PHARMA ADAPTS - Chemical & Engineering News Archive (ACS

COVER STORY REGULAR CHECKUP

NOVARTIS

A Novartis researcher examines pills as part of testing for color, form, and quality at the company’s St. Johann site in Basel, Switzerland.

PHARMA ADAPTS

Firms invent NEW STRATEGIES to deflect generic competition and stem growing safety concerns SUSAN J. AINSWORTH, C&EN DALLAS

IN THE WILDLY POPULAR “A Series of

Unfortunate Events” books, targeted primarily to preteens, each book begins by warning the reader to shelve the woeful tale and find something more pleasant to read. For example, in the seventh book, “The Vile Village,” the author, Lemony Snicket, writes: “And if you insist on reading this book instead of something more cheerful, you will most certainly find yourself moaning in despair instead of wriggling in delight, so if you have any sense at all you will put this book down and pick up another one.” In many ways, the 2007 pharmaceutical market might be characterized as another series of unfortunate events. And like Snicket’s protagonist, Violet, the pharmaceutical industry has been forced

to turn to new ways to adapt to adversity. For example, this year drug companies have implemented new profit-boosting cost-cutting measures, refocused business units, and formed more alliances aimed at beefing up less-than-robust pipelines. At the same time, big pharma has accelerated into high-growth market segments such as biotechnology, specialties, and the emerging regions of the world. In addition, pharmaceutical producers seem to be generating sales growth—albeit moderate—from volume increases and new-product introductions, rather than just from price increases, which “could be considered a healthy sign for the pharmaceutical market,” according to Diana Conmy, corporate director of Market In-

sights at IMS Health, a provider of market information, intelligence, and strategic consulting services for the pharmaceutical and health care industries. Participants in the U.S. market, by far the largest global drug market, continued to benefit from slight demand growth stemming from the introduction of Medicare Part D, a federal program that began providing drug benefits to senior citizens last year. In 2006, the Part D program contributed an incremental 12% to the absolute growth in sales in the U.S., reflecting a flood of new enrollees, Conmy says. In 2007, this program is expected to contribute just 4% to U.S. absolute dollar growth due to new patient access to the program, she adds. “So while that strong jump in growth was a one-time event, the program

“The consensus seems to be that the blockbuster model, on which this industry has historically been largely based, may not survive.” WWW.C E N- ONLI NE .ORG

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COVER STORY

RISING LOSSES

Losses from drugs going off patent are forecast to hold steady, then jump $ Billions

30 25 20 15 10 5

0 2002 03 04 05 06 07 08 09 10 11 12 SOURCE: IMS Health, MIDAS

vasc (amlodipine) among its most difficult challenges in 2007. Novartis was also hit hard this year, losing market exclusivity on Lotrel (amlodipine and benazepril), used in treatment of hypertension; Lamisil (terbinafine), used in treatment of foot fungus; and Trileptal (oxcarbazepine), used in treatment of epilepsy. “So in terms of dealing with the aggressiveness of generic companies, it has been a tough year for us,” says Paulo Costa, president and chief executive officer of Novartis Corp., the North American arm of Novartis AG. NOT SURPRISINGLY, from June 2006 through June 2007, the generics market grew approximately 14% in the top eight world markets ranked by sales—the U.S.,

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will continue to contribute a substantial share to the U.S. market.” Still, these revenue-boosting factors were offset by a series of antagonistic events and pressures that continue to plague the global pharmaceutical market. As a result, pharmaceutical sales are expected to grow between 6 and 7% to $695 billion to $705 billion in 2007, slightly slower than 2006’s 7% growth, according to IMS Health figures. Concerns about drug safety have only increased this year, further limiting the market potential of many new drug compounds. On the regulatory front, “the bar is being raised along the lines of asking for more evidence-based medicine, more health outcomes, and more commitment to do Phase IV postmarketing studies around safety,” according to Dave DeMarco, global account leader at Ernst & Young’s Global Pharmaceutical Center. Concurrently, generic competitors have tightened their grip on branded pharma, pouncing on markets opened up by another wave of expirations of patents for drugs, including high-margin blockbusters. By the end of 2007, marketed products with a combined value of about $20 billion will have lost patent protection, on top of more than $19 billion worth of products that lost protection in 2006, according to IMS Health figures. Pfizer counted the loss of U.S. patent exclusivity for the antidepressant Zoloft (sertraline) and the antihypertensive Nor-

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Japan, France, Germany, the U.K., Italy, Spain, and Canada—to reach $58.5 billion as a whole, IMS Health figures state. That’s up from the same period a year earlier, when combined sales of generic drugs in the top eight markets grew 9.2% to $49.7 billion. That growth in generic drug sales is also being fueled in part by managed care groups’ push for high utilization of generics under Medicare Part D in the U.S., Costa notes. Right now, in excess of 55% of all prescriptions filled are for generics, but within Medicare, the number is in the low 60% range, Costa says. And generics growth is expected to continue to accelerate in the coming year, with another $20 billion in combined sales of branded drugs expected to be coming off patent during 2008, according to IMS Health data. The top four products set to go off patent in 2008, the consulting firm says, are Johnson & Johnson’s schizophrenia treatment Risperdal (risperidone), Merck & Co.’s osteoporosis drug Fosamax (alendronate), Johnson & Johnson’s migraine prevention drug Topamax (topiramate), and GlaxoSmithKline’s Lamictal (lamotrigine), which is used to treat bipolar disorder and epilepsy. Pharmaceutical companies face the loss of an estimated $90 billion of sales to patent expirations from 2007 through 2010, which will inevitably attract more competition from generics, IMS Health’s Conmy points out. But branded pharmaceutical compa-

