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Poop to Pills Is FMT the Future of Veterinary Medicine by EOS Intelligence
by EOS Intelligence EOS Intelligence No Comments

Poop to Pills: Is FMT the Future of Veterinary Medicine?

Fecal Microbiota Transplant (FMT), the transfer of healthy gut bacteria from a donor to a recipient to treat a myriad of conditions, has been gaining traction rapidly in recent years. Though the human FMT market has stolen the spotlight, the animal segment is also quietly blooming as a niche area, presenting a unique business opportunity for enterprising players.

The global human FMT market, estimated at US$2.11 billion in 2023, is projected to reach US$3.15 billion by 2031 with a CAGR of 5.1% between 2023 and 2031, according to a 2023 report published by India-based market research company The Brainy Insights. The animal FMT market is undoubtedly smaller, but it is difficult to determine its exact size due to a lack of consistent data on exact use. Also, while the human segment has many players, such as UK-based Microbiotica, US-based Finch Therapeutics, and US-based Rebiotix, Inc., the animal segment has a few competitors, such as Amend Pet and AnimalBiome, both US-based companies.

This article is the first in EOS Perspectives' coverage 
of Fecal Microbiota Transplantation in animals and humans. 

Read our related Perspective: 
Gut Matter: Will FMT Change How We Look at Disease Treatments?

Veterinary FMT is slowly but steadily growing

Increasing pet ownership is one of the most important factors influencing the growth seen in the veterinarian FMT sector. The American Pet Products Association (APPA), a Connecticut-based NPO, conducted a 2021–2022 National Pet Owners Survey, which found that 70% of US households own a pet, an increase from 56% in 1988 and 67% in 2019. A 2022 report published by HealthforAnimals, a Belgium-based global animal health association, indicated that owners are becoming more aware of their pets’ health needs. Similarly, a 2012 State of Pet Health Report released by Banfield Pet Hospital, a US-based veterinary hospital chain, has shown an increase in chronic diseases in cats and dogs.

The high incidence of diarrhea in pets also affects the FMT adoption rate. A 2008 report published in The Veterinary Record, a UK-based peer-reviewed journal, states that one of the most frequent causes of pet owners seeking veterinary care is acute diarrhea (AD).

Antibiotics are frequently used in the treatment of AD in dogs, 45% to 70%. The use of antibiotics in dogs can cause imbalances in the gut microbiota, leading to other diseases. This makes it essential to have a more holistic approach to managing pet diseases without disrupting their gut health.

The FMT sector is marred with several challenges

Though the FMT procedure offers many benefits, large-scale adoption still faces numerous challenges.

Empirical and scientific evidence is still lacking

A 2021 article published in Gut Microbes, a journal from the UK-based publishing company Taylor & Francis, indicated that the experimental information provided in preclinical FMT protocols is extremely uneven and/or lacking. The study suggested the reason for this is the lack of reliable guidelines for reporting requirements that would support efforts to replicate the study and, eventually, yield reproducible research. Many papers considered in the study lacked information on core aspects; for example, 92% had no reliable data about anaerobic conditions needed for FMT prep, and 49% had no information on efficient fecal material storage.

There is also currently minimal scientific information available in the field of veterinary FMT. Moreover, there is very little information on the therapeutic effectiveness of FMT in small animals such as dogs and cats, according to a 2016 article published in Veterinary Medicine (Auckland, N.Z.), a peer-reviewed journal. The article suggests that though adverse effects are limited in human patients, assessing whether the procedure is safe in animals is difficult.

Regulatory framework is in its infancy

Regulation is a bit complex in veterinary FMT. While there are not many specific regulations for veterinary FMT, the FDA considers FMT treatments used to prevent or treat diseases in animals as a new drug. Marketing new veterinary drugs in the USA without an approved or abbreviated new drug application is illegal. These require the manufacturer to submit information proving that a proposed generic medication is equivalent to an approved reference-listed drug (RLD) in terms of quality, safety, and efficacy. The lack of detailed clinical studies in the veterinary segment can slow down regulatory clearance. The Center of Veterinary Medicine, the US department approving drugs for pet animals, does not have any specific regulatory policy regarding the use of FMT either.

Veterinarians lack experience

Lack of technical expertise and procedural experience can also hinder FMT adoption. A 2022 study published in Topics in Companion Animal Medicine indicated that 71% of veterinarians had never performed FMT. These results were based on 155 responses from 13 different countries.

Risk of transmitting disease phenotypes is high

FMT can transmit disease phenotypes, including obesity and metabolic disorders such as diabetes, according to a 2020 study published in Medicine in Microecology, a peer-reviewed journal. Similarly, changes to the gut microbiota, such as exposure to antibiotics or the transfer of cecal material (fecal material from the bottom right quadrant of the cecum, a part of the large intestine), can affect disease phenotypes, such as an elevated risk of colitis.

Donor selection is difficult and pricey

The selection of an ideal donor is another challenge. The donor animal should be free from all kinds of parasites and pathogens and without any history of gastrointestinal diseases. Similarly, the donor should have no history of behavioral issues and should be of ideal weight. There should also be no history of antibiotic use within six months before the sample collection. Stool banks must thoroughly test the samples used for FMT, increasing procedural costs and hindering widespread acceptance and adoption of the technique among pet owners and veterinarians.

Poop to Pills Is FMT the Future of Veterinary Medicine by EOS Intelligence

Poop to Pills Is FMT the Future of Veterinary Medicine by EOS Intelligence

Numerous investment opportunities are available for interested players

Though veterinary FMT is still in its infancy, businesses still have several investment opportunities in this sector.

Focusing on extensive R&D

Veterinary FMT is a promising sector, but more research is needed to support product and service development. Since the current competition is concentrated on rigorous R&D, interested players capable of making risky research investments will likely gain an upper hand over their competitors.

The research so far has been promising, and the extensive R&D helps drive the market and build the necessary base for FMT to be recognized as a separate category for approvals. A 2022 study published in Frontiers in Immunology, a journal of the International Union of Immunological Societies, has indicated that several studies were conducted in the field of FMT from 2001 to 2021. This study analyzed key aspects such as donor selection, efficacy, and adverse effects. The incidence of minor and serious adverse effects after an FMT procedure was found to be 11.63% and 1.59%, respectively, while the overall efficacy was 76.88%.

The results from this study are promising, but they also indicate that more research is needed to understand and confirm the efficacy, safety, and quality of FMT treatments in animals. The FDA is more likely to approve these therapies with more robust evidence from newer studies, giving market players more opportunities.

Even though there is currently a lack of consensus or evidence-based standards regarding FMT dosage or donor screening for animals, a recently established international expert organization, the Companion Animal Fecal Bank Consortium, is developing guidelines in these domains. This can also be considered as a first step towards prompting FDA approval.

Developing the oral delivery route

Market players can find opportunities in developing FMT treatments administered through oral rather than nasoesophageal or rectal routes. Currently, the FMT delivery route is one of the critical bottlenecks in the more widespread adoption of the therapy.

Both nasoesophageal and rectal delivery routes are considered more efficacious but are associated with considerable risks. Nasoesophageal treatments use endoscopes that cause discomfort and aspiration and make it difficult to assess the colon mucosa or get mucosa tissue samples. In rectal FMTs, colonoscopes and anesthesia are involved, the latter often being a significant risk to the pet patient, deterring pet owners from choosing FMT. Both rectal and nasoesophageal routes are also associated with a risk of perforation, bleeding, infection, etc.

Conversely, the oral delivery route is generally preferred due to non-invasiveness and ease of use. However, oral FMT takes longer to reach the large intestine and has been perceived as less effective.

Market players can attempt to meet the preference for the oral route by building on a few research studies showing the good efficacy of oral FMT in pets. While research on animals is still limited, research in humans can be extended to identify approaches to improved efficacy of oral FMTs in treating animal GI infections. One such research was a 2017 study published in JAMA Network Open, an open-access journal by the American Medical Association, which indicated that in humans, oral FMT had efficacy in the treatment of C. difficile infection similar to that of rectal FMT.

One of the pioneers in this area is AnimalBiome, which developed an oral Gut Restore Supplement in an enteric-coated capsule (a coating that protects the medicine from the stomach’s acidic environment before it reaches the intestine and reduces side effects). The company conducted a pilot study in 2019 to observe the impact of the capsule on 40 dogs and 72 cats suffering from IBD. The study found that symptoms improved in 83% of the cats and 80% of the dogs. As the availability of such FMT solutions is still meager, there is plenty of room in the market for businesses to follow AnimalBiome’s footsteps and invest in creating oral FMT solutions.

