By Sameepa Shetty
Columbia Journalism School, C’13
Reporters covering Big Pharma should brace themselves for big changes.
The pharmaceutical industry is expanding rapidly. In 2003, the global market for pharmaceuticals was $503 billion, according to IMS Health, a health care consulting firm. By 2011, the market had grown to $956 billion.
Several factors helped drive the drug industry’s expansion. The average global life expectancy has risen 10 years since 1970, driving the median age higher, particularly in developed economies that can afford drugs; the growing middle class in emerging markets boosted global demand for medications; and the sector was largely insulated from setbacks during the recession because medicine demand is unaffected by economic vagaries.
Today, the industry is still growing, but also changing rapidly. IMS projects global drug demand will surge 25% from 2011 to 2016. However, there is mounting political pressure on companies to keep prices affordable. At the same time, health-related entitlement programs that subsidize drugs in the US face unprecedented scrutiny. As multi-national companies struggle to cut costs and R&D expenses, the industry model for drug discovery has shifted from in-house innovation to third-party acquisition.
For reporters, covering such a large and dynamic sector can be daunting, but writing about the drug industry – and Big Pharma in particular – is manageable, even for those new to the beat. Like most business beats, the throughline of Big Pharma is that a group of companies are trying to sell something. The regulations are unique, and the stakes are high, but pharmaceutical companies are fundamentally businesses trying to make money and appease their investors.
Here are a few tips to get you started covering Big Pharma.
Find Out Who Makes the Blockbusters
First, find out who the major players in the industry are. Check a drug information aggregator like IMS to see which companies have the top-selling drugs and how much those drugs contribute to their earnings.
In Big Pharma, a common benchmark for an important drug is that it brings in $1 billion in revenues each year. Investors pay particularly close attention to their sales, marketing and patent expirations.
Make a Patent Calendar
Several of these so-called blockbuster drugs have recently lost their patent exclusivity, leaving them vulnerable to competition from generic drug companies. In November 2011, Pfizer, the world’s largest drug-maker, lost patent exclusivity for the world’s top-selling medicine, the cholesterol drug Lipitor. In May 2012, Bristol-Myers lost patent protection for its blockbuster blood thinner Plavix, the second-best selling drug in the world. This year four blockbuster drugs will go off patent: Eli-Lilly’s Cymbalta, Abbott’s Niaspan, Novartis’s Zometa/Reclast, and Purdue’s Oxycontin.
Make a schedule for near-term and long-term patent expirations. If a top company is losing patent exclusivity on a billion-dollar drug, it is almost certainly looking for a way to delay the patent’s expiration, tweak the formula to extend the patent or replace the drug with a new revenue stream.
Patent expiration dates are available in company earnings reports, investor presentations and broker notes, as well as through industry data aggregators like IMS.
Build Your Sources
Round up the contact information of all the spokespeople at each of the large pharmaceutical companies. Do the same for the equity analysts who cover Big Pharma. (You can typically find such listings on financial news aggregators like Yahoo Finance or in a Bloomberg terminal.)
Reach out to the major stakeholders, as well. Get a list of the major holders of each company. If the company makes a significant management change or a dramatic shift in strategy, most big investors will have an opinion.
Learn How a Drug Gets Approved
Before a drug can be sold in most countries, it must first be granted regulatory approval by the nation’s drug watchdog. Familiarize yourself with the US Food & Drug Administration’s regulatory process for drug approval. This will help you keep tabs on the development of new drugs. Setbacks and delays in this process can have consequences for a wide array of readers, including doctors, patients, investors and competitors. Any story about a potentially top-selling drug’s development will have a dedicated audience.
Know the Pipelines
Find out which new drugs are coming down the pike. Look through the drug pipelines of the major players and make a list of the drugs getting close to market, along with a schedule of when the company expects each to be ready. Unexpected delays can mean trouble for shareholders.
Brokerages publish a periodic analysis of the product pipelines of the largest companies and typically estimate the size of the market for each drug.
Attend the Big Conferences
Industry conferences are excellent places to learn about new drugs, clinical trials and potential deals. Healthcare conferences organised by brokerage houses including Citi, Barclays, UBS, Goldman Sachs and JP Morgan offer a chance to hear pharmaceutical, biotechnology and healthcare device companies talk about industry trends, innovations and predictions. They’re also good for building sources, as well as identifying scoops, as a lot of M&A originates there.
Keep an Eye on Biotech
The biotech industry now plays an essential role in drug development. Companies like Gilead Sciences, Biogen, Amgen and Celegene are now responsible for many of the drugs that end up being distributed by Big Pharma through licensing deals. In some cases, the larger pharmaceutical company simply acquires the biotech for its patents or pipeline. As a result, any small biotech with a promising drug candidate is an acquisition target.
Follow Regulatory Changes
Although the regulatory environment varies widely around the world, it is changing nearly everywhere.
Some companies are particularly drawn to the Latin American, African and Asian markets because they’re frequently governed by weaker regulations. Tracking the regulatory policy changes in the key international markets of multi-national drug companies is crucial to understanding Big Pharma’s business strategy.
Sameepa Shetty is a student at Columbia University’s Graduate School of Journalism. Prior to that, she covered the pharmaceutical industry for Bloomberg TV in India.