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COVER STORY

“All of the top 10 pharma companies have a major investment strategy in place for China.” nies are fighting back. One way they are continuing to boost their franchise, while simultaneously managing the life cycle of their products, is by introducing new formulations of products going off patent, Conmy notes. For example, Sanofi-Aventis launched Ambien CR, an extended-release version of its sleep aid Ambien (zolpidem), which went off patent in the U.S. in April. The company reports that Ambien CR “is showing strong resistance to the presence of Ambien IR generics,” with thirdquarter net sales reaching $176 million in the U.S. LIKEWISE, in March, GlaxoSmithKline

began marketing Coreg CR, a once-perday extended-release version of its Coreg (carvedilol), a twice-per-day β-blocker

used to treat cardiovascular conditions, which lost patent protection this year. Even while fending off a growing legion of generics competitors, branded pharmaceutical companies have also had to deal with “heightened levels of safety awareness,” Conmy says, adding that IMS Health has observed “a number of events that characterize the environment in 2007 as one of further caution.” This trend is being driven not only by regulatory agencies but also by “third parties who are getting their hands on data and coming up with conclusions about the safety of various drugs through independent meta-analysis,” she adds. Furthermore, IMS Health expects to see more independent meta-analysis—which combines the results of studies that address research hypotheses—of broadly used drugs throughout 2008. Novartis’

Costa says there’s no question that the regulatory authorities are “becoming increasingly risk-averse, a trend that has really impacted us in 2007.” Costa believes that these changes were sparked by Merck’s late 2004 withdrawal of Vioxx (rofecoxib) pain reliever from the worldwide market after a third-party group found it to contribute to increased risk of serious thrombotic cardiovascular adverse effects. “Afraid of being criticized by government bodies, by the press, and by the public at large, regulatory authorities—particularly the Food & Drug Administration—are now digging deeper, asking more safety questions,” Costa adds. Bank of America analyst Christopher T. Schott draws the same conclusion. “FDA’s increased conservatism can in some ways be brought back to the widespread criticism brought on the agency by the Vioxx debacle. Since that episode, it seems that the safety-and-efficacy trade-off, at the crux of FDA’s decisions, has clearly tipped toward safety.” And as a result of the enactment of the Food & Drug Administration Amendments

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for approval of New Drug Applications (NDAs), with a lower percentage of drugs approved in 2007 than in prior years. Thus far in 2007, FDA has approved only 42% of pharma NDAs, down from an industry average of 54% between 2004 and 2006. At the same time, the average time for an NDA approval has been on the rise, “delaying and decreasing the incremental impact of late-stage pipelines on earnings,” he says. For example, in June, Sanofi-Aventis withdrew its application for its antiobesity drug, rimonabant, when an FDA advisory panel did not recommend approval after raising questions about the drug’s potential psychiatric side effects. The company is working to address FDA’s questions and reapply for approval. Approved in 52 countries TOP 10 THERAPIES and commercialized in 21 as Oncologics, exhibiting stellar sales Acomplia, the drug was to be growth, top the list called Zimulti in the U.S. Novartis, too, suffered SALES TO SHARE OF 12-MONTH JUNE 2007 GLOBAL CHANGE IN a setback this year in its ($ BILLIONS) SALES SALES efforts to usher Galvus Oncologics $37.5 6.0% 17.0% (vildagliptin), an oral type 2 Lipid regulators 34.2 5.4 -1.7 diabetes treatment, through Respiratory agents 26.5 4.2 12.2 regulatory approval after Acid pump inhibitors 24.6 3.9 1.8 FDA raised concerns over its Antidiabetics 22.6 3.6 12.6 Antidepressants 20.2 3.2 -1.5 possible skin toxicity. Antipsychotics 19.3 3.1 10.9 Part of the problem is Angiotensin-II antagonists 17.8 2.8 13.8 that “FDA is asking more hyAntiepileptics 14.0 2.2 13.1 pothetical questions than it Erythropoietins 13.9 2.2 5.7 has in the past,” says NovarTop 10 therapy classes $230.6 36.6% 7.9% tis’ Costa. “Despite the fact NOTE: All therapy classes are World Health Organization code groups. that we didn’t see any eviSales are in U.S. dollars for the 12 months ending June 2007. SOURCE: IMS Health, MIDAS dence of skin toxicity in our very large clinical program involving about 5,000 patients taking high litigation costs of postmarket safety Galvus, we must now engage in long-term problems have made companies more cauclinical trials to prove that the skin toxictious and comprehensive in their testing,” ity observed in animals is not happening he notes. in humans. In short, we are going to have For its part, FDA continues to rely on to disprove that hypothesis.” the science that is available. “And that sciFDA’s decision with regard to Galvus is ence is increasingly indicating that we need “the most visible example” of the agency’s better tools to predict the safety of medicamore conservative move to delay approval tions” in the preclinical, developmental, of NDAs with strong efficacy because of and postmarket stages, Woosley adds. relatively minor side effects, Schott says. In its increasing focus on safety, “FDA is “A less conservative FDA would likely being more particular about what it would have approved Galvus and dealt with this like to see in trials,” observes Jeff Steinsafety issue in the product’s label.” berg, global risk advisory services leader for the the pharmaceutical sector at Ernst & Young. “And a number of pharma comAS IT REVIEWS applications for new panies have had disappointments with reproducts, FDA has “tipped toward safety spect to drugs and new molecular entities for pipeline products that target therathat were either outright rejected or were peutic categories where similar therapies sent back to the drawing board.” are already available,” Schott observes. By Schott’s estimation, an increas“Although still conservative, FDA appears ingly cautious FDA has raised the hurdle to be making more balanced decisions in Act of 2007 in September, the agency will soon gain even more control over drug safety (see page 33). Pharmaceutical manufacturers, however, are already being hit by increased warnings as well as restrictions that have slowed the flow of new drugs onto the market. “FDA advisory committees are more concerned and cautious about their recommendations,” concedes Raymond Woosley, president of the Critical Path Institute, which helps FDA with its review process. But other factors also contribute to the declining number of new drugs approved, he says. “Fewer drugs are being submitted for approval because more are failing in development.” In addition, “The

