Philip White, Chief Financial Officer at Diaceutics, is not surprised to see that pharmaceutical companies we regard as personalized medicine leaders are being rewarded for their innovation with higher share prices, but while they benefit from the long promised fruits of this field the companies we call followers may have more of a wait.
Given that the personalized medicine hasn’t been in existence that long, it’s worth taking a minute to remind ourselves how big the industry has become. The current market capitalization of the Pharma S&P index is estimated at $1.1 trillion with biopharma making the largest contribution. There are some major players who are reaping the financial rewards expected from personalized medicine but others, even companies who got involved towards the start, seem to be far off their targets in terms of share price and preparation for a PM world. How will personalized medicine affect the financial affairs of big pharma and what do we all have to look out for?
When Diaceutics assesses which companies can be considered ‘leaders’ for its regular PM Readiness reports1 it looks at organizational readiness (by considering personalized medicine products at phase 3 in the pipeline, having an internal dedicated division and the Rx-Dx partnerships established) and commercial readiness factors (PM revenues, channel control and the number of PM-integrated brands). And it does seem to be the case that the companies identified in 2015 as being leaders, with the power and innovation needed to be a disruptor, are the ones performing better financially over the last three years. The others, classified as ‘followers’, are taking a similar path but lagging well behind. (Diagram 1.)
Diagram 1: PM Readiness Ranking 2015
Financial performances from leaders and followers
Diaceutics has taken the top ten pharma companies’ share price increase over the last three years2 by rebasing this as of January 13, 2016. This allows us to track the increase per annum for each company. This analysis is then linked to a personalized medicine scorecard3 with the top and bottom five highlighted. The correlation between the two sets of teams is material and growing (Table 1).
Table 1: Share Price Increase for Leaders vs Followers
PM Leaders: Bristol-Myers Squibb, Astra Zeneca, J&J, Novartis and Roche*
PM Followers: Merck & Co, Pfizer, Sanofi and Novo Nordisk and GSK*
*(designated as such by Diaceutics PM Readiness Report 2015)
2015: a transition year for personalized medicine
2015 saw a transition towards an understanding of personalized medicine. Higher pricing is now the norm for these drugs and we are seeing a correlation between share price and the PM scorecards. This coincides with the FDA’s approach and inclination towards fast-tracking reviews of targeted therapies with a diagnostic, with 2015 being one of the years when the highest number of drugs were approved. As a result, there is excitement in the market around personalized medicine drugs and an understanding of the financial earnings possible here, and with heavyweights moving into the space this will inevitably create a disruptive force.
How will personalized medicine influence the share price going forward?
Finance is currently favouring personalized medicine solutions. This will continue, especially as 2015 was a watershed moment in financial understanding in the space and industry success creates momentum which in turn drives up valuations, share prices and market capitalization. We should see more communication and engagement between executives and stakeholders at all levels, thus providing SME and large pharma the opportunities to implement the novel/disruptive concepts necessary to further integrate personalized medicine across an organization and support their PM readiness.
Personalized medicine is more important than ever and the collective ecosystem of health care is moving towards the realisation that targeted therapies, in conjunction with integrated, data-rich systems, can provide better outcomes for patients than exist currently. Big Pharma are also acknowledging its importance and value, as their pipelines begin to include more personalized medicine drugs and they realise that better targeted drugs are worth the extra cost as they ultimately offer savings and improved quality of life for the patient.