COVER STORY
PHARMA OVERVIEW The pharmaceutical industry has recently suffered a downturn in productivity and investor goodwill, but a number of factors remain in its favor SELENA CLASS
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worth $364.2 billion, representing 12% growth over 2000, according to IMS Health sales data from more than 70 countries. Furthermore, IMS Health—which collects and analyzes pharmaceutical information—estimates that total pharmaceutical sales worldwide amounted to $392 billion in 2001. The data cover approximately 90% of all prescription drugs and certain over-the-counter (OTC) products. The pharmaceutical industry is thus one of the world's largest and is also less prone to dramatic swings in fortune than some other industries are. However, regional performances differ markedly The U.S. represents by far the largest single market and the most dynamic. The rise of the U.S. market has been one of the dominant themes in the pharmaceutical industry in the past decade: In 1992, the U.S. market accounted for only 34% of audited worldwide pharmaceutical sales; now it represents 50% and is expected to be worth $330 billion in 2006. Some drivers of its rise to prominence include rapid and sustained economic growth; high employment; pricing freedom; and most recently, direct-to-consumer (DTC) advertising. Japan is the world's second largest single market for pharHTTP://PUBS.ACS.ORG/CEN
maceuticals, but the market is currently stagnant because of price controls and the poor current economic environment in the country. It has almost halved as a percentage of the world total in the past 10 years. No individual European country dominates, but the continent as a whole represents a significant market. Each country has its own opportunities and threats, with issues such as pricing controls and parallel trading. One of the most interesting emerging markets is China, where many of the major Western andJapanese corporations have already established bases, seeing it as potentially lucrative territory In 2001, the top 10 therapeutic classes accounted for 32% of the total market. Four of the leading classes—cholesterol and triglyceride reducers, antipsychotics, oral antidiabetics, and systemic antihistamines—grew more than 20%. Antiulcerants, dominated by proton pump inhibitors such as Prilosec/Losec, Prevacid, and Aciphex/Pariet, remained the leading therapeutic area, although Prilosec lost its position as the best-selling individual product to Lipitor during 2001. New areas of growth for the pharmaceutical industry are highlighted by an analysis of the fastest growing therapeutic areas. Some are simply new kinds of drugs for long-treated conditions, such as asthma and hypertension. Others, however, represent new or fast-growing markets, including disorders such as attention-deficit C&EN
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COVER STORY hyperactivity disorder (ADHD), Alzheiofwhich could happen with Claritin before new products, Nexium is an isomer of mer's disease, and osteoporosis. the end of 2002. Some U.S. insurance comPrilosec, designed to be safer, faster actpanies have already said they will not covSome therapy classes that could see furing, and more effective. Many drugs are ther growth include H I V antivirals (with er the routine use of the new, more expenadministered in a racemic form; that is, a new products such as Roche andTrimeris' sive products if an older, tried-and-tested mix of chiral isomers. Often, only one isofusion inhibitor Fuzeon), erectile dysdrug is available as a cheaper generic. mer is responsible for the drug's efficacy function therapies (for example, Eli Liland the other may be responsible for unly/ICOS Corp.'s Cialis and Bayer/GlaxoCONSOLIDATION. Pfizer's surprise $60 desirable side effects. Other isomeric drugs SmithKline's Levitra), interferons, and billion bid for Pharmacia in July 2002 led include Lundbeck & Forest's Cipralex/ platelet aggregation inhibitors. to a new outbreak of speculation on further Lexapro (Cipramil/Celexa), as well as consolidation within the industry. The One of the main engines of therapy-class Schering-Plough's Clarinex (Claritin) and news should not have come as such a shock growth will be the aging population: By Aventis'Allegra (Seldane) antihistamines, given Pfizer's $90 billion merger with 2005, nearly 30% of the U.S. population both of which were developed by specialWarner-Lambert in 2000, which arose onwill be over 50 years old. This will lead to ty company Sepracor. ly after much wrangling for control of Lipincreased demand for treating conditions After Prilosec's basic patents expired in itor's developer with American Home such as hypertension, diabetes, high chothe US. in October 2001, AstraZeneca Products (nowWyeth). Lipitor, for hyperlesterol levels, osteoarthritis, and menodedicated huge resources to launching and cholesterolemia, is now the world's toppause symptoms. establishing Nexium in the marketplace. It selling drug. Celebrex, for arthritis and The top 10 leading products registered appears to have been successful, as Nexipain, was developed by Pharma2 2 % growth in 2 0 0 1 and accia (originally Searle) and comarcounted for $40.2 billion in auGL0BAL SALES keted by Pfizer; it had one of the dited sales. T h e COX-2 inNorth America led in sales and growth in 2001 