Driving adoption through at-home administration kits

Another growth area for players is the development of user-friendly oral at-home administration kits for more straightforward treatment requirements. There is a demand for such easy-to-administer at-home solutions in the animal FMT space, as getting the pet to a vet is typically stressful for both the animal and the owner.

A 2011 survey published in the American Veterinary Medical Association (AVMA) journal indicated that out of 2,188 dog and cat owners polled, 38% of dog owners and 58% of cat owners said their pet “hates” visiting the vet. If FMT has to be repeated or spread over multiple visits, the treatment process is also time-consuming, further decreasing the likelihood of completing the therapy.

At-home application solutions can help make significant inroads into FMT acceptance, as pet owners are more likely to opt for such treatments rather than in-hospital procedures whenever possible.

Increasing specialization and targeted treatments

Developing more target FMT treatments (specific to animal breeds or conditions) appears to be a good area of opportunity. Currently, studies are being carried out to develop farm-specific FMT to treat various conditions in cattle.

A 2022 article published in PLOS One, a peer-reviewed journal, investigated the effects of farm-specific FMT on pre-weaned calves. The study indicated that FMT-treated calves’ alpha-diversity (indicating microbiota richness) had increased. It also suggested that the success of FMT will improve with proper criteria for donor selection. This offers scope for further investigation for market players to develop such targeted therapies.

Expanding through complementary products

Players can grow their FMT business by building a range of products to complement FMT therapies, such as specialized probiotics or microbiome health supplements.

A 2015 study published in BMJ Open, an open-access medical journal, has indicated that the gut microbiome can be strengthened and balanced in humans with the help of proper diet, probiotics, prebiotics, and FMT. Researchers are now looking into the positive impact of probiotics on animal health, such as improvement in digestion, lowered risk of gastrointestinal diseases, etc. With support from such research studies, players can work to offer comprehensive treatment and maintenance product lines.

Working on awareness through educational initiatives

Apart from immediate business opportunities, players might also have to get involved in activities that inform, educate, and help build the FMT market. Though it is a promising emerging therapy, very little information is available on veterinary FMT. In order to reap long-term rewards, businesses should spotlight and promote FMT and its positive effects on animal health to the vet community and the public by launching educational drives, conferences, and other similar initiatives. Existing players already recognize this need. For instance, Amend Pet, a major company in the veterinary FMT segment, has free educational courses in the form of RACE (Registry of Approved Continuing Education)-approved videos for veterinarians.

Increasing adoption through collaborations

Further, players in the FMT space should collaborate with veterinary hospitals and other organizations dealing with animal health to work with them and increase FMT adoption.

An example of this is the strategic collaboration between Amend Pet and the Association of Shelter Veterinarians (ASV) that started in May 2023. With this partnership, Amend Pet plans to offer easy-to-use and affordable FMT treatments to shelter dogs. The ASV has over 2000 veterinary professionals and 23 student chapters worldwide. Partnerships such as this can be expected to raise awareness about FMT among the public and veterinary sector, leading to improved adoption rates.

EOS Perspective

While veterinary FMT still has a long way to go before becoming a mainstream therapy, it is already an exciting field with many expected developments.

The spectrum of animal health conditions that can be treated or managed with FMT will continue to expand to include immune system disorders, metabolic conditions, and behavioral issues. Progress in the animal FMT space will likely be linked to research done in human FMT, as these studies can be extended to animal healthcare or at least be a starting point for animal FMT-specific research, revolutionizing veterinary treatments.

Improvements in donor selection processes, such as more stringent and advanced inspection of the donor’s gut microbial diversity and behavior evaluation, can be expected as many studies are now being done to understand the connection between behavior and gut microbes.

Rapid technological development, especially in AI, is expected to influence veterinary FMT as well. AI-powered equipment might be used for guided rectal FMT treatments to improve the procedures’ accuracy. This is likely to be safer for the animal and can prompt pet owners to choose FMT to treat their pet’s gastrointestinal issues. Companies investing in research can expect growth in this field.

All these developments, if accompanied by simultaneous partnerships between industry players and veterinary clinics, offer a promising future for the animal health FMT. The return on investment in this sector might not be immediate. For now, the industry needs to prioritize driving adoption, educating and disseminating knowledge, and gathering scientific data and empirical evidence to build a sound understanding of FMT in veterinarians, pet owners, and regulatory bodies. Nonetheless, the industry prospects are promising, and the players can expect the long-term benefits to be substantial.

Anti-Obesity Drugs – Pharma Companies Race to Grab a Bite of the Pie by EOS Intelligence
by EOS Intelligence EOS Intelligence No Comments

Anti-Obesity Drugs – Pharma Companies Race to Grab a Bite of the Pie

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For many years, bariatric surgery has been the go-to option for people struggling with obesity and obesity-induced conditions. However, for the last couple of years, another easier option has become available in the form of GLP-1-based weight loss drugs. This class of medicine mimics a hormone that helps reduce food intake and control appetite. These drugs have revolutionized the weight loss market, which was previously dominated by gimmicky and fad-based OTC solutions. Due to GLP-1’s proven effectiveness, there is soaring demand for these drugs, outstripping its current supply capacity. While only two players operate in this market, several leading drugmakers have been racing to develop their own version of the drug. Moreover, with additional proven merits of the drug beyond just weight loss, it has become more appealing for pharma players to invest in.

GLP-1 anti-obesity drugs make big waves in the pharmaceutical sector

Over the past few years, anti-obesity drugs have received immense attention from healthcare professionals, pharmaceutical companies, and the general public. A new class of medication that stands out is glucagon-like peptide-1 (GLP-1) agonists, traditionally used for treating Type 2 diabetes. But along with managing diabetes, these drugs also suppress appetite and lower calorie intake by mimicking the GLP-1 hormone (a gastrointestinal hormone), which causes the patient to feel fuller longer and thereby prevents overconsumption. Regular intake of such drugs is deemed to result in a weight loss of about 15-25% of body weight in obese people.

GLP-1 agonists received FDA approval as anti-obesity drugs in 2021. Given their promising results, the demand for these drugs has increased immensely. However, despite the patient’s high out-of-pocket price of US$1,000 plus, there are severe shortages in the market.

Anti-Obesity Drugs – Pharma Companies Race to Grab a Bite of the Pie by EOS Intelligence

Anti-Obesity Drugs – Pharma Companies Race to Grab a Bite of the Pie by EOS Intelligence

Only two players operate in this highly-coveted market

The GLP-1-based medication is now marketed in two categories – one for managing diabetes and blood sugar levels and the other as a weight loss drug. The GLP-1-based weight loss drug market is highly consolidated, as only two players operate in this space. These are Denmark-based Novo Nordisk and US-based Eli Lilly.

Novo Nordisk, the market leader, received FDA approval for its weight loss injectable, Wegovy, in June 2021. This drug uses the same active ingredient as Novo Nordisk’s diabetes drugs, Ozempic and Rybelsus (oral); however, it has a different dosage and can also be used for weight loss in patients who do not have diabetes. That being said, Ozempic has also been used off-label for weight loss.

On the other hand, Eli Lilly’s injectable drug for weight loss, Zepbound, received FDA approval in November 2023. Eli Lilly’s glucose-dependent insulinotropic polypeptide – GIP/GLP-1 injectable drug for diabetes, Mounjaro, has the same composition and dosage as Zepbound and is often prescribed off-label for weight loss as well.

While Novo Nordisk’s drugs, which use semaglutide as an active ingredient, result in weight loss of about 13 to 22 lbs, the drugs by Eli Lilly have tirzepatide as an active ingredient. They are stated to result in a weight loss ranging between 15 and 28 lbs.

From a price-point perspective, Wegovy has an out-of-pocket cost of US$1,349 per month, compared to Zepbound, which has an out-of-pocket cost of US$1,060 per month. Thus, while Novo Nordisk’s Wegovy has the first-mover advantage, Eli Lilly’s Zepbound is considered more effective and better priced.

Currently, both weight loss drugs by Novo Nordisk and Eli Lilly come in the form of injectables. However, both companies are developing oral versions of the drug as they are easier to administer and more convenient to prescribe. They may also help ease supply constraints currently impacting the injectables. In June 2023, Novo Nordisk conducted Phase 3 trials for its once-daily oral Wegovy drug, according to which the drug helped obese adults lose about 15% of their body weight. Similarly, in June 2023, Eli Lilly conducted Phase 2 trials for its oral GLP-1 receptor for weight loss. The drug helped obese adults lose up to 14.7% of their body weight. Both companies are optimistic about the outcomes of their trials; however, the expected launch timelines for these drugs have yet to be determined.