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TOP 10 PRODUCTS

Blockbuster Lipitor remains top-selling drug in the 12 months ending June 2007 SALES TO JUNE 2007 ($ BILLIONS)

BRAND NAME

COMPOUND

MARKETER

INDICATION

Lipitor Nexium

Atorvastatin Esomeprazole

Pfizer AstraZeneca

Seretide/Advair Plavix Aranesp Enbrel Zyprexa Risperdal Norvasc Seroquel Top 10 products

Fluticasone and salmeterol Clopidogrel Darbepoetin alfa Etanercept Olanzapine Risperidone Amlodipine Quetiapine

GlaxoSmithKline Bristol-Myers Squibb Amgen Amgen Eli Lilly & Co. Johnson & Johnson Pfizer AstraZeneca

Hypercholesterolemia Gastroesophageal reflux disease (GERD), gastric ulcers Asthma Atherosclerotic events Anemia Rheumatoid arthritis Schizophrenia Schizophrenia Hypertension Bipolar disorder, schizophrenia

12-MONTH CHANGE IN SALES

$13.5 6.9

-0.3% 9.5

6.7 5.8 5.1 4.9 4.9 4.8 4.5 4.2 $61.3

9.7 -10.8 17.2 17.6 2.2 9.5 -10.8 14.7 9.3%

NOTE: Sales are in U.S. dollars for the 12 months ending June 2007. SOURCE: IMS Health, MIDAS

the case of novel drugs that offer new approaches to disease management or significant improvement over currently existing therapies.” A number of regulatory bodies, including FDA and the National Institute for Health & Clinical Excellence in the U.K., are also becoming more cautious with

products that are already on the market. Since 2003, IMS Health has observed increased levels of FDA-issued “black-box warnings”—the most severe type of warning that precedes FDA’s removal of a product from the market. Black-box warnings are designed to provide physicians with insights as to how to prescribe a drug that

may be associated with serious side effects in a way that maximizes its benefits and minimizes its risks. In 2006, FDA issued roughly 60 blackbox warnings compared with about 49 in 2005, according to IMS Health. This year, FDA issued approximately 45 black boxes through August, which compares with

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and decided to pull it off the market. We continue to work with FDA, to go through the steps and bring some actual science into the discussion, because we think the drug would still benefit patients. We would like to bring it back to the market for those people who really need it.” TO ADAPT to increased regulatory scru-

tiny, pharmaceutical companies are beginning to experiment with technologies that can reduce the overall costs and increase the effectiveness of compliance monitoring, says Ernst & Young’s DeMarco. “It is getting more and more difficult and costly for companies to maintain their compliance status. And it is requiring money that is getting harder to spend.” In fact, this year many companies have unveiled aggressive plans to cut costs across their organizations (see page 30). At the same time, some companies are also restructuring their business units to focus on pipeline-friendly R&D efforts. Toward that end, Roche recently created a new R&D organizational structure focusing on five disease biology areas: central nervous system, inflammation, metabolic disease, oncology, and virology. “Each area is supported by a cross-functional leadership team that has collective responsibility for guiding compounds from idea to market,” according to George Abercrombie, president and CEO of Hoffmann-La Roche. To gain an R&D edge, pharmaceutical companies have also entered into an increasing number of joint ventures and third-party relationships over the past couple years, Ernst & Young’s Steinberg observes. “Five years ago, mergers and acquisitions were the stories that everyone focused on. Although these moves are still happening, the trend now seems to be more toward alliances—teaming up with another firm to share research costs or to help commercialize a product developed


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S HU TTERSTOC K

about 49 through August of 2006, “so they are right about neck and neck,” Conmy notes. In August, for example, manufacturers of certain drugs approved to treat type 2 diabetes, including GlaxoSmithKline’s Avandia (rosiglitazone), followed FDA’s request to add a stronger warning on the risk of heart failure. The move followed the report of findings from Steven Nissen, the Cleveland Clinic cardiologist who first raised concerns about the safety of Vioxx. Then last month, GlaxoSmithKline said it would again revise its U.S. product label for Avandia on the basis of an FDA review of data that was inconclusive in showing an association between the drug and an increase in myocardial ischemia events. Sometimes FDA goes a step further by suggesting that certain products be taken off the market due to safety concerns. According to the agency, there were no market withdrawals of drugs or biologics for safety reasons in 2006, but three have been pulled so far in 2007. Pergolide drug products, which were used to treat Parkinson’s disease, were voluntarily removed from the market because of the risk of damage to patients’ heart valves. Last month, Bayer HealthCare pulled its Trasylol (aprotinin) injection, which is used to control bleeding during heart surgery, after a Canadian study suggested an increased risk of death. Also, in March of this year, Novartis agreed to FDA’s request that it discontinue marketing and sales of Zelnorm (tegaserod), which is used for the short-term treatment of women with irritable bowel syndrome. FDA’s request was based on newly available information of an increased risk of heart attack, chest pain, and stroke with use of the drug. “When we look at the data from our clinical trials, we can’t find a correlation in terms of the time of drug ingestion and a cardiovascular event,” says Novartis’ Costa. “But, again, FDA acted on a signal


