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Mar 23, 2014

Expert Offers Positive Outlook on Industry Consolidation

By: Advancing Innovation in Dermatology

Despite objection by some that it will stifle innovation, the ongoing consolidation of the dermatology industry may actually encourage new therapeutic advancements and foster engagement of physician specialists in therapeutic development, according to Dan Dubin, MD, Vice Chairman at Leerink Partners.

Speaking in January at the Dermatology Summit, a conference produced by Advancing Innovation in Dermatology (https://advancing-derm.org), Dr. Dubin provided an update on the dermatology industry. He shared insights with Practical Dermatology® magazine.

Pharmaceutical companies in the dermatology space continue to evolve and restructure in response to market trends and patient demands, Dr. Dubin says, seeking to develop a presence in the pharmacologic (branded and generic), over-the- counter, and device arenas.
The subsequent consolidation trend could actually make room for other industry players to emerge, Dr. Dubin suggests. “While the larger specialty pharma companies have been actively consolidating the dermatology space, larger biopharmaceuticals companies have not been as active in acquiring dermatology assets or companies,” Dr. Dubin says. But ongoing development efforts by larger biopharmaceutical companies, especially in the realm of biologics, suggest that companies are eyeing the space. While the large biopharmaceutical companies are prepared to respond to unmet needs in the medical dermatology space, “It is more challenging for many of these organizations to enter the aesthetic sector of the business,” Dr. Dubin adds. This may contribute to the perceived reluctance for larger biopharmaceutical companies to create fully integrated dermatology businesses that include medical dermatology, biologics, aesthetics, cosmeceuticals, and devices.

One solution to this challenge is for a large pharmaceutical company to acquire a smaller specialty company that already has all of the pieces in place. “We saw this in ophthalmology,” Dr. Dubin notes. In that industry, Novartis recently bought the specialty company Alcon.
And then there is the issue of generics. While revenues on branded small molecule drug formulations have been flat to declining over the past half-decade, revenues for generics are growing 20 percent year-over-year, Dr. Dubin says. This makes the dermatology generic space extremely attractive, for specialty companies and large pharma alike.

Dr. Dubin doesn’t expect innovation to suffer due to consolidation—but the process of development will change. Rather than large companies investing in their own R&D programs, development will likely be driven by small firms backed by venture capital. Don’t expect early in-licensing, as is seen in fields like oncology. Instead, look for smaller companies to take products through early stage trials, which are relatively affordable in dermatology. “Once products get to advanced stages of development and through to approval, they will likely be coveted by the larger consolidators in the space.,” Dr. Dubin explains.

Physician specialists will continue to play a key role in driving innovation, Dr. Dubin maintains. Whether working with early stage developers to identify unmet needs and test new treatments or guiding large companies on product licensing and market positioning, “these advisory relationships are indispensable,” Dr. Dubin says.

There is one area that may face continued challenges: the device sector. Obstacles are largely related to protection of intellectual property. Whereas drugs can in some cases secure exclusivity for up to 10 to 17 years, exclusive technology cycles in the device sector tend to be shorter. To stay competitive, device markets must continue to introduce new products and product line updates and extensions. Still, Dr. Dubin says, for companies with the right business model the device space remains attractive.

—Paul Winnington, Editorial Director

You can view this article at: practicaldermatology.com