most successful launches in the hibitors, or coxibs, Celebrex and % GROWTH history of the industry in 1999 % OF GLOBAL 2001 SALES WORLD AUDITED Vioxx, performed particularly (CONSTANT $) MARKET SALES ($ BILLIONS) and was the world's seventh best well, especially considering that 17% 50% North America $181.8 selling pharmaceutical by 2001. both were first launched for var10 Europe 24 88.0 Pfizer's merger with Pharmaious pain and arthritis indications 4 Japan 13 47.6 cia will propel it even further in 1999. Vioxx entered the top 10 Asia, Africa, Australasia 9 8 27.9 ahead in the rankings, giving it a list for the first time in 2001, and, 0.1 Latin America 5 18.9 total market share of almost 11% thanks to the loss of its U.S. ex- TOTAL 12% 100% $364.2 compared with nearest rival clusivity in August, Lilly's iconic GlaxoSmithKline's 7%. Many believe GSK antidepressant Prozac dropped out of the um accounted for more than 20% of new will try to regain its position as the world's top 10 ranks. Success in the all-important prescriptions in the proton pump inhibitor leading pharmaceutical company, with U.S. market is imperative if new drugs are market by October 2 0 0 2 , having been Bristol-Myers Squibb and AstraZeneca to achieve blockbuster status. launched in March 2001. mooted as possible targets. Novartis has Outside the top 10, some individual It is yet to be seen, however, how sucmade no secret of its plans to grow and alproducts registered impressive growth cessful these marginally superior products ready has a voting share of at least 21% in rates, led by Nexium, AstraZeneca's rewill be when the originals lose exclusivity or Swiss neighbor Roche. European dignity is placement for Prilosec. Like a number of move to nonprescription OTC status, both
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at stake: Only four ofthe top 10 corpora- Pfizer expects to save $2.5 billion by 2005 tions are now based in Europe, compared following its merger with Pharmacia, due withfivein 1990, despite the mergers that to be completed before the end of 2002. led to the creation of AstraZeneca, AvenWhatever the pros and cons, megatis, GSK, and Novartis. mergers are likely to continue in light of There is, however, growing skepticism the increasing sales and marketing muson the benefits of such megamergers. cle needed to give new drugs a successMerck & Co. and Lilly both believe that organic growth is ultimately more THERAPY LEADERS sustainable, and the in- Four classes grew more than 20% in 2001 creased research and de- AUDITED WORLD 2001 SALES % OF GLOBAL SALES ($ BILLIONS) velopment spending— THERAPY CLASS $19.5 6% cited as one of the main Antiulcerants 18.9 5 drivers of mergers and ac- Cholesterol & triglyceride reducers Antidepressants 15.9 5 quisitions (M&A)—has so 10.9 3 Nonsteroidal antirheumatics far not resulted in re- Plain calcium antagonists 9.9 3 plenished pipelines. In- Antipsychotics 7.7 2 deed, the upheaval and Oral antidiabetics 7.6 2 uncertainty caused by Plain ACE Inhibitors 7.5 2 6.7 2 M&A may lead to severe Cephalosporins & combinations 6.7 2 disruption of research Systemic antihistamines 32% $111.3 projects. Since the merger TOTAL between Glaxo Wellcome and SmithKline Beecham in December ful launch and then maintain their mar2000, GSK has not launched one signifi- ket share. In the future, the industry may cant newproduct. Much ofthe growth from well be dominated by a handful of marM&A arises merely from cost savings: keting behemoths—the top 10 compa-
nies already control 47% ofthe market. A split in opinion, however, relates to the future of R&D at these companies. Pfizer's R&D spending is expected to rise to more than $7 billion in 2003, from $4.8 billion in 2002. Yet some believe the marketing companies may eventually do little of their own R&D, instead licensing compounds for sale from smaller, specialized niche pharmaceuticalfirmsor biotech% GROWTH nology companies. (CONSTANT $) U% If the ongoing gen22 omics research reaches its 20 ultimate conclusion, more 16 drugs will be "personal•4 ized" —specific to a small, 30 genetically defined group, 30 or even to an individual— 5 0 implying that large sales 22 forces will be redundant. 16% In the meantime, however, a number of biotechnology companies are struggling to survive in a harsh environment fueled by product failures and disappointed investors. In 2002, a number of biotechs announced
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COVER STORY live up to early expectations and survive long enough to get actual products into the marketplace.
NEW GROWTH Products for asthma were the fastest growing therapy class in 2001 THERAPY AREA
USAGE
PRODUCTS
Beta-2 stimulants plus corticoids Angiotensin II antagonists plus diuretics Psychostimulants Anti-Alzheimer's disease products Bone calcium regulators Plain ATHAs Other cytostatics Immunosuppressants Other sex hormones
Asthma
Advair (Seretide), Symbicort Hyzaar, Co-Diovan
Hypertension ADHD Alzheimer's disease Osteoporosis Hypertension Cancer Transplantation Osteoporosis, menopause symptoms
2001 SALES ($ MILLIONS)
% GROWTH (CONSTANT $)
$1,307
317%
1,377
Concerta, AdderallXR Aricept, Exelon
1,044 1,224
Fosamax, Actonel Cozaar, Diovan Glivec, Rituxan (MabThera] Rapamune, Prograf Evista, Livial
3,106 3,636 2,054 3,552 913
ADHD = attention deficit hyperactivity disorder.