Leading drugmakers race to compete in the growing anti-obesity drug market

Currently, Novo Nordisk and Eli Lilly are the only two players operating in this market. However, several other leading pharmaceutical players have joined the race and are working towards developing their own version of the drug, either through in-house R&D or through strategic acquisitions.

Moreover, they are targeting their research towards developing and marketing a new generation of GLP-1-based medications that are administered orally, are longer lasting, and have additional health benefits and limited side effects.

In February 2024, US-based biopharmaceutical company Amgen successfully completed a Phase 1 clinical trial for its GLP-1 agonist drug, MariTide. As per the trials, the drug produced a 14.5% weight loss in patients administered the highest dose. Moreover, the company claims that the trial indicates that patients may need to take less frequent doses of MariTide (compared with current competition), and the weight loss achieved stays significantly longer. The company has begun its Phase 2 trial, with results expected by late 2024.

In December 2023, Swiss-pharmaceutical giant Roche acquired US-based Carmot for US$3.1 billion (US$2.7 billion upfront cash and US$400 million on certain milestones). This acquisition has helped put Roche on the map for obesity drug development. Carmot has two GLP-1 agonist molecules for weight loss, which are currently being tested in the mid to advanced stages of clinical trials. The first drug, CT-388, is a once-weekly injectable and has completed Phase 1 clinical trial, while the other drug, CT-996, is an oral drug currently undergoing Phase 1 trials.

In November 2023, UK drugmaker AstraZeneca entered into an agreement with Shanghai-based Eccogene, wherein the former licensed an oral once-daily GLP-1 receptor agonist called ECC5004 for the treatment of obesity, Type 2 diabetes, and other cardiometabolic conditions. For this, AstraZeneca agreed to pay Eccogene an upfront fee of US$185 million for the drug and a further payment of US$1.83 billion in future clinical, regulatory, and commercial milestones and tiered royalties. The drug is currently in Phase 1 development, and the company hopes to enter Phase 2 of clinical studies by the end of 2024. In the past, AstraZeneca stopped the development of two GLP-1 agonist drugs that were being developed in-house. The development of an injectable called Cotadutide was halted in April 2023, and an oral drug called AZD0186 was halted in June 2023 after their respective Phase 2b and Phase 1 clinical trials did not yield the desired results.

Pfizer, one of the most active companies in this regard, has faced multiple failures in their endeavor to develop a competitive obesity drug. In 2020, it started a clinical trial for its GLP-1 agonist weight loss drug, Lotiglipron. However, in June 2023, the company stopped developing the drug after its Phase 1 and Phase 2 drug interaction studies indicated a rise in liver enzymes in patients who took the drug once a day. In 2021, the company simultaneously began working on another GLP-1 receptor agonist, Danuglipron, which was to be taken twice daily. While the Phase 2a trial for the drug in June 2023 showed promise, the company halted the development of the drug post its Phase 2b trial in December 2023. The drug was scrapped as, despite significant weight loss, the trial patients experienced high rates of common gastrointestinal and mechanism-based adverse side effects. The company is now conducting a pharmacokinetic study with a once-daily version of the Danuglipron drug that will provide guidance on future development plans.

Pfizer’s failure with these two drugs demonstrates the struggle the leading pharma companies face to develop a safe, effective, and tolerable GLP-1 agonist for weight loss.

GLP-1 agonist drugs have benefits beyond diabetes and weight loss

Despite multiple setbacks, leading pharma companies are investing heavily in this space, as they understand the potential of these drugs. While currently, GLP-1 agonists are poised as diabetes and weight loss drugs, they have far more benefits. Data from ongoing clinical trials and independent studies suggest that GLP-1 agonists also help improve cardiovascular health and kidney function and help treat addiction and dementia.

In March 2024, Novo Nordisk’s Wegovy received FDA approval for reducing the risk of serious cardiovascular complications in adults with obesity and heart disease. This is based on the results shared from the company’s three-phase trial SELECT, which indicated that Wegovy reduced patients’ risk of major cardiovascular problems by about 20% during the five-year trial period.

Similarly, in 2019, the company started another clinical trial, FLOW, to determine the impact of GLP-1 agonists on kidney function. As per the interim results in October 2023, the trial displayed that Ozempic (Wegovy’s diabetes counterpart) reduced the risk of kidney disease progression and kidney and cardiovascular death in diabetes patients by 24%. Given its success, the company has halted the trial at the interim stage.

An initial study conducted on animals in March 2023 reportedly showed positive results for curbing addictive tendencies, such as drinking and smoking, with Ozempic. Currently, two trials are being undertaken to validate the use of GLP-1 agonists in humans to manage drug and alcohol addiction. Given the testimonies from current users of the drug, it is indicative that the drug has been helping users curb their addictions.

In addition to this, several researchers are also suggesting that GLP-1 could be used in the treatment of dementia and other cognitive disorders. This is based on the claim that GLP-1 agonists reduce the build-up of two proteins, amyloid, and tau, in the brain. These two proteins are known to be responsible for Alzheimer’s disease, which is the most common form of dementia. In February 2022, a new trial at the University of Oxford was initiated to test people with high levels of amyloid and tau and at risk of developing dementia to determine if the use of GLP-1 agonists would result in a reduction in tau accumulation and brain inflammation. The interim results from the study have not yet been disclosed.

High prices and limited coverage pose as speedbumps for obesity drug adoption

While these obesity drugs have exploded in popularity in recent times and are only expected to grow further as their case use increases, they do have certain shortcomings and challenges that are important to address.

These drugs are known to cause several side effects, such as nausea, diarrhea, vomiting, constipation, and ulcers. They can also lead to severe complications, such as pancreatitis, in some extreme cases. While most of the common side effects of the drugs are manageable and justifiable given the risk-benefit ratio, one of the key issues with the drugs is that they need to be taken in perpetuity to keep the weight off. In other words, once a patient stops taking the drugs, the weight comes back. Given that these drugs are priced at more than US$1,000 per month at the moment, taking them constantly becomes a considerable challenge for patients.

Moreover, considered as ‘vanity-use’, these drugs are currently not covered by most medical insurance policies, and thus, patients have to pay for them out-of-pocket. While several employers in the USA are considering including these drugs in their health plans, they are still debating their merit. Employers acknowledge the benefits of these drugs as they help employees who battle with obesity improve their health and, in turn, improve overall performance and employee satisfaction. However, high costs and long-term use act as definite barriers, which make both employers and insurers reluctant to cover these drugs.

Insurers are slowly warming up to the inclusion of GLP-1 drugs in their plans

In March 2024, leading insurance company Cigna stated that it would expand insurance coverage to include weight loss drugs but would limit how much health plans and employers spend on the drug each year. As per Cigna’s benefits management unit, Evernorth Health Services, spending increases for these weight loss and diabetes drugs would be limited to a maximum of 15% annually. The plan offers a financial guarantee and enables employers and health plans to have greater predictability and control over their GLP-1 spending by offering clients (employers) a guarantee that the cost of weight loss and diabetes drugs would not increase by more than 15% annually.

As a part of the effort to limit how much employers spend on GLP-1-based drugs annually, Evernorth has entered into an agreement with Novo Nordisk and Eli Lilly. However, the details of the agreement have not been disclosed.

While this is a good start, the drug would need better coverage by many other insurance players to reach a wider audience.

EOS Perspective

Given that about 12% of the global population and more than 40% of the American population grapple with obesity (as per WHO and 2022 statistics by the National Institute of Diabetes and Digestive and Kidney Diseases, USA, respectively), weight loss drug manufacturers Novo Nordisk and Eli Lilly are sitting on pharma goldmines. The weight loss drugs market, expected to reach US$100 billion by 2030, is poised as one of the most promising sectors for the pharma sector. Thus, it is no surprise that several leading players are investing heavily to join Novo Nordisk and Eli Lilly at the top, either through in-house R&D or through acquisitions.

However, developing these drugs proves to be challenging for drugmakers, as evidenced by the failures of several companies in creating their own versions. We can expect the sector to consolidate further as larger pharma companies look to acquire niche players with their trials being in advanced stages.

Moreover, in a bid to find their footing in this promising sector, pharma players are trying to develop advanced versions of the drug that have benefits beyond just weight loss and offer long-term benefits. This is also because, at the moment, these drugs are not approved by most insurance companies, which makes them extremely expensive for the wider population to afford. This, in turn, is withholding these drugs from becoming mainstream and is thereby preventing them from tapping into their true growth potential. That being said, Wegovy’s recent FDA approval for reducing cardiac complications in people with obesity and heart disease will likely tip the insurers’ coverage scales. Insurance companies are likely to cover the drug in the near future.

