PHARMACY

Investors should remember the patent cliff

BY Alaric DeArment

WHAT IT MEANS AND WHY ITS IMPORTANT Some investors quoted in published reports foresee huge gains for such retail pharmacy chains as CVS and Walgreens, as blockbuster drugs like Pfizer’s Lipitor (atorvastatin) and Sanofi-Aventis’ and Bristol-Myers Squibb’s Plavix (clopidogrel bisulfate) come off patent and face generic competition, but they would do well to remember an important factor: the patent cliff.

(THE NEWS: Report: Drug stores may benefit from patent expiries. For the full story, click here)

The first generic company to introduce a version of a branded drug gets six months of market exclusivity, competing directly with the branded drug company. After those six months, however, the molecule will become a free-for-all, and as many as 20 or 30 other generic companies may swoop in to make their own versions. This commoditizes the drug and creates huge discounts, sometimes to such a degree that the original branded manufacturer stops making it altogether.

For pharmacy retailers, the loss of patent protection for a slew of blockbuster drugs over the next decade is a double-edged sword. It’s true that the generic versions of those products will likely spawn significantly higher profit margins, but topline sales in the pharmacy department could take a big hit as high-ticket branded drugs are replaced by much cheaper alternatives. What’s more, the profit margin spigot will face pressure in future years as the supply of patent expiries slows down.

Some industry wags are predicting that the age of the traditional blockbuster drug is already a thing of the past, as pharma companies increasingly target ever-more-specific disease states with ever-more-sophisticated approaches to molecular development — and avoid the huge risks and costs inherent in developing major drugs via traditional methods to treat a broad spectrum of conditions. So what will replace those blockbuster revenue streams?

The likeliest source of potential growth in new-drug pharmaceutical sales, of course, will be specialty and bio-engineered medicines –provided drug retailers can shift their practice models to accommodate the complex treatment regimens, doctor-pharmacist-patient communication protocols and patient oversight procedures that specialized pharmaceutical care requires. It hardly needs to be pointed out that they’ll also have to adapt their business models to handle just-in-time deliveries of drug products that sometimes carry staggering inventory costs.

Retail pharmacies have a number of avenues by which to pursue this growing field. This could include setting up their own specialty pharmacy divisions, as CVS Caremark has, or forming partnerships with existing specialty pharmacy companies, as grocery and retail pharmacy chain Hy-Vee did with Amber Pharmacy.

In the future, however, it may not be a question of whether a drug chain or independent must adopt a strategy for competing in the specialty pharmaceutical arena, but when. Randell J. “RJ” Correia, who is VP mail service and specialty pharmacy operations for Prescription Solutions, a division of insurance giant UnitedHealth Group, foresees a continuing explosion in specialized therapeutic treatments. “Specialty pharmacy already accounts for about 20% of the drug spend for many plans, and it will probably go to over 40% by 2030,” he said early this year.

Whatever happens on the specialty front, generics will remain a huge part of the U.S. drug market. According to IMS Health, they account for 69% of prescription drugs dispensed — but the 20% rise in profits that some investors have predicted won’t last indefinitely.

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PHARMACY

Obese children at risk of early death, study finds

BY Alaric DeArment

NEW YORK Obese children carry a risk of dying before age 55 years, more than twice that of the thinnest, according to a study published Thursday in The New England Journal of Medicine.

Researchers at New York’s Mount Sinai Medical Center and other sites examined data on 4,857 nondiabetic Pima and Tohono O’odham Native Americans born between 1945 and 1984, starting from around the age of 11. The researchers chose the two groups because their rates of obesity and Type 2 diabetes began increasing before those of the general U.S. population. The researchers then tracked them from childhood to adulthood.

Of the 559 who had died by 2003, diseases or self-inflicted injury – such as alcohol poisoning or drug overdoses – had contributed to the deaths of 166. Those with the highest body mass indexes in childhood were more than twice as likely to have died prematurely than those with the lowest indexes. Meanwhile, those with the highest blood glucose levels had premature death rates 73% higher than those with the lowest.

“Obesity, glucose intolerance, and hypertension in childhood were strongly associated with increased rates of premature death from endogenous causes in this population,” the authors concluded, referring to causes of death related to diseases and self-inflicted injuries. “In contrast, childhood hypercholesterolemia was not a major predictor of premature death from endogenous causes.”

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PHARMACY

Sanofi-Aventis may pursue generic, OTC businesses

BY Alaric DeArment

NEW YORK Pfizer, Merck & Co. and Roche have made big mega-acquisitions. Eli Lilly has pumped money into research and development. Sanofi-Aventis, however, has pursued a more modest means of boosting its drug business and fending off generic competition, according to published reports.

Bloomberg quoted Sanofi CEO Chris Viehbacher as saying that the company would pursue the same strategy this year that it did in 2009, acquiring several smaller companies, such as its $1.9 billion acquisition of Chattem, which it completed this week.

Another way the company has found to retain profits in the face of generic competition is to make generics itself, particularly in emerging economies. In April 2009, it bought Mexican manufacturer Laboratorios Kendrick and Brazil’s Medley, followed in July by Czech drug maker Zentiva.

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