"restructuring" programs, consisting of eliminating redundancies and other costcutting exercises, designed to narrow focus on the most promising pipeline drugs or technologies. Because the markets were not generally open to fund-raising schemes, companies had little alternative apart from M&A.
Amgen's $16 billion merger with Immunex in July 2002 was the largest in the biotech industry so far, and further, if small er, deals appear to be forthcoming. It is generally accepted that genomics research will not lead to an overnight revolution, but the pressure is on companies like Hu man Genome Sciences and Millennium to
GENERICS. Theriseof the block buster drug has led to another, less welcome, phenomenon: the af 57 termath of patent exclusivity ex piration for a blockbuster drug. 46 August 2001 marked the U.S. 43 patent expiry of Lilly's antide 35 pressant Prozac. Most observers 34 knew that the impact on Lilly 33 would be severe, but few guessed 29 that Prozac would lose more than 27 70% of its sales within two months, in what soon became a gut-wrenching example of the worst-case scenario. Although Lil ly had managed the life cycle of Prozac to some extent, introducing a onceweekly version and seeking new indications (even going so far as to rebrand its active ingredient fluoxetine as Sarafem for pre menstrual dysphoric disorder), none of its actions could stem the loss, and it was un successful in its limited litigation against generics manufacturer Barr.
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In the U.S. market alone, drugs with an nual sales of more than $60 billion face patent expiration over the next decade; 13 of the leading 35 molecules will lose pro tection over the nextfiveyears. Generics manufacturers like Andrx, Mylan, and Dr. Redd/s are now prepared to aim high and challenge patents that still have some years to run. The main impetus is the promise of 180 days of generic exclusivity for the first Abbreviated New Drug Application (ANDA) with Paragraph IV certification; that is, claiming that it does not infringe the brand manufacturer's patents. The inno vator companies frequently respond by su ing for patent infringement, in what has become one of the most contentious tac tics in the industry Toward the end of 2002, the fortunes of the two differing sides are in a state of flux. In October, a judge in New %rk delivered a long-awaited verdict in the Prilosec patent case. Prilosec's basic patent expired in Oc tober 2001, but AstraZeneca said it had for mulation patents that protected the drug until 2007. Andrx and units of Merck KGaA, Schwarz, and Dr. Redd/s all claimed these patents were invalid. The judge even tually backed AstraZeneca but also said that Schwarz's ANDA was not infringing its patents, because it used a different coating for its generic omeprazole product. The verdict was welcomed by the ma jor brand-name companies and led Pfizer Chairman and CEO Henry A. McKinnell to comment: "They [generic manufactur ers] take a chance, and if they get lucky and some judge rules in their favor, they get a big payday. And if they lose, there's no consequences except for some modest le gal fees. This is a slight perversion of our legal system, and there are no conse quences to losing. I'm hoping there will be enough positive outcomes for the re search-based industry that the generics in dustry will conclude that this is a fool's er rand." However, the bullish stance was short-lived. Less than a week later, President George W. Bush unveiled plans to limit the abili ty of brand-name companies to prolong exclusivities and to speed up the entry of generic competitors. In his speech, he stat ed: "By this action, we will reduce the cost of prescription drugs in America by bil lions of dollars and ease afinancialburden for many citizens, especially our seniors. Our message to brand-name manufactur ers is clear: %u deserve the fair rewards of your research and development; you do not have the right to keep generic drugs off the market for frivolous reasons." The Bush Administration's action fol HTTP://PUBS.ACS.ORG/CEN
per ANDA, and some patents will not be entitled to protections such as those cov ering packaging or those that are not linked to innovation and medical need. Some drugs singled out for attention by White House officials included Cipro, Paxil, Pravachol, Prevacid, Zocor, and Zoloft. The average U.S. branded prescription cost more than $72 in 2001, compared with under $17 for a generic equivalent (though many manufacturers do offer discounts on branded drugs to those on low incomes).
lowed a series of investigations by the FederalTrade Commission into the legal wran gling that barred the timely entry of sever al generic products, including cheaper copies of BuSpar, Cardizem, andTaxoLThe reforms should yield cost savings of more than $3 billion a year—vitally important to the overstretched Medicare system, espe cially in light of the failure of the Senate and House of Representatives to agree on a prescription drug benefit. FDA will allow only one automatic stay
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