be present in the region and learn to navigate the risks. “It’s not that US-based pharmaceutical companies will leave the States altogether, but they will restructure,” he says.

European companies will also have to take heed. Ramped-up R&D productivity is critical if pharmaceutical companies are to continue to capitalise on market opportunities.

“The core challenge is a lack of innovation,” says Dr Steve Arlington, PwC global pharmaceutical R&D advisory leader and principal author of Pharma 2020: The Vision – Which Path Will You Take? “The industry is investing twice as much in R&D as it was a decade ago to produce two-fifths of the new medicines it then produced. It is an unsustainable business model.”

Dr Arlington contends that the industry must shift its investment focus in the next decade towards research and away from sales and marketing. “It must focus on the development of medicines that prevent, treat or cure,” he says.

Personalised medicines

Advancements in personalised medicines – drugs designed according to a patient’s genetic make-up for targeted therapy – offer some solutions but are controversial because they require confidential and personal data, and extensive and costly R&D. Although they are deemed the medicines of the future, groups such as the UK’s Royal Society and the Association of the British Pharmaceutical Industry expect it will be nearly 20 years before the use of personalised medicines becomes commonplace.

Consequently, critical funding for these programmes is often lagging in many markets. But Denmark, with its strong science base and long history of drug development, is embracing their development aggressively and identifies personalised medicines as key to the future of health care. Significant money is available in Denmark for their development, as demonstrated by Denmark’s Advanced Technology Foundation’s €1.35m grant last July to Santaris Pharma to establish a consortium for development of the first microRNA medicine – a newly discovered class of molecules that control many biological processes in cells.

Denmark’s strengths

Denmark is strong in life sciences largely because of its electronic health records that track family medical histories. It also offers an impressive clinical infrastructure and good access to public-private partnerships through grants such as those offered by the Danish National Advanced Technology Foundation ($2.7bn), private foundations ($65m), the

EU 7th Framework Programme ($10.4bn), and the EU Innovative Medicines Initiative programme ($570m annually from 2007).

Denmark is home to Europe’s third largest community for drug development behind the UK and Switzerland. This is attributed, in part, to the Danish Medicines Agency – the European agency with the fastest approval of clinical trials. The fact that Danish patients willingly participate in clinical trials and that the trials are cheaper to perform in Denmark than anywhere else gives the country an advantage.

Denmark also rivals Boston’s biotech cluster – one of the world’s largest – for the number of people working in the industry, but the country faces a shortage of workers and finds it challenging to recruit abroad due to its high personal tax rate.

Denmark’s corporate tax rates, however, are among Europe’s lowest. Consequently, next-generation drug companies, such as Novo Nordisk, H Lundbeck, LEO Pharma, Novozymes and ALK Abello, have chosen to locate in the greater Copenhagen region, and some employees commute from Sweden’s southern region of Skåne, where living costs are cheaper.

Medicon Valley cluster

Skåne itself is strong in life sciences due to entrepreneurial support and R&D from institutions such as the University of Lund. Together, Skåne and greater Copenhagen make up Europe’s strongest life sciences cluster, dubbed Medicon Valley. Medicon Valley attracts more FDI for life sciences than any other European region. US-based pharmaceutical company Biogen Idec is opening a significant plant in Hillerød, Denmark, which is in the valley.

Science parks in Skåne foster growth in the industry. Medeon Science Park in Malmö is expanding by 100,000 square metres to meet pent up demand and achieve critical mass. “We want to attract an established company to the area as well as incubation for research,” says Charlotte Ahlgren, Medeon’s CEO.

The park is home to 30 medtech, biotechnology, pharmaceutical and health care companies, including San Diego-headquartered Arcadia Pharma. The park is modelled on parks in Stanford University in California, MIT in Boston, and North Carolina’s Research Triangle. Active Biotech, a spin-off of Pharmacia, is located there.

One of the most dramatic developments to come out of the University of Lund is the Igelosa Science Community, located in Skåne’s countryside near Lund and run by Sig Steen, a renowned professor of cardiothoracic surgery at the university, who is making advancements in heart and lung transplants. “The issue is to deal with organ shortages,” says a community spokesman.

The community is supported by grants, private investment and land owned by the Nobel family. Several companies have been spawned from research at the community.

Such efforts point to the direction the industry must take.