COVER STORY

within a small biotech or small drug firm.” For example, during the past year, Bristol-Myers Squibb has entered into several partnerships designed to advance its pipeline. These collaborations include an agreement with AstraZeneca to codevelop and co-commercialize two late-stage diabetes compounds; an agreement with Pfizer to codevelop and co-commercialize

apixaban, an anticlotting agent; and an agreement with Exelixis to discover and develop oncology compounds. Roche’s Abercrombie says the company “firmly believes in the value of collaboration in drug discovery” and has stepped up the number of such deals over the past couple of years as a way to gain an R&D edge. During the past two years, Roche


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has led the pharmaceutical industry in the number of clinical compound deals signed, according to Abercrombie. In acquiring and licensing innovation from others, the company is a partner to approximately 80 companies worldwide. In mid-2007, Roche and Cambridge, Mass.-based Alnylam Pharmaceuticals entered into a major alliance in which Roche obtained a nonexclusive license to Alnylam’s technology for developing RNA interference therapeutics. Also in mid-2007, Japan’s Toyama Chemical and Roche entered into a licensing agreement for the worldwide research, development, and commercialization of Toyama Chemical’s oral rheumatoid arthritis agent T-5224. Other recent collaborations have complemented the company’s autoimmune disease business and oncology research pipeline. This year, Roche has also continued to diversify into diagnostics technologies through a number of acquisitions, including the purchase of BioVeris, a Gaithersburg, Md.-based maker of health care diagnostics. “The acquisition of BioVeris gives our centralized diagnostics business access to intellectual property that enables us to participate in the important area of clinical trials,” says Lonnie Shoff, senior vice president of molecular diagnostics and applied science for Roche Diagnostics. THROUGH COLLABORATIONS, mergers, or acquisitions, pharmaceutical firms seem to be focusing on deals right now that involve biotechnology. That’s not surprising considering that sales in the biotech segment grew 16.8% to approximately $70 billion in the 12 months through June of 2007, compared with only 6–7% growth in the pharma market as a whole, according to IMS Health’s Conmy. In fact, pharmaceutical companies are aggressively competing for biotechnology deals in an attempt to snare potential drug candidates that may enrich their pipelines. In the process, they have been willing to pay premium prices for biotech firms even earlier in the development cycle, Ernst & Young’s Steinberg notes. Traditionally, companies have waited until biotech firms were further along in development before they would consider these kinds of deals, DeMarco says. “But now big pharma is willing to make riskier bets earlier on because they see these alliances as one of the only ways to supple-

partnerships, licenses, or other activities,” Redmond says. Wyeth “kind of grew up U.S., with 45% of sales, continues to dominate with partnerships, and it was the pharmaceutical market the standard by which we SALES TO 12-MONTH ran our business,” he says. JUNE 2007 SHARE OF CHANGE IN “I think we are seeing more ($ BILLIONS) GLOBAL SALES SALES and more of these partnerU.S. $283.3 44.9% 7.7% Japan 56.4 9.0 0.6 ships between biotech and France 36.2 5.7 4.5 large pharma in the indusGermany 33.7 5.4 0.0 try as a whole now. That’s U.K. 22.2 3.5 5.2 where the fundamental shift Italy 21.3 3.4 -0.2 is occurring.” Spain 17.8 2.8 9.3 Also growing is the emCanada 16.0 2.5 6.8 China 12.0 1.9 15.9 phasis on developing and Brazil 9.1 1.4 10.9 marketing products preTop 10 markets $508.1 80.5% 5.9% scribed by specialists, many of which are biotechnolNOTE: Sales are in U.S. dollars for the 12 months ending June 2007. SOURCE: IMS Health, MIDAS ogy products. This market, Conmy observes, is “growing at a higher rate than the primary care ment their R&D efforts. And virtually segment, which has been impacted more everybody needs the same thing,” he adds. heavily by patent expiries, as well as by “It’s a case of supply and demand.” safety issues.” In the 12 months through For its part, Wyeth Pharmaceuticals has June 2007, for example, the specialistmade “a very concerted effort to expand driven segment grew 11%, contributing into biotechnology both in the discovery 63% to the overall market growth, accordarea and in the commercial area,” according to IMS Health figures. In 2008, overall ing to Cavan Redmond, executive vice growth in the specialty-driven market is president and general manager of Wyeth forecast to grow 14–15% to between $295 BioPharma. billion and $305 billion. In discovery, Wyeth has been scoping One of the most dynamic segments of out technologies related to second- or the specialty market is oncology drugs. In third-generation protein or monoclothe 12 months through June 2007, oncolnal antibody technology. Most recently, ogy drug product sales grew around 17% Wyeth agreed to acquire Haptogen, an to reach $37.5 billion, according to IMS Aberdeen, Scotland-based company that Health. That’s down slightly from the 22% has developed a number of technologies growth experienced in the 12 months to for discovery and optimization of protein June 2006 but still strong, Conmy notes. therapeutics. She attributes the slowdown partly to a In addition, Wyeth has been making drop in the number of significant new deals aimed at improving existing theraproducts introduced in 2007 compared pies, Redmond says. In February, the comwith the year earlier. pany signed two such deals, both in the At the same time, payers are beginning hemophilia field. Wyeth will discover and to look more cautiously at how they reimdevelop recombinant Factor IX proteins burse for oncology, resulting in some modwith Paris-based Nautilus Biotech and coleration in reimbursement for unapproved laborate with San Diego-based biomaterior off-label indications for drug therapy, als company MediVas to improve delivery Conmy says. “In general, they want to enmethods for recombinant hemophilia sure that the product works before it is preproducts. scribed, given that some of these therapies “My belief is that we need to have anyare relatively premium-priced.” where from 30 to 50% of our R&D portfoIMS Health expects this trend to continlio coming from outside the company—


