Branded pharma looks to biotech, diversified pipeline

Times are changing, and those changes can be seen in the branded drug industry. According to industry experts, pharmaceutical companies are rethinking their tactics, as they are faced with fewer opportunities for blockbuster drugs and ongoing patent losses, as well as having witnessed the withdrawal from the market of Vioxx in 2004 and the end of clinical trials for Pfizer’s torcetrapib last year.

Blockbuster drugs used to be the way forward. According to a report, “The Demise of the Blockbuster,” in the New England Journal of Medicine, a typical branded drug in the 1970s enjoyed 10.2 years of market exclusivity, but by the late 1990s, that had dwindled to 1.2 years. This massive decrease mostly is due to two factors: 1) As drug companies’ research and development improves, it’s rare that only one company brings out a drug to treat a specific problem; and 2) the proliferation of generics on the market.

In response to the changing market, said study author David Miller, big pharma is taking a different tact: Rather than bringing out more blockbuster drugs, it is developing more specialized and biotech products.

“New products drive the industry, so the companies with the diversified portfolios, and those that are acquiring, are doing well. Those that don’t do well are the companies relying on one drug,” said Jason Napodano, senior biotech analyst with Zacks Equity Research.

According to IMS Health, specialized products contributed 62 percent of the market’s total growth last year, compared with just 35 percent in 2000. Among the high-potential product launches in this category were: Merck’s Gardasil, the first vaccine to prevent cervical cancer; Januvia, the first-in-class oral for type 2 diabetes, also from Merck; and Sutent from Pfizer for renal cancer.

These specialized and biotech drugs serve a much smaller customer base—usually thousands of people as opposed to millions. Because of this, the pharmaceutical companies recoup their monies by charging more for these drugs.

The problem with blockbuster drugs, according to Mark Merritt, president and chief executive officer of the Pharmaceutical Care Management Association, is that a pharmaceutical company may pour its money into one, but never see it approved. “But with specialized drugs, you don’t need to dominate completely the American or global marketplace. So, you have a better success rate.”

The numbers bear Merritt out. IMS estimates that U.S. sales of biologics rose 20 percent to $40.3 billion in the past year, and PCMA shows that annual sales of biologics will reach $90 billion by 2009.

Oncology drugs are largely driving this industry, since biologic products show promise in this arena, as well as such inflammatory diseases as rheumatoid arthritis and psoriasis. According to IMS, sales of oncology drugs hit $34.6 billion in sales in 2006, up 20.5 percent, the biggest growth among the top 10 therapeutic classes.

Top 10 therapeutic classes by U.S. sales Top 10 products by U.S. sales Source: IMS Health, U.S. sales in billions
20062005
1.Lipid regulators$21.6$19.7
2.Proton pump inhibitors13.612.9
3.Antidepressants13.512.8
4.Antipsychotics11.510.5
5.Erythropoietins10.08.7
6.Seizure disorders8.98.0
7.Antineo monoclonal antib5.84.0
8.Angiotensin II antagonist5.75.0
9.Insulin sensitizer4.84.0
10.Calcium blockers4.74.6
20062005
1.Lipitor$8.6$8.3
2.Nexium5.14.3
3.Advair Diskus3.93.5
4.Aranesp3.92.7
5.Prevacid3.53.8
6.Epogen3.22.9
7.Zocor3.14.4
8.Enbrel3.02.7
9.Seroquel3.02.6
10.Singulair3.02.5

Growth and change in the biotech industry also is stimulating the growth. The industry remains fragmented and dominated by two players: Genentech and Amgen. According to Napodano, there also are a handful of mid-sized biotech companies, and 200 to 300 smaller ones.

“The goal of these [smaller] companies is to develop a product, take it as far as they can [and] then get acquired,” he said. “They probably don’t have the sales force or the manufacturing ability [to do more].”

Because of this, Napodano foresees a lot of merger and acquisition activity in the biotech field in the years to come. This year alone, two large pharmaceutical companies have bought out smaller biotechs. AstraZeneca acquired MedImmune for $15.2 billion this spring, and Eli Lilly paid $2.1 billion for Icos, the largest publicly traded biotechnology company in the Seattle area and the developer of the erectile dysfunction drug Cialis.

The future looks brighter for biotech drugs than pharmaceuticals, said Napodano, because the expirations of their patents have not yet begun to hit the industry, and probably won’t for at least 10 years.

In the meantime, the branded drug industry has other problems to deal with and generic drugs remain a sharp thorn in the side of big pharma.

IMS figures show that in 2006, patent protection was lost on products with sales of more than $18 billion in seven key markets—including the United States, where more than $14 billion of these sales originate.

Because of this, generic drugs saw sales increase 22.4 percent, and generics constituted more than half of the volume of pharmaceutical products sold in seven key world markets, according to IMS. This was especially stark for certain drug classes, including proton pump inhibitors, antihistamines, platelet aggregation inhibitors and antidepressants.

Despite this, the overall picture is healthy. The North American drug market rebounded in sales growth to 8.3 percent—up from 5.4 percent in 2005, fueled by an increase in prescribing volume due to Medicare Part D and the growth of specialty products.

The aging population, fighting to keep itself healthy, also is contributing to this growth.

The increasing number of baby boomers have growing demands—not only looking for drugs to cure, but to prevent them from getting diseases or ailments. They also have the money to afford them.

“People are relying less and less on surgical interventions and more on chemical interventions to keep them out of surgery,” said PCMA’s Merritt. “I think health care is moving toward paying for drugs at the front end, rather than after an emergency.”

And as people look more to medicine to keep them healthy, they are learning more so that they can make better decisions. Consumers are educating themselves on, among other things, the differences—which are largely financial—between generic and branded drugs. Payers are helping patients gain this knowledge, educating them through targeting mailings.

“We are seeing a critical shift in power in health care to emerging stakeholders—most notably, patients who are becoming savvy co-managers of their own health,” said Murray Aitken, senior vice president of corporate strategy for IMS. “Because they are both consumers and ultimate payers, they are gaining the power to compel regulatory approvals, influence market access decisions and sway prescribing behavior.”

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