Since no other drug in the market offers proven cardiac benefits along with weight loss (including Eli Lilly’s), it is safe to say that Novo Nordisk is way ahead in the race and will dominate the market for the foreseeable future. Thus, to be able to compete in the market, it is not enough for drugmakers to develop obesity drugs offering just weight benefits. They would need to develop drugs that offer higher efficiency or additional therapeutic benefits along with weight loss and price them competitively.

Soaring Healthcare Costs in the USA Is Greed Winning Over Welfare by EOS Intelligence
by EOS Intelligence EOS Intelligence No Comments

Soaring Healthcare Costs in the USA: Is Greed Winning Over Welfare?

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Americans have been struggling with access to affordable healthcare for years, with thousands of stories of an unexpected illness driving a patient to bankruptcy. Meanwhile, the USA spends much more than European nations on healthcare but covers the smallest percentage of the healthcare costs. Wasteful spending, excessive administrative costs, no limit to medicines prices, lack of a single unified interface system, and passive attitude by the government are all building blocks of a wall separating Americans from the quality and affordable healthcare system expected from any developed country.

According to a 2020 article published by Harvard, the annual cost of healthcare in the USA was around US$3.5 trillion, of which around 33% is believed to have been squandered. Simultaneously, healthcare costs are soaring, contributing significantly to several issues around the delivery and affordability of healthcare in the USA. The same Harvard article revealed that about 40-44% of Americans decided to omit or postpone medical treatment, tests, or care owing to their high costs. Although the USA has the highest national healthcare expenditure, the country registers one of the lowest life expectancies among the developed economies. Additionally, around 10% of the population does not have health insurance.

This problem is so deep-rooted and widespread that the issue of healthcare costs was referred to as the “tapeworm of American economic competitiveness” by investor Warren Buffet. Almost 67% of the US population wishes the federal government to regulate healthcare prices in the country. Yet, despite it being such a grave problem, the US government does not seem to be taking any (visibly) constructive measures to resolve it. While significant political aspects are certainly at play, a deep dive into the cost drivers of the US healthcare system might shed some light on the complexity of this issue.

Soaring Healthcare Costs in the USA - Is Greed Winning Over Welfare by EOS Intelligence

Soaring Healthcare Costs in the USA – Is Greed Winning Over Welfare by EOS Intelligence

Healthcare administrative costs hold the lion’s share of total healthcare expenditure

One of the major components of healthcare costs in the USA is the annual cost of healthcare administration at US$1,055 per capita, according to a 2021 estimation by the Peterson Foundation. The US spending on healthcare administrative purposes is by far the highest globally. Compared with Germany, the second-highest spender on healthcare administration at US$306 per capita, the stark difference of US$749 per capita speaks volumes about the current situation in the USA. The country also registers the world’s highest share of administrative costs in total healthcare costs, at around 15-30% annually. Wasteful administrative spending is estimated to contribute about half of that share (7.5% to 15% of the country’s total healthcare spending), translating to anywhere from US$285 billion to US$570 billion in 2019.

The USA spent around US$950 billion in 2019 on healthcare administration, which translates to 25% of the national healthcare expenditure (NHE) that year. A significant part of the excessive administrative expenditure is billing and insurance-related costs (BIR), including overhead costs for medical billing and services such as claim submission, claim reconciliation, and payment processing. Profits made by the insurance companies account for the highest share of BIR costs. Healthcare providers also get part of these administrative costs for note-taking and record-keeping during the medical billing process. According to an article published by Harvard in 2020, there are occupations in US healthcare that do not exist elsewhere, such as medical-record coding to claim-submission specialists. Further, the article claims that in other countries, such as Germany and Switzerland, where multiple payers and private providers exist, healthcare administration costs less than 50% of the USA equivalent.

As per 2019 McKinsey research, the USA could decrease healthcare administrative expenditure by 30% through automation and streamlining of the BIR processes. Claims processing software enables automation of BIR processes, however, only 15% of US hospitals employ such software, as per Definitive Healthcare tech data.

Healthcare services costs, including physicians’ salaries, empty patients’ pockets

A 2018 JAMA study revealed that physician salaries in the USA were higher than in other developed countries. A survey by Medscape in 2021 revealed that physicians earned the most in the USA compared to other developed countries. On average, the annual income of physicians in the USA was US$316,000, followed by Germany (US$183,000) and the UK (US$138,000).

As per 2019 Commonwealth Fund research, Americans are much less likely to consult a doctor in case of a health issue, at half the rate compared to other developed countries. This can be attributed to the fact that the cost of healthcare services is considerably higher in the USA vis-à-vis other developed nations. According to a 2017 report, the average cost of a coronary artery bypass graft (CABG) surgery in the USA was US$78,100, whereas the same procedure cost only US$11,700 in the Netherlands. While the procedure cost is already far lower, in the Netherlands, patients will likely have the procedure cost fully covered by insurance without any co-payment. The USA also reported higher costs for outpatient procedures such as MRI scans and colonoscopies compared with other developed countries.

Skyrocketing prescription drug prices further inflate healthcare costs

As per OECD, in 2019, the average spending on prescription drugs by an American was about US$1,126 per capita, which was over double that in other developed nations. As per CMS, prescription drug spending in the USA by the federal government is expected to grow by 6.1% through 2027.

The growth in prescription drug spending could be attributed to increased focus on specialty pharmaceuticals and precision medicine. Specialty medicines are experimental therapies for treating cancers, autoimmune diseases, or chronic conditions. Some specialty medicines employ genetic data to provide highly targeted, personalized therapy. Owing to the complex nature of these drugs, they are generally expensive to develop and distribute.

For instance, a novel specialty drug called Hemgenix to treat hemophilia B is the most expensive drug ever approved by the FDA. The price of a single infusion of this gene therapy is around US$3.5 million. No healthcare providers have submitted a claim for Hemgenix so far in 2023.

Apart from specialty medicines, pricing strategies for drugs in general play a significant role in soaring healthcare costs in the USA. Drug producers set a list price based on their product’s estimated value, and the price list can be increased by the producers as they see fit. In the USA, there are few regulations to curb producers from increasing drug prices in this way.

Chronic diseases add fuel to the fire of escalating healthcare costs

As per the CDC, six out of ten adults in the USA have a chronic disease or condition. The most common chronic diseases or conditions in the USA include heart disease, stroke, cancer, diabetes, chronic kidney disease, and chronic obstructive pulmonary disease (COPD). Furthermore, according to 2022 research published in the National Library of Medicine, of the population 50 years and older, the number with at least one chronic disease is estimated to increase by 99.5% from 71.522 million in 2020 to 142.66 million by 2050.

There is a robust correlation between the prevalence of chronic diseases and rising healthcare costs. As per a report from the American Action Forum, the USA spends about US$3.7 trillion annually for the treatment of chronic health diseases and the consequent loss of economic productivity. Routine office visits, prescriptions, outpatient treatments, or emergency care account for most of this healthcare spending in the USA.

Expanding geriatric population contributes to rising healthcare costs

According to the US Census Bureau, 21% of the US population is expected to be 65 years or older by 2030. The growing aging population is expected to drive healthcare costs in the USA in two ways: through Medicare enrollment growth and the increase in the prevalence of more complex and chronic conditions. Medicare had over 65 million beneficiaries as of March 2023, a number that is expected to increase by 2030 dramatically. This enrollment growth will impact NHE since Medicare is a publicly funded program. As per the CMS, in 2020, the USA spent US$900.8 billion on Medicare, and the CMS expects that Medicare spending will surge by 7.6% annually through 2028.

The elderly population is vulnerable to chronic conditions such as hypertension, high cholesterol, diabetes, coronary heart disease, and Alzheimer’s disease, among others. According to the National Council on Aging, 80% of older Americans have a chronic condition, and 77% of older adults have two or more chronic conditions. These chronic conditions will require ongoing treatment or long-term care at a nursing home or assisted living facility. These outcomes will account for increasing healthcare costs and overall national healthcare expenditure in the USA.

Greed over welfare

Corporate avarice is another factor said to be responsible for the rising healthcare costs in the USA. Insulin list price in the USA is 10 times higher than that in Canada. Not only pharma companies but also renowned hospitals charge more for the same service compared with less renowned hospitals. This applies to various services, from complex surgeries to simple X-rays.

Price regulation is the only solution to this problem that could be implemented with enough political will. The US state of Maryland has introduced this regulation for hospital services, while most European countries have regulated the prices of pharmaceuticals. However, implementing price regulation would mean that the compensation of the top management executives or the CXOs would decline, or the budget for R&D would reduce. This causes much resistance among top management executives to arrive at a constructive decision of choosing between self or service. However, the fact that patients delay treatment because of rising prices speaks strongly in favor of introducing at least some level of price regulation.