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MARKET LEADERS

COVER STORY

could do a great job in develue. Payers and drug manufacLEAVING THE PIPELINE oping them and getting them turers may agree to enter into to the market. In essence, payment-for-results arrangeFour potential blockbusters are set to launch in 2008 we’ve created a biotech firm ments, especially in the area of BRAND NAME COMPOUND MARKETER INDICATION inside big pharma.” oncology. Cimzia Certolizumab pegol UCB Pharma Crohn’s disease Through its generics busiStill, IMS Health predicts TBD Ipilimumab Bristol-Myers Melanoma ness unit, Sandoz, Novartis that oncology will become the Squibb TBD Motavizumab MedImmune Respiratory syncytial plans to develop markets for largest single-market segment virus follow-on biologics, which in terms of value, reaching Pristiq Desvenlafaxine Wyeth Depression are generic versions of exbetween $65 billion and $85 TBD = to be determined. SOURCE: IMS Health isting biological products, billion by 2011 and growing at when regulations fall into a 14–17%. rate. Growth will be place to allow for sales of these products. fueled as an increasing number of patients units devoted to oncology, neuroscience, The company also plans to place greater gain access to chemotherapy and oncologic and transplantation, Novartis has long emphasis on the development of biotherapy and live longer, Conmy points out. favored specialties, Costa says. Although logical compounds in its pipelines. As a they are smaller volume products, they result of those efforts, Novartis hopes have the advantage of requiring reduced ONE NEW ENTRANT to the oncology that biologics will account for about 25% selling and marketing investments, he market in 2007 was Wyeth’s Torisel (temof sales in the next three years, compared points out. sirolimus), a small-molecule drug for pawith 4% now. To accelerate further into specialties, tients with advanced renal cell carcinoma. Like many in the industry, Wyeth’s Novartis recently set up a biologics group, The company received FDA approval for Redmond sees great value in investing in which pulls expertise from different parts the drug in late May and received a posifast-growing specialty markets that include of the company to best deal with these tive opinion from the European Medicines biotechnology products, oncology theraproducts’ unique technological, regulatoAgency’s Committee for Medicinal Prodpies, and anti-infectives, for example. “But ry, clinical, and toxicological issues, Costa ucts for Human Use in September. despite the fact that this market segment says. “We wanted to create a best-in-class At Novartis, specialties are top priorilooks new and shiny, what we don’t want to group that understands biologicals and ties, too. With well-established business

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do as an industry is shift all of our resources to specialties” at the expense of primary care developments, he cautions. “When you look across companies’ pipelines over the next five years, there are still many much-needed primary care drugs—for depression or other broad-based diseases—being developed,” Redmond adds. “And if those drugs are successful, they could revolutionize the primary care market much like today’s new entrants have revolutionized the specialty market.”

specialist-driven products coming onto the market may start out with a more narrow application than the traditional blockbusters such as Vioxx, Bextra, and Lipitor, companies may find ways to apply them to multiple indications, thereby boosting sales, she notes. “Already, there are a lot of products on the market that could be approaching the

billion-dollar mark,” Conmy says. “So I wouldn’t say that this model is dead.” In fact, IMS Health predicts that the number of blockbuster products will reach 108 in 2007 and total 115 in 2008. Several products with big market potential have come onto at least part of the global market in 2007, Conmy notes. They include Novartis’ Exforge (amlodipine/val-

FOR NOW, blockbusters—drugs that gen-


erate more than $1 billion in sales—continue to make up a big piece of the global pharmaceutical pie. But some industry experts question whether pharmaceutical companies can still bank on the success of future blockbusters. “The consensus seems to be that the blockbuster model, on which this industry has historically been largely based, may not survive. In short, nobody is sure whether there will be another $10 billion-plus product like Lipitor in the industry’s future,” Steinberg says, referring to Pfizer’s cholesterol-fighting drug. Companies may hesitate to invest in developing potential blockbusters, which can often fall prey to the increasingly cautious regulatory environment, Steinberg notes. Companies may opt to scrap a drug product before even attempting to clear the increasingly high regulatory hurdles, he points out. For example, Pfizer recently halted development of its much-anticipated cholesterol agent torcetrapib after an independent safety-monitoring board found a significant rise in mortality rates among patients taking torcetrapib along with Lipitor. In a separate move in October, Pfizer said it would stop selling its inhaled-insulin product Exubera, which had potential blockbuster status. The company concluded that “further investment in this product is unwarranted” after Exubera failed to gain the acceptance of patients and physicians, according to Pfizer Chairman and CEO Jeffrey B. Kindler. These moves show “just how treacherous this industry is,” Steinberg says. “The stakes are so large in terms of R&D bets, and in the end, you don’t know if you are going to have the next big success or the next big failure.” Despite these challenges, Conmy is among those who believe that blockbusters will continue to emerge. Although the WWW.C E N- ONLI NE .ORG

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COVER STORY

“The stakes are so large in terms of R&D bets, and in the end, you don’t know if you are going to have the next big success or the next big failure.” While working to maximize new product introductions, pharmaceutical companies are extending their reach into regions of the world with high growth in demand for pharmaceuticals. Although the U.S. market is by far the largest global drug market—commanding 55.8% of the sales generated by the top 10 global markets—it is maturing and not growing as fast as markets in many emerging geographic regions, according to IMS Health. For the 12 months through June 2007, sales of drugs grew a whopping 15.9% to $12.0 billion in China and 10.9% to $9.1 billion in Brazil, compared with growth of 7.7% to $283.3 billion in the U.S. The U.S. is expected to hold its top position through 2011, but several of what IMS Health calls “pharmerging markets” are set to increase their stake of the global pharma


anoma, MedImmune’s motavizumab for respiratory syncytial virus, and Wyeth’s Pristiq (desvenlafaxine) for treatment of depression, according to Conmy. Overall, IMS Health anticipates that 24–29 innovative new medicines will be launched in 2008, approximately 80% of which will be prescribed by specialists. These include three new oncology products for treating melanoma, prostate cancer, and acute myeloid leukemia. “I think 2008 will be the year that technology starts to deliver on the promise of tomorrow,” Wyeth’s Redmond says. Products that have resulted from a great number of deals done over the past five years are just getting into the later stages of clinical development, he says. “So, products that were just dreams a few years ago may actually be nearing the market.”


