Patent verstreken!
Big Pharma Faces Grim Prognosis
Industry Fails to Find
New Drugs to Replace
Wonders Like Lipitor
By BARBARA MARTINEZ and JACOB GOLDSTEIN
December 6, 2007; Page A1
Over the next few years, the pharmaceutical business will hit a wall.
Some of the top-selling drugs in industry history will become history as patent protections expire, allowing generics to rush in at much-lower prices. Generic competition is expected to wipe $67 billion from top companies' annual U.S. sales between 2007 and 2012 as more than three dozen drugs lose patent protection. That is roughly half of the companies' combined 2007 U.S. sales.
GOING OFF PATENT
Sortable Chart: Starting in 2010, the pharmaceutical industry faces one of the biggest waves of patent expirations.At the same time, the industry's science engine has stalled. The century-old approach of finding chemicals to treat diseases is producing fewer and fewer drugs. Especially lacking are new blockbusters to replace old ones like Lipitor, Plavix and Zyprexa.
The coming sales decline may signal the end of a once-revered way of doing business. "I think the industry is doomed if we don't change," says Sidney Taurel, chairman of Eli Lilly & Co. Just yesterday, Bristol-Myers Squibb Co. announced plans to cut 10% of its work force, or about 4,300 jobs, and close or sell about half of its 27 manufacturing plants by 2010. (Please see related article.)
Between 2011 and 2012, annual industry revenue will decline, estimates Datamonitor, a research and consulting firm. That would be the first decline in at least four decades.
Patent expirations are a big problem. Drugs are granted 20 years of patent protection, although companies often fail to get a product to market before half of that period has elapsed. Once it hits the market, however, the patent-protected drug is highly profitable: Typical gross margins are 90% to 95%. When patents expire, generic makers offer the products at a price much closer to the cost of production.
Pfizer Inc. will be particularly hard-hit when the patent expires as early as 2010 on Lipitor, the cholesterol-lowering blockbuster that ranks as the most successful drug ever. Pharmacists and managed-care companies will aggressively fill prescriptions with generics, reducing annual Lipitor sales to a fraction of last year's $13 billion.
By 2012, Merck & Co. will face generic competition to its three top-selling drugs: the osteoporosis treatment Fosamax, Singulair for asthma and the blood-pressure drug Cozaar. Those three represent 44% of the company's current revenue. Following the loss last year of patent protection for Merck's cholesterol-lowering Zocor, sales this year are expected to fall 82% from $4.38 billion in 2005. A Merck spokeswoman said the company has several products in the pipeline that will offset its patent losses.
The rise of generics wouldn't matter so much if research labs were creating a stream of new hits. But that isn't happening. During the five years from 2002 through 2006, the industry brought to market 43% fewer new chemical-based drugs than in the last five years of the 1990s, despite more than doubling research-and-development spending.
In October, Moody's Investors Service, which rates about $90 billion in U.S. pharmaceutical-company debt, lowered its outlook for the U.S. drug industry to negative from stable. The industry was long considered among the most credit-worthy, but in recent years, Moody's has downgraded giants Schering-Plough Corp., Merck, Bristol-Myers, Pfizer and GlaxoSmithKline PLC. In explaining its diminished outlook, Moody's said that drugs currently in development don't have as much commercial potential as earlier pipelines.
Investors, once huge beneficiaries of drug-industry success, have moved to the sidelines. As the Dow Jones World Index rose 75% in the six years ended Nov. 29, the FTSE Global Pharmaceuticals Index fell 19.8%.
While many patients are benefiting from lower-cost generics, others are waiting in vain for relief of their suffering. "In anxiety disorder, the field has imploded in terms of drug development," said P. Murali Doraiswamy, chief of biological psychiatry at Duke University medical school. "Ten years ago, we had eight or nine different" anxiety-disorder drugs under development, but that has now "come to a halt."
At last month's big American Heart Association meeting in Orlando, Fla., there were just two high-profile studies of experimental drugs on the agenda. One, for Eli Lilly's anti-blood-clotting drug prasugrel, posted results that left some doctors and analysts questioning whether the drug would be a big seller. Lilly, however, says it is "very pleased with the trial's outcome."
The other study was a postmortem on Pfizer's torcetrapib, already known as one of the industry's most costly failures, with $800 million in budgeted research costs.
"There haven't been any new therapies that are proven to reduce death and disability for atherosclerosis since the introduction of the [cholesterol-lowering] statins" in the late 1980s, said Richard C. Pasternak, vice president of Cardiovascular Clinical Research at Merck. Atherosclerosis, a buildup of arterial plaque, is a major cause of heart disease.
As patent expirations loom, pharmaceutical companies are reorganizing. In five years, many may look very different. They will be in new businesses. Their cost structures may be slimmer and more flexible. Some familiar names may disappear in mergers. Companies are installing new leaders, including outsiders like Pfizer Chairman and CEO Jeffrey Kindler, who in 2002 joined the company as general counsel from McDonald's Corp.
"The era that created the modern pharmaceutical industry is in fact over," said Richard Evans, a former Wall Street analyst and now a pharmaceutical consultant.
John McCammant of the Medical Technology Stock Letter discusses the likely repercussions of cancer drug Avastin's rejection and a forthcoming wave of patent expirations on big drugs.
To be sure, the pharmaceutical industry is still highly profitable. Sales will continue to benefit from the Medicare drug benefit for the elderly and from growth in overseas markets. The industry will continue to produce new drugs, though at too slow a rate to sustain its size and cost structure, analysts assess. Some players, such as Merck, may fare better because of a more productive R&D operation, according to Sanford C. Bernstein & Co. research analyst Timothy Anderson.
It has never been easy to take a drug from the lab, through animal testing and into human trials. The industry estimates only one out of every 5,000 to 10,000 candidates makes it to human trials. And many drugs that work beautifully in animals fail miserably in people.
But those odds seem to have worsened in recent years, prompting debate about whether the cause is government regulation, corporate structure or an excessive scientific reliance on chemicals rather than biology.
Many drug-company executives blame the FDA for pulling back on approvals. "Very few products are being approved today," said Bernard Poussot, incoming chief executive of Wyeth. The heightened scrutiny contributed to delays of two Wyeth products this past summer, the company has said.
Would-be blockbusters such as Novartis AG's diabetes drug Galvus and Sanofi-Aventis's weight-loss drug rimonabant have recently been delayed by the FDA over safety concerns