EOS Perspective

Standardization is one of the key ways to decrease administrative costs. Just for comparison purposes, checking out of a grocery store is easy because all products possess bar codes, and all credit card machines are the same or uniform. Similarly, mobile banking and inter-banking are straightforward since the Federal Reserve has set standards for how banks should interface with each other.

However, the American healthcare system has been immune to such a standardization. Every health insurer needs a different bar-code-equivalent and payment-systems submission. In addition, it is tough to send electronic medical records (EMRs) from one hospital to another because there is no mandate by the federal government for them to be in compatible formats. Additionally, this lack of standardization benefits many healthcare providers, as they strive to avoid the interchange of EMRs to prevent patients from switching doctors.

Standardization is possible only when prominent stakeholders are involved in it, agree to it, and decide they need it. The largest stakeholder in the US healthcare system is the federal government. Buying capacity and administrative control to compel payers and providers to adopt billing and interface rules to standardize the process lies within the federal government’s responsibilities.

Similarly, a price cap regulation needs to be brought about in the pharmaceutical sector. Price regulation is the only way to lower the prices of prescription drugs. Apart from this, the federal government needs to implement price cap regulation in healthcare services such as X-rays, MRIs, CT scans, etc.

It is the government that should introduce regulations that put caps on drugs and services prices, at least in certain product and service groups. It is the government that should establish the infrastructure to materialize standardization and introduce a deadline by which all interactions must be standardized.

However, to date, the federal government only considers providing insurance – particularly Medicare and Medicaid – to people as its role rather than looking out for the entire healthcare system as a unit. This mentality needs to change if healthcare costs are to be brought down.

Medicine Shortage in the EU A Deep-dive into Its Causes and Cures by EOS Intelligence
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Medicine Shortage in the EU: A Deep-dive into Its Causes and Cures

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With the proposal of the deeply revamped new EU pharma legislation in April 2023, the EU initiated an attempt to tackle the medicine shortfall that the union has been experiencing for over two decades now. Europe has witnessed a 20-fold rise in reported drug shortfalls from 2000 to 2018, as per research conducted by the Mediterranean Institute of Investigative Reporting (MIIR).

According to the European Data Journalism Network (EDJNet), the problem of drug inadequacies is not novel, although it got under the spotlight during the 2020-2022 COVID-19 pandemic, the energy crisis that started in early 2022, and the beginning of the Russian invasion of Ukraine in early 2022. Ironically, the fundamental reasons responsible for the medicine shortages in the EU are not solely these three events but a mixture of structural, economic, and regulatory factors that the governments often refuse to agree on.

In terms of the magnitude of the shortage during the five-year period from January 2018 to March 2023, Italy experienced the highest inadequacy in absolute terms to the tune of 10,843 medicines, followed by Czechia with 2,699 medicines and Germany with 2,355 medicines. Although Greece witnessed the lowest shortage, with 389 medicines between 2018 and 2023, the median duration for which the shortfall existed was the longest for this country, with 130 days, followed by Germany with 120 days, and Belgium with 103 days. This means that, for instance, in Greece, it is likely to take about four months and eight days for a medicine to be back on the market.

According to a survey regarding medicine shortages in the EU members organized by the Pharmaceutical Group of European Union (PGEU) between mid-November and end-December 2022, all 29 EU countries surveyed recorded drug shortfalls during the past 12 months among community pharmacists (pharmacists in retail pharmacies where the general populations have access to medications). Moreover, around 76% of the respondents agreed that the situation had worsened compared to 2021, and the remaining 24% said the situation remained the same compared to 2021. Not a single country registered any improvement in the situation compared to 2021. Furthermore, the survey also revealed that 83% of the respondents concurred that cardiovascular drugs were in short supply during the last 12 months in community pharmacies, followed by medicines treating nervous system diseases and anti-infectives for systemic use, such as antibiotics (79% each). Owing to the sample size of this survey of 1 response per country covering 29 EU countries, the findings might not be accurate but are likely to illustrate the overall trends correctly.

The problem of medicine shortages is not just limited to EU countries, as the UK is also experiencing acute drug inadequacies, including HRT (hormone replacement therapy) medicines and antibiotics, among other medicines.

In December 2022, the European Medicines Agency (EMA) announced that most EU countries are confronted with drug shortages. The question that arises is what led to the medicine shortfall in the EU and how the EU members can attempt to combat the issue at hand.

Medicine Shortage in the EU A Deep-dive into Its Causes and Cures by EOS Intelligence

Medicine Shortage in the EU: A Deep-dive into Its Causes and Cures by EOS Intelligence

Factors responsible for medicine shortages in the EU

The attributing factors to drug shortages in the EU are mainly a combination of economic, regulatory, and production or supply chain-related causes.

Economic factors

Price cap regulation on generics amidst rising costs hindering production

One of the key reasons for the drug shortfall of medicines, including antibiotics (such as Amoxicillin) in the EU is the fact that generic drug makers are not paid sufficiently for increased production of the medicine to cover the associated costs such as production, logistics, and regulatory compliance costs that are rising steeply.

To add to the woes of most European generic drug makers, the prices of the generics that the respective countries had set have remained unchanged for the past two decades, making the situation much worse.

Additionally, due to regulated prices of generic drugs, numerous European drug producers have shown a lack of interest in boosting their production capacity. This has become particularly relevant during the Russian invasion of Ukraine, which has caused a rise in energy costs. This cost increase affects the smooth functioning of factories that produce everything from aluminum for medicine bottle caps to cardboard for packaging medicines, indicating a rise in drug insufficiencies in the foreseeable future.

According to a Reuters report, six European generic drug industry groups and trade associations, as well as 13 European producers, revealed that many smaller drug makers are battling to be profitable and, therefore, are contemplating if producing antibiotics would be feasible, let alone expanding production capacity.

Government tenders indirectly force generic producers to cut production

Before inviting quotations or tenders, many European governments tend to weigh the generic drug prices with prices in other regional markets or prices of similar drugs in the home market to establish a reference price point that can be used in negotiating with producers. These governments give contracts to those producers who quote the lowest price, resulting in “further downward pressure on prices in subsequent tenders,” as per generic drug producers.

According to many European generic drug producers, the price cap regulation and the tender system of generics have spurred a ‘race to the bottom’. The European generic drug makers bear the brunt of Asian generic drug producers charging less for the same products. Consequently, some European firms were compelled to either decrease production or choose offshore production (of generics and APIs required to produce them) to low-cost locations such as India and China.

Parallel exports aggravate the shortages in low-price markets

Although some European countries have started prohibiting parallel exports (cross-border sale of medicines within the EU by sellers outside of the producer’s distribution system and without the producer’s permission) to other countries, this practice of buying drugs from low-price markets and selling them in high-price markets has resulted in the exhaustion of medicine supplies in low-price markets. This has been noticed in some EU countries such as Greece, Portugal, and Central and Eastern European member states where legislations have been put into effect that make the re-export of pharmaceuticals harder. For instance, drug shortages in Greece have been attributed to the re-export of imported medicines to regions where these medicines are sold at a higher price point than in Greece, as per a news report by the Turkish news agency, Anadolu Agency.

According to a report published by the Centers for European Policy Network in May 2021, the magnitude of parallel imports of medicines occurring in the European Economic Area (EEA) was to the tune of €5.7 billion in 2019. Furthermore, the share of parallel-imported pharmaceuticals varied considerably across European countries. To cite a few examples, Denmark’s share of parallel-imported pharmaceuticals was around 26.2% in 2018, while the corresponding figure for Austria was 1.9% in the same year. Similarly, in 2018, the share of parallel-imported medicines was around 12% in Sweden and 2% in Poland.

Production and supply chain factors

The current lack of a sufficient number of production facilities in European countries can increase the chances of drug shortfalls in the region at the time of any production problem. To illustrate this, the European Medicines Agency (EMA) cited that drug shortages in the EU are caused by production factors, raw material shortages, distribution issues, and high demand due to respiratory diseases and inadequate manufacturing capacities.

Furthermore, many pharma producers utilize the just-in-time concept of inventory management, which improves efficiency, reduces storage costs, and minimizes waste, thanks to producing goods as needed. Due to this, producers often face challenges such as the inability to adapt to changing demand volumes.

Moreover, owing to the innate reliance of drug producers on APIs, variations in the “supply, quality, and regulation” of APIs have affected medicine supplies, according to a report by the Economist Intelligence Unit. To cite an example, pharmacies in Italy have attributed the decline in the making of APIs in China to the shortfall of medicines in Italy, according to a report by Anatolia Agency, the leading Turkish news agency.