sartan) hypertension drug, Merck’s Janumet (sitagliptin/metformin) for the treatment of type 2 diabetes, Novartis’ antihypertensive drug Tekturna (aliskiren), and two drugs from GlaxoSmithKline: Tykerb (lapatinib), a breast cancer treatment and Cervarix, a cervical cancer vaccine. Steinberg observes, too, that Merck’s human papillomavirus (HPV) drug, Gardasil, “was the focus of much attention and seems to have been very widely accepted.” Furthermore, “Chantix (varenicline), Pfizer’s smoking-cessation drug, has enjoyed a tremendous reception and is experiencing very strong growth,” he notes. Potential blockbusters set to enter the market in 2008 include UCB Pharma’s Cimzia (certolizumab pegol) for treatment of Crohn’s disease, Bristol-Myers Squibb’s ipilimumab for treatment of mel-


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EARLIER THIS YEAR, for example, GlaxoSmithKline said it would build a drug discovery center in Shanghai within the next 10 years that will rank as one of its largest facilities worldwide. Novartis recently unveiled plans to invest $100 million in a research center in Shanghai. The move “is another prime example of how important China is becoming to international drug development,” says Nancy M. Gray, vice president of corporate development at Southern Research Institute, in Birmingham, Ala. Asia is also becoming “a hotbed for manufacturing,” says Gray, pointing to Novartis’ move last month to invest $700 million to make monoclonal antibodies in Singapore by late 2012. Other companies, including GlaxoSmithKline and Lonza, have recently picked Singapore as the site of new biopharmaceutical plants. Although multinational drug companies are lured by the large number of potential patients in these emerging markets, they need to be cognizant of the risks and challenges of doing business there. In these countries, companies are apt to encounter patent and intellectual property issues, as well as problems with counterfeit products, which are more prevalent, Gray says. Differing quality standards can create additional headaches for companies, she adds. Companies are also likely to face a great number of potential competitors—including generics producers—that exist in some of these emerging regions, especially India, Steinberg points out. Given the many pressures bearing down on drug companies, global growth

of pharmaceutical sales is expected to moderate in 2008 from 6 to 7% in 2007 to 5 to 6%, totaling about $735 billion to $745 billion, according to Murray L. Aitken, senior vice president for Healthcare Insight at IMS Health, who announced the firm’s 2008 forecast in a press statement. Right now, pharmaceutical manufacturers face “the stark reality of a marketplace

in transition,” Aitken says. He applauds companies that are adopting business strategies that account for shifts in product values, capture growth in emerging markets, and capitalize on new opportunities. Into the future, the most successful companies will be those that continue to “reinvent themselves,” Aiken says, and do so “at an accelerated pace.” ■

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market. The pharmerging markets—fastgrowing markets of a significant size with programs to provide increasing access to medicines—are Brazil, China, India, Mexico, Russia, South Korea, and Turkey, IMS Health data indicate. Companies are eager to tap into markets like China, where 300 million people in the middle class have the means to afford medicines today, with more potential growth down the road, DeMarco points out. “Virtually every one of our clients—including all of the top 10 pharma companies—has a major investment strategy in place for China.” Steinberg adds. “We are seeing a lot of plans for new manufacturing facilities, shared service centers, and R&D facilities.” In fact, all of these emerging markets “are very high on almost all of our clients’ radar screens,” he says.

COVER STORY

DRUG COMPANIES CUT COSTS In the midst of rapidly changing GLOBAL MARKETS, firms aggressively reduce spending to protect profitability SUSAN J. AINSWORTH, C&EN DALLAS

THIS YEAR, pharmaceutical companies have wielded cost-cutting measures like a powerful weapon to combat antagonistic pressures that threaten to ravage their profitability. The industry’s focus on cost reduction, which gained a lot of momentum in 2007, is interesting in that it lags efforts by almost any other industry, observes Jeff Steinberg, global risk advisory services leader for the pharmaceutical sector at Ernst & Young. Because the drug industry long enjoyed enviable annual revenue growth rates of 15–20%, costs were not as much of a concern, he points out. “But the game has changed,” Steinberg says. “Now in a period of slow or no revenue growth, pharmaceutical companies have to focus on the other side of the equation in order to boost earnings and meet shareholder expectations. They are focusing in a big way on how to cut costs in many areas of their businesses.” And it’s working. Pharma companies “have demonstrated a greater-than-

expected ability” to offset product losses due to patent expirations with adjustments to their cost structures, says Bank of America analyst Christopher T. Schott. As a result, he now believes that despite the continued cycle of patent expirations, pharma margins will gradually increase over the next several years from the trough in 2005. Although most major pharmaceutical companies are making cuts, they are “attacking the problem in very different ways depending on their situation,” says Dave DeMarco, global account leader at Ernst & Young’s Global Pharmaceutical Center. “Some are simply tightening their belts while others are taking a very bold transformational approach, looking at how to change the way they do business and take costs out at the same time.” In January, for example, Pfizer launched an extensive restructuring plan that included the elimination of 10,000 jobs and the closing of manufacturing and research facilities globally. “We said

we would get leaner and quicker and do it with a sense of urgency and intensity,” Pfizer Chairman and Chief Executive Officer Jeffrey Kindler said in a midyear statement. “We acknowledged that the health care industry is changing, and we are committed to changing with it,” including establishing a lower and more flexible cost base. Several other companies announced

similar moves this year. For example, this past summer Johnson & Johnson said it would cut 3–4% of its workforce and consolidate sites in order to reduce costs and improve profitability. Bristol-Myers Squibb said it plans to provide details of job cuts and facilities closures this week. And as part of their own streamlining

