Mixed Fortunes1 March 2007
The year 2006 was a tempestuous time for international healthcare markets, but what of 2007? IT and pharma deserve particular attention as leading markets such as the US face an uphill struggle. Analysts from Frost & Sullivan report on the global shift in the balance of power.
The major healthcare sectors have seen considerable change in recent years, many of them affected by technological advances, privatisation and the growth of geographical markets that previously had poor economic value.
The shapes of the medical IT and pharmaceuticals markets have been particularly affected. In addition, areas such as Eastern Europe, Asia and parts of South America have seen an increase in profits, while leading markets such as the US have experienced a slump.
IT BUDGETS SOARING
Stakeholders and decision-makers worldwide are realising the clinical, organisational and financial benefits resulting from the implementation of healthcare IT. Although disparate healthcare systems, payer mechanisms, languages and clinical/treatment protocols have delayed a more uniform systems adoption, healthcare IT is becoming an increasingly significant matter for the political agenda of governments worldwide.
Healthcare IT segments that have shown significant growth in the last few years include the PACS/RIS combination, the electronic medical record and physician order entry, as well as prescribing systems with decision support capabilities on the clinical side and enterprise resource management systems on the administrative side.
With healthcare budgets expected to increase in the near future, healthcare IT budgets will also rise. But where is this rising healthcare IT spending likely to be going, and what are the hot spots for the healthcare IT industry going into 2007?
No other industry requires such a phenomenal amount of information to be stored for such long periods. Healthcare has an urgent need for high-capacity data storage as its reliance on IT grows. The increasing use of PACS and other heavy traffic applications has led to data management becoming one of the key investment areas.
INTEGRATION AND INTEROPERABILITY
The electronic medical record (EMR) has emerged as the key system for providing clinicians with an integrated view of clinical information in hospitals. This creates a requirement for ancillary systems, such as those for laboratories, radiology and pharmacy, to accept orders from the EMR and replicate clinical data as components of an integrated clinical database.
With the goal of creating a single view of a patient’s health information, hospitals are investing heavily in technologies that pull together information from their various departmental systems into an integrated electronic health record. For large hospital systems, this integration might even include multiple acute care facilities, physician offices, local clinics and outpatient labs.
Multi-module platforms are software solutions that have the capability to support a wide range of clinical, administrative and business solutions. As healthcare becomes more integrated, with a larger number of hospitals shifting towards a single point of contact for healthcare IT solutions, multi-module platform providers around the world will experience increased installation rates.
Providing remote access to physicians through web-based portals is an important tool for attracting and retaining the services of the best doctors. But interest is slowly piling up for a more all-purpose website. Hospitals are recognising that in a consumer-directed healthcare world – where patients are encouraged to shop around and compare providers for the best quality, costs and services – a website can drive business development. Considerable amounts have been invested in online patient accounting, patient-physician communications, virtual facility visits and other advanced features.
Overall, these are exciting times. Healthcare systems worldwide are trying to balance resources and improve business processes and workflows, and there is a growing consensus that a more intelligent, innovative healthcare system is within reach. What is certain is that IT is set to revolutionise healthcare delivery, and thus on healthcare systems and processes.
GENERICS ADD TO PROFIT LOSS
2006 was an incredibly significant year in the history of the global pharmaceutical industry, with the patent expiries of a number of blockbusters, very few innovative drugs and an overall industry slowdown. According to IMS Health, the global pharmaceutical industry grew at a rate of around 6% in 2006, with a noticeable shift in the dynamics of the industry from the US to emerging markets such as Asia and Eastern Europe.
One of the most notable trends in 2006, which is likely to carry over into 2007, is the increasing penetration of generics. If last year saw the patent expiries of molecules such as Lipitor and Zoloft, this year will see the likes of Risperdal losing their exclusivity. Although there were over 25 new products in 2006, they did not perform well enough to offset the loss caused by this phenomenon. Due to the continued patent expiries, the overall market is pegged to reach over $20bn by the end of 2007.
In addition, cost containment measures by the public and private sectors added to the pressure on big pharmaceutical companies in 2006. As a result, there was a great deal of consolidation in the form of mergers and acquisitions. The lack of genuinely innovative drugs in the pipelines of some of the major companies led them to look for medium-level biotechnology companies with strong R&D.
Another trend is the increasing interest in generics firms, owing to the huge generics opportunity. US drug developer Barr’s acquisition of Croatia-based Pliva is a case in point. Some of the other noteworthy deals in 2006 include the acquisition of US-based Schering by German company Bayer, and that of Swiss biotech firm Serono by Germany’s Merck KGaA.
THE YEAR IN PHARMA
IMS Health estimates the global pharmaceutical market will grow by around 6% in 2007, almost identical to the growth seen in 2006. Indeed, this year is expected to usher in a number of opportunities for generic market players, niche biotechnology companies and speciality pharma companies.
New products such as Pfizer’s smoking cessation drug Chantix and inhaled insulin Exubera, Merck & Co’s Gardasil for cervical cancer and Genentech’s Lucentis for age-related macular degeneration are expected to provide significant breakthroughs, and offset some of the loss caused by the increase in generics.
On the financial front, valuations are expected to become more reasonable, attracting further investment. However, investors will have to be wary of choosing the right companies with an optimum product mix to minimise their risk. Another important trend expected to occur in 2007 will be a marked reduction in sales and marketing spending by big pharmaceutical companies. This money is likely to be channelled into improving R&D.
Further consolidation is expected, with most of the major companies looking to find the appropriate strategic partner to diversify their risk and maximise their opportunities. Finally, emerging markets such as India, China, Brazil and Eastern Europe are expected to continue growing, by more than 10%, primarily due to their booming economies, larger population bases and excellent scientific capabilities.
THE GROWTH OF ASIA PACIFIC
Asia Pacific is the world’s fastest-growing pharmaceutical market, and is the fourth largest in the world, behind the US, Japan, and Europe. The South East Asian markets are expected to see double-digit growth in 2007 .
Strong economic growth, with Asia Pacific governments having increasing foreign reserves, means the market is now in a better position to increase healthcare expenditure and invest in better patient care.
Singapore and China are improving healthcare payouts and extending the scope of healthcare insurance, while Indonesia, Malaysia and Thailand are expanding coverage of social security to provide more affordable healthcare services for their residents.
The outlook for medical devices continues to be robust due to the high growth of patients’ incomes, but higher costs of distribution and operations are likely for medical device companies, with increasingly stringent medical device regulation in the region.
Higher distribution costs could arise from higher than expected inflation rates. However, margins should still improve for most medical device companies.
Investments in healthcare-related information systems are surging across Asia Pacific as both government and private healthcare organisations roll out plans to create the ‘electronic hospital’.
While adoption rates vary greatly between countries, progress remains steady, with Singapore, Australia, South Korea and Japan continuing to adopt cutting-edge IT and China, Malaysia and Thailand moving up the ladder.
Boosts in medical tourism and outsourcing trends in healthcare services have led to an increased adoption of clinical information systems and various forms of telemedicine.
Factors driving this market expansion are strong economic growth, increasing economic liberalisation, broadening middleclass and ageing populations, and an expanded government and private sector role in improving healthcare.
Issues facing pharmaceutical companies in South East Asia include minimal intellectual property protection, differing disease needs, haphazard drug distribution, a shortage of trained doctors and pharmacists, and a host of pricing and reimbursement issues.
Despite the much-discussed spate of patent expiries and rising cost pressures, the outlook for pharmaceuticals in 2007 is one of guarded optimism. It is only the companies that plan ahead and reinvent themselves that are likely to succeed in this dynamic and competitive environment.