Reactions from various stakeholders in the EU pharma market

Starting from proposing a revision of the EU pharma legislation to banning parallel exports of medicines in some European countries, there are many reactions to drug shortages in the EU from various pharma market stakeholders.

New Pharma legislation in the EU by the European Commission

The proposal of the new pharma legislation in the EU by the European Commission in April 2023 came as a reaction to the acute medicine shortage in the region. It proposes measures for producers to provide early warnings of drug shortfalls and necessitates producers to keep reserve supplies in sufficient quantities for times of crisis, such as acute shortages.

Read our related Perspective:
 New EU Pharma Legislation: Is It a Win-win for All Stakeholders?

Price capping cannot facilitate sustainability

European lobby groups supporting generic medicine makers argue that price limits won’t be effective due to growing production and regulatory expenses. There was no system to review medicine prices and adjust them for inflation or when APIs became scarce in most European countries. Moreover, it is exceedingly complex to continue to keep medicines competitive after 10 years of their launch.

Ramped up production by bigger generic drug producers

The pricing framework in Europe is the primary concern of generic drug makers in the long term, not production costs. According to the global supply chain head of Sandoz, Novartis’s generic division, the current inflexible pricing framework prevents generic drug producers from adjusting prices for essential drugs according to changes in input costs.

To illustrate this, the price of 60ml of pediatric amoxicillin in 2003 in Spain was around €0.98 (US$1.05). In the following ten years, the only change that was made was to reduce the quantity of the medicine to 40ml of pediatric amoxicillin, still pricing it at €0.98 (US$1.05). However, no change has been made since 2013.

Some larger generic drug companies are ramping up the production of certain medicines, such as amoxicillin, that are in short supply. To cite a few examples, Sandoz is planning to add extra shifts in its factory in Austria to meet their increased production target of amoxicillin by a double-digit percentage in 2023 vis-à-vis 2022. Additionally, the company plans to start the operation of another expanded factory by 2024. Similarly, GSK also recruited a new workforce and increased shifts in its amoxicillin factories in the UK and France. However, for companies with smaller market shares, such as Teva, things are different as increasing production capacity is not a viable option for them as they are struggling to be profitable, and thus, there is no way they can ramp up production to bridge the market gap.

National governments and drug regulators making big changes

Some European governments are considering making legal changes to ease the current procurement system of medicines in their respective regions. Additionally, some European governments are also striving to ban the re-export of imported medicines. Germany’s government is set to contemplate making legal changes to its tender system for generic medicines in 2023, whereas the Spanish government is planning to review its pricing scheme for certain medicines, which might cause patients to pay a higher price for medicines, including amoxicillin, on a temporary basis. The Netherlands and Sweden have put in place a law that requires vendors to stock six weeks of reserve supplies to mitigate shortfalls.

Several European countries are taking initiatives to prohibit parallel exports or re-exports of imported medicines to preserve domestic medicine supplies. To cite an example, in November 2022, the medicines regulatory body in Greece expanded the list of drugs whose re-export to other countries is prohibited. Another example is Romania, which halted exports of certain antibiotics and pediatric analgesics for three months in January 2023. Also, in January 2023, Belgium issued an official order allowing the respective authorities to stop the export of medicines to other countries during crises such as shortages.

EOS Perspective

Tender or procurement and pricing strategies of medicines in the EU and the UK must be improved after in-depth analysis. This is the only way to improve production in the European region so that future shortages of drugs can be avoided, in addition to curbing heavy dependence on Asia for essential drugs.

Secondly, there needs to be a centralized EU system in place that is designed to track the supply of essential medicines in all member countries, allowing for the identification of early signs of upcoming risks or shortfalls.

The new pharma legislation in the EU is expected to help improve the availability of drugs in situations of health crises, including drug shortages. The EU could reduce medicine shortages across the region over time as it has awarded the EMA more responsibilities and established a new body called HERA that can purchase medicines for the entire union.

New EU Pharma Legislation Is It a Win-win for All Stakeholders by EOS Intelligence
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New EU Pharma Legislation: Is It a Win-win for All Stakeholders?

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The revision of the EU pharmaceutical legislation represents a major achievement for the pharmaceutical sector within the European Health Union. The European Health Union, established in 2020 as a collaboration among EU member states, aims to effectively respond to health crises and improve healthcare systems across Europe. This revision provides an opportunity for the pharmaceutical sector to adapt to the demands of the 21st century, enabling greater flexibility and agility within the industry. The updated EU pharmaceutical legislation places a strong emphasis on patient-centered care, fostering innovation, and enhancing the competitiveness of the industry.

Limited market exclusivity to offer indirect opportunities to generic drug manufacturers

The COVID-19 crisis in 2020 raised a significant concern related to the accessibility and availability of life-saving medicines. The pandemic highlighted the significance of establishing effective incentives for the production of medicines to address medical needs during health emergencies.

Therefore, revised EU pharmaceutical legislation includes several rules and regulations to incentivize pharmaceutical companies to create a single market for medicines to ensure equal access to affordable and effective medicines across the EU. This is to be achieved through reducing the administrative burden by shortening authorization time, the duration required to review and grant approval for a new medicine, ensuring efficacy, safety, quality, and regulatory requirements. For example, the EU Commission will have 46 days instead of 67 days for authorization of medicine, whereas EMA (European Medicine Agency) will have 180 days instead of 240 days for the assessment of new medicine.

The new directive incentives are expected to help in improving access to medicines in all member states, in developing medicines for unmet medical needs, and in conducting comparative clinical trials (CCT). Comparative Clinical Trials are clinical research studies aimed at comparing the efficacy and safety of distinct medical treatments. Such trials usually entail two or more groups of participants, each receiving a different treatment in order to ascertain the more effective, safer treatment that offers better outcomes for a specific condition.

The legislation also focuses on maintaining the availability of generic drugs and biosimilars to help countries with more affordable and accessible medicines across the EU. It also aims to provide enhanced rules for the protection of the environment, such as mandatory ERA (environmental risk assessment) of medicines which focuses on discarding medicines properly by ensuring the minimization of environmental risks that are associated with the manufacturing, use, and disposal of medicine on the EU market, promoting innovation, and tackling antimicrobial resistance (AMR).

The revised pharmaceutical legislation introduces a shortened period of regulatory protection, reducing it from 10 to 8 years, in order to establish a unified market for new medicines. This protection encompasses 6 years of regulatory data protection and 2 years of market protection. Companies can also benefit from an additional 2 years of data protection if they launch their medicine in all 27 EU member states and an extra 6 months of protection if their medicine addresses unmet medical needs or undergoes comparative clinical trials.

The revised EU pharma legislation also includes provisions for 2 years of market exclusivity for pediatric medicines and 10 years of market exclusivity for orphan drugs. The limited market exclusivity for branded drug manufacturers is expected to give the generic medicine makers more opportunities for production, hence improving the affordability and accessibility of medicines across the EU.

New EU Pharma Legislation Is It a Win-win for All Stakeholders by EOS Intelligence

New EU Pharma Legislation: Is It a Win-win for All Stakeholders by EOS Intelligence

Assessing changes for the European Medicines Agency

The EMA is responsible for the evaluation and approval of new medicines while monitoring the safety and efficacy of the medicine. The revised EU pharmaceutical legislation has bestowed significant responsibilities upon the EMA. These responsibilities encompass expediting data assessments and providing enhanced scientific advice to pharmaceutical companies. The legislation has both positive and negative impact on the EMA.

On the positive side, it aims to harmonize regulatory processes across member states, leading to a more streamlined and efficient system. This is expected to improve the agency’s ability to assess medicines promptly, facilitating faster access to innovative treatments. Additionally, the legislation encourages collaboration among regulatory authorities and promotes international partnerships, which strengthen the EMA’s regulatory capacity and scientific expertise. Further, the new regime is likely to foster EMA to prepare a list of critical medicines and ensure their availability during shortages.

The challenges that EMA might face if the new pharma legislation is passed include increased workload and resource requirements, which may necessitate additional staff, expertise, and funding. Complex areas such as pricing, pharmacovigilance, data transparency, and reimbursement could pose difficulties, potentially leading to delays and discrepancies.

Balancing affordability and access to medicines while incentivizing pharmaceutical companies’ investment in R&D under strict regulations, health technology assessments, and data transparency could be a challenge. EMA might face obstacles in training, resource allocation, and maintaining regulatory consistency. Both positive and negative impact should be considered while implementing the revised legislation.