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efforts, Abbott Laboratories and AstraZeneca unveiled plans earlier this year to slash jobs. To drive these aggressive cost-cutting initiatives, many companies have brought in fresh management. “I think you’d be hard-pressed to find a year with more turnover of CEOs, chief financial officers, chief R&D officers—all the top people in the organization,” Steinberg says. In the CEO camp, this past spring Bristol-Myers Squibb elected James Cornelius as its CEO after he had served as interim CEO for eight months. Two months ago, GlaxoSmithKine picked Andrew Witty, the president of its European pharmaceutical business, as its new CEO, effective May 2008. He will succeed Jean-Pierre Garnier, who is retiring. In September, Wyeth named Bernard Poussot as its new CEO, effective Jan. 1, 2008. Formerly the company’s president and vice chairman, he is replacing the retiring Robert Essner. CFO TURNOVER has been high as well.

In June, Wyeth promoted Greg Norden to CFO from the position of executive vice president and CFO at its division Wyeth Pharmaceuticals. During the summer, Peter N. Kellogg, former executive vice president and CFO at Biogen Idec, stepped into the CFO role at Merck, which was vacated by Judy Lewent, who retired after 17 years in the position. In the R&D realm, Pfizer named Martin Mackay as its new president of Pfizer Global Research & Development to replace John LaMattina, who announced his retirement earlier this year. Although many of the new top leaders have come from within the industry ranks, there seems to be a growing interest in bringing in management from outside the pharmaceutical industry, Steinberg observes. For example, at Pfizer, Frank A. D’Amelio, who has almost three decades of operating and financial experience at AT&T,

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“You’d be hard-pressed to find a year with more turnover of CEOs, chief financial officers, and chief R&D officers.” Lucent Technologies, and Alcatel-Lucent, became senior vice president and CFO. He took the office in mid-September, following the resignation of Alan Levin in May.

D’Amelio has been “a senior executive in global companies undergoing the kind of rapid and complex changes we have undertaken at Pfizer in re-

sponse to our rapidly changing markets,” Kindler said in announcing the appointment. “I am confident that he will bring valuable new perspectives and financial strategies as we continue to respond aggressively to our challenges and opportunities.” Steinberg conjectures that the industry recognizes it has been “somewhat inbred until now,” and it may need to “bring in people from outside the company and the industry who have experience dealing with some of these challenges that pharma is just now having to address.” THE NECESSITY of outsourcing and

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offshoring, for example, is something that many other industries have been dealing with for quite some time but one that drug companies are just beginning to focus on. AstraZeneca has unveiled plans to eventually outsource all of its manufacturing. As part of that plan, it is looking increasingly to chemical production partners in China and India.

D EC E M BE R 3, 20 07

■ Layoffs ■ Facility closures ■ New management buy-in ■ Outsourcing & offshoring ■ Reducing manufacturing costs

Other companies are looking for ways to simply cut the costs associated with manufacturing their final drug products. For example, in September, Novartis launched a $65 million, 10-year research collaboration with Massachusetts Institute of Technology to develop new technologies that could replace the conventional batch system of pharmaceutical manufacturing with continuous manufacturing. In today’s hostile market environment, drug firms can ill afford to leave any stone unturned when it comes to cost-cutting. “These companies are now working very hard to live in a new world,” Steinberg observes. “They realize that they’re not in Kansas anymore.” ■

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haul bill signed into law in September is one of the most wide-ranging revisions of the federal Food, Drug & Cosmetic Act passed in 40 years and is likely to affect the pharmaceutical industry for decades to come. The huge measure—the Food & Drug Administration Amendments Act of 2007 (FDAAA)—grants sweeping new powers to FDA. It raises the annual user fees the industry pays to the agency for new drug reviews from $303 million to $393 million and doubles the resources available to FDA’s Office of Drug Safety from about $40 million to about $80 million. It also gives FDA the power to require drugmakers to do postmarketing clinical trials. Most of the law’s provisions went into effect on Oct. 1. In addition, the new law gives the agency authority to mandate changes in drug labels and expands the government’s clinical-trial database. It places new restrictions on direct-to-consumer advertising and raises the penalties for false or misleading ads to a maximum of $500,000 per violation. In short, the measure addresses most of the drug-related problems that have been in the headlines over the past few years, says Christopher-Paul Milne, associate director of the Tufts Center for the Study of Drug Development.

Before the enactment of FDAAA, pharmaceutical companies had to post clinical trials for drugs to treat life-threatening diseases on a database administered by the National Institutes of Health. FDAAA expands this registry to include trials for all drugs (clinicaltrials.gov). The expanded listing will allow patients and physicians to easily identify studies that could offer promising experimental treatments. FDAAA also requires that the results of pivotal studies FDA used in approving a drug, as well as results of postmarket studies, be included in the database, Milne says. “Drug companies can’t pick and choose which trial results they want to make public,” says Rep. Edward J. Markey (D-Mass.), who as a member of the House Committee on Energy & Commerce has led efforts to reform FDA. Within three years, FDA must publish a regulation requiring companies to provide a detailed summary—that the public can understand—of the results of each trial listed on the NIH database, says Daniel A. Kracov, an attorney at Arnold & Porter. This is a controversial provision that had been opposed by the White House. The Bush Administration had argued that “such summaries would present a high likelihood for misinterpretation and bias,” he says.