Overriding drug patents could ensure supply, albeit with challenges

Overriding a drug patent is a legal mechanism allowing governments to bypass the patent protection of medicines and medical technology during emergency situations.

Although it poses challenges to the original patent holder company, including implications on revenue streams, investments, and profitability, it enables the granting of compulsory licenses to generic drug manufacturers, which increases production and reduces prices, particularly during health emergencies, while still considering the rights and interest of patent holders (through compensation for the use of their invention during the emergency period). It also encourages voluntary licensing that allows generic manufacturers to produce and sell products with the patent holder’s permission while respecting patent rights, instead of overriding the patent as it is in compulsory licensing.

Amidst concerns pertaining to intellectual property (IP) rights and the fact that this move might potentially discourage pharma companies from investing in R&D initiatives, the revised EU pharmaceutical legislation proposes overriding drug patents, as it would enhance the availability of affordable and cost-effective medicines throughout the EU. The production of generic drugs and biosimilars is likely to help increase market competition, drive innovation, and introduce improved treatments across the EU, maintaining a competitive edge.

Overriding drug patents might also have ramifications on international trade and relationships, leading to disputes and strained ties between countries. While considering these laws, policymakers need to exercise caution to ensure both accessibility of medicines and adequate investments in R&D.

New EU pharma legislation to benefit Eastern European countries

The difference in access to medicines between Eastern and Western European countries is evident from the fact that from 2015 to 2017, EMA approved 104, 102, and 101 medicines for Germany, Austria, and Denmark, respectively, compared to only 24 in Poland, 16 in Lithuania, and 11 in Latvia. These distinct differences in the availability of medicines between Eastern and Western European countries could be attributed to factors such as stronger healthcare systems in the Western region, higher healthcare budgets, and a greater ability to negotiate pricing and reimbursement agreements with pharmaceutical companies.

Western European countries have relatively better funded and more advanced healthcare infrastructure, including clinics, hospitals, and specialized healthcare services compared to Eastern European countries. Western European countries have a larger capacity to invest in research and development and contribute to the development of new medicines.

Moreover, differences in national healthcare policies contribute to the variation in pharmaceutical benefits and outcomes. The presence of a robust and extensive pharmaceutical manufacturing industry in Western European countries allows for faster production and distribution of medical supplies. Consequently, Western European countries generally have better access to medicines and medical supplies compared to Eastern European countries.

The new EU pharmaceutical legislation helps Eastern European countries by reducing the exclusivity period of newly introduced drugs. This measure can prevent branded drug manufacturers from selling drugs exclusively to more affluent countries.

Moreover, according to experts, branded drug manufacturers are likely to only theoretically benefit from a competition-free market for 12 years because the majority of medicines launched by them are unlikely to meet all the new criteria in order to be granted this extended competition-free market access. This might compel branded medicine manufacturers to expand their sales base and sell in Eastern European countries as well to maximize their revenues.

New EU pharma legislation to spur a changing investment landscape

With the approval of new EU pharmaceutical legislation, it is expected that investment plans within the pharmaceutical sector will undergo significant changes. The regulatory changes, which aim to reduce the time and administration burden, could help in attracting lucrative investments by offering faster returns for pharmaceutical companies.

The new legislation can be expected to bring more investments in the R&D and manufacturing sectors by addressing critical healthcare challenges. Furthermore, the availability of generic and biosimilars would also help by creating opportunities for investment in the production/manufacturing of cost-effective medicines.

Moreover, enhancement in transparency and data sharing can also lead to increased collaboration and partnerships in R&D, attracting investments from the public and private sectors in the medical space.

However, investment plans could vary depending upon various factors such as intellectual property rights, market dynamics, competitive landscape, etc. Pharmaceutical companies need to assess new legislation in order to adjust their investment strategies to navigate potential challenges.

EOS Perspective

Analyzing the winning stakeholders of the revised EU pharma legislation could be challenging at this point in time owing to the fact that the new regime focuses on addressing issues of affordability and innovation across the EU which tend to be contradicting. These aims are to be achieved by incentivizing R&D and manufacturing sectors, enhancing market competition, and promoting collaboration.

It cannot be denied that there will be several challenges while enforcing these changes. A few of these challenges include maintaining intellectual property rights, marrying affordability with innovation, and addressing the specific needs of various patients in different countries. Specific resources and coordination will be required to overcome these hurdles. As a result, the success or failure of the EU pharmaceutical legislation for stakeholders will depend on the legislation’s actual implementation, adaptation to changing market dynamics, stakeholder engagement, as well as whether the balance between accessibility, affordability, and innovation while maintaining competitiveness is achieved and maintained in the long term.

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Shire-Baxalta Deal – Post Merger Opportunities

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In January 2016, Shire Plc., an Irish specialty biopharmaceutical company, announced that it will combine with Baxalta Inc., a biopharmaceutical company that was formed as a result of spun off biopharmaceutical division of Baxter International, to become one of the global leaders in the rare diseases segment. The US$32 billion merger deal closed in June the same year and the merged company will be known as Shire. Benefitting from Ireland’s relatively low corporate tax rate, the new company aims at becoming a global leader in rare diseases and expects to deliver robust compound annual growth with over US$20 billion in annual revenues by 2020. While prior to the acquisition, Shire Plc. used to get 45% of its revenue from rare disease treatments, with the Baxalta deal, Shire expects its rare disease portfolio revenue to rise to 65% in the combined entity, clearly indicating the key focus of the newly formed company.

Shire Plc. M&A activity over the past three years helped the company fortify presence in the rare disease specialty, leading way to future synergies achieved through the Baxalta deal. In 2014, Shire Plc. acquired US-based Lumena Pharmaceuticals in a US$260 million plus deal. With this acquisition, Shire Plc. added late stage development compounds for the treatment of rare hepatic diseases and treatment of non-alcoholic steatohepatitis (NASH). In 2015, the company forged another big takeover, a US$5.2 billion deal with NPS Pharmaceuticals, a rare-disease drug specialist. Via this transaction, Shire Plc. gained ownership of lifesaving drugs named Gattex and Natpara expanding its rare disease product portfolio in the gastrointestinal (GI) segment.

While adding new products to its product list, Shire Plc. growth strategy focused on building a portfolio predominantly in rare conditions. Another addition to the list was Cinryze, a medicine for hereditary angioedema (HAE) condition, which came with the buyout of ViroPharma, a US-based biotechnology company, for about US$4.2 billion in 2014. This was followed by acquiring US-based Dyax Corporation in 2015 for nearly US$6.5 billion adding DX-2930, an injectable to lower the rate of HAE attacks, to the list of rare disease drugs. Shire Plc. deals, which consistently focused on inorganic growth in the rare disease market, were complemented by organic development of a robust pipeline also within the rare disease scope.

Rare diseases drugs, often named as orphan drugs, have been among the key focus areas for many pharmaceutical companies over the past two decades, as such products bring in high profit margins and regulatory benefits coming from their development. The new company created through the Shire-Baxalta deal is therefore likely to benefit from the new combined rare disease drugs range. With the acquisition of Baxalta, Shire has a diversified portfolio with a combined rare disease platform in the fields of immunology, oncology, hematology, neuroscience, ophthalmic, GI, as well as LSDs and HAE. Baxalta brings a particularly valuable portfolio of treatments to the table, as even during the talks with Shire Plc. on the planned merger, in January 2016, it inked a deal of US$1.6 billion with Symphogen, a Danish biotechnology company. Through this agreement, for an upfront payment of US$175 million paid to Symphogen, Baxalta acquired exclusive rights to six cancer immunotherapies, focusing on growing area of cancer research called immuno-oncology. The Shire-Baxalta deal gives the newly formed Shire the opportunity to take these therapies through later-stage trials to the market.

1-Takeover Performance

Shire also plans to take advantage of Baxalta’s new manufacturing facilities. The new entity announced it would increase its research activity in the Baxalta’s R&D site in Cambridge, Massachusetts research campus, one of the hubs for biotech research that opened in December 2015. It would add another 100 to 200 jobs to the existing research team of 400 people at the center.

2-Ambition “20 X 20”

EOS Perspective

Shire, thanks to the synergies and elements brought in to the deal by both companies, has a promising starting point due to two key factors:

  • Strong financial tax profile: Despite the fact that Shire focuses in its operations on the US market, the company expects to lower its effective tax rate to between 16% and 17% by 2017. This can be achieved as the rare disease business is based in Ireland where tax policies are simpler and more accommodating.

  • Robust rare disease product portfolio: Shire has more than 50 clinical programs in different stages of development focusing on rare diseases. With more innovative products under its umbrella, Shire is likely to have a huge share in the orphan drug product market globally.