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COVER STORY

The Food & Drug Administration Amendments Act of 2007 may increase industry’s initial costs, but in the long run, it may reduce costs by helping firms recognize drug risks sooner. REMS to make sure that the benefits of the pharmaceutical outweigh the risks. “A lot more drugmakers will probably be asked to do these risk maps,” Milne says. “It will require a fair amount of work on the sponsor’s part.”

the point of manufacture and used on containers and packages throughout the supply chain to guard against the introduction of counterfeit drugs. Radio-frequency identification tags and encryption technologies could be used to track and trace medicines. FDAAA also offers companies incentives to develop treatments for so-called neglected diseases. These include infectious and parasitic diseases—such as sleeping sickness, malaria, hookworm, and dengue fever—that rarely occur in the U.S. but sicken millions in Africa, Asia, and the Americas. According to the World Health Organization, nearly one in six people worldwide suffers from at least one neglected disease. “Too many people in the developing world suffer and die from diseases that for the most part are both preventable and curable,” says Sen. Sam Brownback (RKan.), who sponsored the provision. “The main obstacle to responding to the needs of those suffering is insufficient incentive COU RTESY OF C HR IS M I LNE

Along with granting FDA new authority to require companies to perform postmarketing studies, FDAAA requires the agency to establish a database of postmarketing adverse drug reactions. To do this, FDA will use adverse events and other data from private health insurers, Medicare, and other organizations to create a comprehensive risk-identification database, Milne says. FDA must greatly improve its technological capabilities to be able to analyze the adverse events reports within the database and then identify and assess potential safety problems, Kracov says. For some drugs, FDAAA gives the agency new authority to demand that the manufacturer create a risk evaluation mitigation strategy (REMS). A REMS is a risk map that lays out exactly how a drug is to be prescribed and how physicians and patients will be warned of its dangers. Previously, drug companies had created risk strategies for products that pose obvious and severe risks to patients or their offspring. These strategies had been created for just 30 drugs, including the teratogen thalidomide (now used for multiple myeloma) and the acne medicine Accutane. Now, if FDA believes a medicine may present a risk, it can demand that the manufacturer devise a

THE NEW LAW creates a voluntary system for FDA review of direct-to-consumer television advertisements for prescription drugs by which a pharmaceutical manufacturer can pay the agency a fee to review an ad. The rationale for a company to do this would be that if FDA approves the ad before it is aired, it is unlikely to Milne decide later that the ad is false and misleading. According to Milne, the new system will give companies predictability and save them the money they might waste in producing and then having to cancel an advertisement. One FDAAA provision is aimed at counterfeiting. It gives FDA two-and-a-half years to develop a standardized numerical identifier for drugs that can be applied at

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nually between 2008 and 2012. A question has been whether enough experts without conflicts of interest can fill the committees, Milne says. “We’ll know in a few years whether FDA is having problems maintaining the memberships of these panels.” Alan Goldhammer, deputy vice president for scientific and regulatory affairs at the Pharmaceutical Research & Manufacturers of America, has a different view. “It is not a good idea to keep experts off advisory committees simply because they have conflicts of interest,” he says.

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not address is generic biotech drugs, or what industry calls biogenerics or followon biologics. These are generic versions of drugs produced by living organisms. Even though seven generic biotech drugs have been approved in Europe, FDA has not yet worked out a legal basis for approving such medicines. A bill (S. 1695) that would create a pathway for the approval of biogenerics, however, was introduced in the Senate this year. It is supported by about 70 organizations, including the Generic Pharmaceutical Association. GPhA spokeswoman Andrea Hofelich expects the House to work on a similar bill early next year. One issue that was not completely resolved by FDAAA is “pediatric exclusivity.” Under a law that was set to expire this year, if a drugmaker tests a brand-name medicine for use in children, its marketing monopoly for that product is extended by six months. FDAAA renewed that law. GPhA supported an amendment, however, that would have reduced that monopoly to three months for blockbuster drugs and kept it at six months for others. “The idea was to get smaller companies involved in pediatric research by providing six months of exclusivity for their products,” Hofelich says. But that measure was defeated and did not become a part of FDAAA. Overall, FDAAA may increase industry’s initial costs for drug development and approval. But in the long run, FDA’s expanded Office of Drug Safety and its risk identification database may reduce costs by helping firms recognize drug risks sooner and avoid expensive litigation. ■ WWW.C E N- ONLI NE .ORG

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for companies to produce drugs that treat and prevent neglected tropical diseases.” In exchange for developing a new or superior treatment for a neglected disease, a pharmaceutical company would be rewarded with a voucher for priority (six month) review of another drug of its choosing. An expedited review could shave one year off FDA’s review time and could earn the company up to $1.6 million per day in extra revenues if the drug turns out to be a blockbuster, Milne says. Conflict-of-interest issues are also part of the new law. For years, health safety groups, such as Public Citizen, have alleged that FDA science advisory committees include too many experts with conflicts of interest, especially experts with ties to the drug industry. As a consequence, Public Citizen says, the panels have sometimes recommended approval of dangerous drugs, such as Vioxx, that were eventually withdrawn from the market. FDAAA attempts to reduce the potential for approval of risky drugs by placing strict limits on the percentage of experts appointed to advisory panels with conflict-of-interest waivers. It requires FDA to assess the aggregate percentage of waivers it granted in 2007 and decrease that number by 5% an-

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