3-Catalysts & Road blocks

At present, only assumptions can be made about the future shape of the combined entity. With clear directions laid down of what the company management would like to achieve, it would be interesting to see whether Shire is able to accomplish the set mark of becoming world leader in rare diseases.

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Government Trumps Pfizer Deal

Termination of business contract or partnership

Since its announcement last year, a US$160 billion Pfizer-Allergan merger has been under an ongoing discussion, with great synergies and tax savings expected if the deal was to be finalized, (we wrote about it in our ‘Pfizer-Allergan Deal – What’s in Store for Allergan’ article in February 2016).

However, discussions came to an abrupt end, when the merger was called off on April 6th, 2016 in the wake of changes in tax rules by the US government to check inversions. New rules disregard last three years’ (at the time of deal) acquisitions by a foreign company in the USA in determining its market value. It is a general feeling that the three-year rule was introduced primarily to stop Pfizer-Allergan deal. Since its announcement, the deal was a talking point in political debates with some presidential hopefuls taking an open stance against it.

To secure maximum tax benefits of inversion deal, Pfizer shareholders were required to own 50-60% of the merged entity. Allergan’s market capitalization stood at US$120 billion (against Pfizer’s US$200), owing to three deals, i.e. Allergan-Actavis merger (US$66 billion), Forest Laboratories acquisition (US$25 billion) and Warner Chilcott purchase (US$5 billion), struck in last three years, thereby giving Pfizer shareholders more than 50% of the combined entity. However, this will not be the case now due to drastic reduction in Allergan’s market value as a result of three-year window provision. This also means that both the companies will have to go back to the drawing board.

For Pfizer, this means the need for an increased focus on management of its vast portfolio of drugs (a mix of patent and off-patent products) with an intent to further improve profitability. While Pfizer’s patented drugs command higher prices, the off-patent ones are subject to price decline thereby impacting the company’s profitability. After the announcement of Pfizer-Allergan deal, there were speculations about sale/spin-off of Pfizer’s off-patented portfolio. However, with revenue loss due to the broken deal, the plan (if still any) to sell off-patented business is likely to be put in freezer for some time to come. This could also mean more efforts on research and development front, and being inherently a research driven company, Pfizer has some potentially lucrative drugs in pipeline (including cholesterol lowering and cancer drugs).

For Allergan, the broken deal means looking for alternative ways to strengthen its position outside the USA. The company can take inorganic route to achieve this. No headway was made towards operations restructuring of the merged entity. Therefore, in all likelihood, the research and development assets of Allergan will remain intact, one positive outcome for the company out of the broken deal, as it has some good candidates in the field of ophthalmology, urology, and women’s health. With sale of its generic business to Israeli rival Teva Pharmaceuticals in July 2015, Allergan showed the intent to focus on patented products, therefore the company will have to look for means to raise its R&D budget.

The broken Pfizer-Allergan deal will remain in discussion in coming days from the point of view of missed opportunities for both Pfizer and Allergan, as well as for the political angle involved. Even if the decision was politically motivated, it may have put moratorium on inversion as a strategy for the time being, and it would be interesting to track moves not only in the pharmaceutical space but in other industries as well, following the new regulatory regime.

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Pfizer-Allergan Deal – What’s in Store for Allergan

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In November 2015, Pfizer and Allergan announced a US$160 billion merger deal. Once finalized, the Pfizer-Allergan deal would follow three large mergers/acquisitions concluded by Pfizer in the last 15 years. Though relocation to Ireland to save higher corporate tax in USA is apparently the main purpose of this merger, it is expected to create a pharmaceutical powerhouse with more than US$60 billion in annual revenue. In the light of competitive advantage this deal is anticipated to yield, it becomes imperative to look at Pfizer’s evolution since its first mega deal in 2000.

Pfizer acquired US-based Warner-Lambert in a US$110 billion deal in 2000. With this acquisition, Pfizer gained ownership of blockbuster anti-cholesterol drug Lipitor, besides some popular consumer health brands, such as Listerine. Lambert deal was shortly followed by US$60 billion purchase of US-based Pharmacia in 2003. The deal, while catapulting Pfizer’s revenue by more than US$12 billion, allowed it to gain control of successful brands, such as Celebrex (inflammation) and Xalatan (glaucoma), along with R&D pipeline of cancer drugs and a specialist-focused sales force of Pharmacia.

Pfizer waited six years for its next acquisition, and bought US-based Wyeth for US$68 billion in 2009. This deal came amid imminent expiry of Pfizer’s 14 patents through 2014, including its best-selling drug Lipitor in 2011. Pfizer looked to benefit from Wyeth’s leadership position in vaccines, nutritionals, and biologics, including Prevnar, the first pneumococcal vaccine for infants. Wyeth’s portfolio potential had indeed been locked, as evident in the net 30%-90% increase in sales of its key brands between 2009 and 2014, post-acquisition.

These three deals helped Pfizer in becoming a US$50 billion company with a diverse product portfolio. However, it came with a challenge of ensuring operational efficiency and leveraging synergies with acquired companies. This was achieved through a range of adjustments, including lay-offs to eliminate overlaps and to consolidate various functions. Pfizer deals were severe on the employees of acquired companies, with more than 90,000 jobs eliminated (which may have included those lost to attrition) between 2000 and 2014. At the time of each deal, there were apprehensions regarding the future of research and development in Pfizer. Though the company managed to maintain its R&D budget at about 16% of revenues, several sites (including six from Wyeth and two from Pharmacia) were closed post acquisitions. It was soon reflected in the company’s product pipe line, with only 17 applications filed for new product approval between 2007 and 2014, in contrast to 43 during 2000-2006.

To sum up Pfizer’s strategy, the company acquired rivals with blockbuster brands to boost its topline, and to benefit from pooling of resources. The strategy worked on most counts, except for Celebrex where the sales failed to take off partially due to pull-out (from market) of a rival drug (Merck’s Vioxx) in 2004 owing to safety reasons. Notwithstanding the criticism for massive lay-offs, Pfizer managed to create a lean organization, thereby improving its revenue per employee.

Pfizer Performance Timeline (2000-2014)

Pfizer’s next acquisition target, Allergan, came in to existence following Ireland-based Actavis’ acquisition of USA-based Allergan Inc. in March 2015, post which the combined entity was renamed Allergan. Allergan then sold its generic drugs business to Israeli rival Teva Pharmaceuticals in July 2015.

As Pfizer’s deal with Allergan looks in sight, there are speculations regarding future shape of the combined entity in terms of employee strength, sales focus, and future product pipeline (i.e. R&D).

Pfizer-Allergan deal involves trimming of sales and administration expenses by more than US$1.0 billion. This is likely to be achieved (mostly) in North America where Allergan operations are concentrated.

Cuts worth more than US$600 million are expected in R&D. With Teva deal, Allergan showed intent to focus on branded proprietary drugs, and Pfizer is also a predominantly green-field research organization. Therefore it is not clear yet, which product programs will face the ax due to little overlap in research focus of two companies.

Research Focus of Allergan and Pfizer

As Allergan declared end to lay-offs in June 2015, it was expected that most of the Actavis acquisition-related restructuring activity was over by the time Pfizer-Allergan deal was announced. This means the cost savings linked with Pfizer-Allergan merger will result from the existing operations (as of November 2015) of the two companies.

EOS Perspective

Based on precedence of Pfizer takeovers, there is a likelihood that Allergan might bear most of the brunt of cost cutting measures. However, at the outset, a simple merger is not likely to impact either efficiency or earnings (from R&D perspective) of the combined entity due to nearly identical revenue per employee (as of 2014) for both the companies, and Allergan’s significantly lower R&D expenditure (8% of its revenue vs. Pfizer’s 16%).

Cost cutting is likely to be undertaken with an eye on revenue and profitability in mid to long term. From Allergan’s perspective, we anticipate this to be achieved through the following:

  • Focus on products in the pipeline with good growth prospects: Allergan’s Rapastinel (anti-depressant) and Vraylar (schizophrenia) are in this category; another option for Pfizer-Allergan is to focus on drugs that are in advanced stages of trials i.e. Phase III and IV

  • Focus on high revenue earning products: While most Pfizer products (including those off-patented in recent years) generate revenues in the range of US$200 million to US$5 billion, Allergan’s portfolio is still underdeveloped (due to limited global exposure) except for few products from central nervous system (CNS), gastroenterology, and women’s health segments

Possible Restructuring Approach for Pfizer-Allergan

At present, only mere speculations can be offered regarding the future shape of the combined entity, as no concrete steps have been announced. It will be interesting to track the decisions taken by Pfizer-Allergan in the coming months to achieve targeted cost savings.

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