The end of blockbusters?

C&I Issue 6, 2009

The pharmaceutical industry has traditionally relied on developing ‘blockbuster’ drugs to fuel its bottom line. A blockbuster is one that makes more than $1bn in sales a year, and a really big seller can make a huge difference to a company’s overall revenues. The biggest selling drug is Pfizer’s cholesterol lowering medicine Lipitor (atorvastatin), which had global sales of $13.5bn in 2007, more than a quarter of the company’s total income and nearly twice the next biggest selling drug, Sanofiaventis’ antiplatelet agent Plavix (clopidogrel).


However, new huge selling blockbusters are becoming ever harder to come by. Many therapeutic areas affecting large numbers of patients, such as high blood pressure and cholesterol reduction, are already well served with cheap generics. If a new drug is going to be able to compete in these areas, it will have to offer very substantial advantages over the existing alternatives so that health insurance schemes or governments are prepared to pay for it.


Drug companies rely on patents to protect them from competition so they can recoup the costs of developing drugs and, hopefully, make a profit on them. As soon as the patent is filed, the clock starts ticking, and as this happens a decade or more before the drug reaches patients and starts making money, there is maybe only seven or eight years before competition strikes and the income stream falls away. This means companies constantly face the problem of their big-sellers losing their patent protection, and having to fill the revenue gap that generic competition leaves behind.


According to Milena Izmirlieva, project manager at IHS Global Insight, more than 100 drug patents are set to run out this year (Table 1). ‘The pending patent expiry of several important drugs will provide generics players with several important market opportunities,’ she says. This includes several familiar brands, and a disproportionate number of them are from GlaxoSmithKline (GSK), from the ‘under fire’ diabetes treatment Avandia (rosiglitazone) (C&I 2007, 11, 11) to the herpes drug Valtrex (valacyclovir), not to mention Roche’s weight loss agent Xenical (orlistat), which GSK markets as the over-the-counter medicine Alli.


But this is just the tip of the iceberg. In 2011 and 2012, the majority of the current top-ten selling drugs will lose their exclusivity and face generic competition (see Table 2). Datamonitor’s head of companies analysis, Chris Phelps, says that the average big pharma company with sales of $10bn a year is looking at an annual drop in sales of $1.5bn between now and 2012, and a fall of $115bn in total between 2007 and 2012 for the 50 largest companies. Without the prospect of many mega-blockbusters to replace them, what can they do to keep their revenue levels up?


Perhaps the most obvious way is to be less single-minded about only looking for blockbusters, and instead look to launch a greater number of smaller-selling products. GSK’s chief executive, Andrew Witty, indicated last year that they are thinking this way, saying that launching a handful of new products every year will be enough to replace lost revenue. ‘As long as we do that every single year, we will be able to generate a momentum of portfolio which will be enough to drive this company forward,’ he said. Of course, should a blockbuster appear, they would not say no to it. ‘I would describe this as being a shift from a blockbuster-dependent world to a blockbustercapable world. We’re going to plan for what we know we can deliver, and we’re going to make the most of the great surprise.’


Phelps says that, in fact, looking at the potential of the companies’ Phase III pipelines, there is also an average growth projection of $1.5bn/year, despite the absence of many potential blockbusters. ‘There’s this interesting treadmill effect; they are coming out with products that will generate new revenues, but the declines wipe this out and neutralise it,’ he says.


Of course, this does rely on companies having drugs in their pipelines in the first place, and those drugs actually reaching the market; many companies face regular criticism from analysts because of a perceived lack of quality in their research pipelines. The US Food and Drug Administration (FDA) approved just 21 new drugs and three new biologics in 2008, and is getting ever more selective and cautious about what it will approve, and the trials that need to be done before it will grant a licence. And finding new targets for therapies in areas that are not already well served is not straightforward, either.


Cancer remains one of the most attractive targets for pharmaceuticals. According to IMS Health, sales of cancer drugs are predicted to grow by 15–16% this year, compared with 4.5–5.5% for the overall drugs market. Unlike cytotoxic drugs, which are fairly non-specific, many modern cancer medicines are targeted to specific biological pathways, and in theory this should make them more effective and safer.


Other therapeutic areas that feature large in pharmaceutical pipelines include chronic obstructive pulmonary disease, a common condition in smokers, and regenerative medicine targets, such as Alzheimer’s disease. Type 2 diabetes is another area where new drugs are much needed, but in the wake of recent scares over GSK’s Avandia (rosiglitazone) and issues with DPP-IV inhibitors, the FDA is raising the approval bar by requiring very extensive clinical trials before it will say ‘yes’ to new treatments.


Mergers and acquisitions are a time-honoured way of gaining both new technology and cutting costs to improve the bottom line with mega-deals like Pfizer/Wyeth (C&I 2009, 3, 5) and Merck & Co/ Schering Plough (C&I 2009, 6, 5) setting the scene this year. But, increasingly, pharmaceutical companies have been turning to licensing deals with biotech companies, or even acquiring them, to fill their own pipelines. The credit crunch has left many biotechs running out of cash, with follow-on financing difficult to come by, and often the only answer is a trade sale to a larger rival. This has made it easier for big pharma to gain access to early stage projects.


Many pharmaceutical companies have also been improving their resistance to the impact of generics by increasing the proportion of biological medicines in their portfolios, both by acquisition from biotechs and by expanding in-house capabilities. The precise nature of the product that comes out of the reactor is more variable than for small molecules and, as a result, the process itself is an integral part of the product licence – even changing the reactor the drug is made in can alter the product composition. This makes it much more difficult to prove that a competitor product is equivalent to the original. As a result biosimilars remain more difficult and expensive to make, so the price is unlikely to plummet the way small molecule drug prices have.


Perhaps the most striking trend in offsetting the impact of patent expiry and generic competition is the realisation that if they can not beat them, they should join them. Novartis has led the field here, resurrecting the Sandoz brand in 2003, and turning it into one of the world’s largest generics companies. Datamonitor’s Phelps describes the move as a ‘masterstroke’.


Other big pharma companies are now making moves in this direction, reversing the trend that saw many of them, such as Bayer, Bristol-Myers Squibb and Merck & Co, sell off their generics divisions in the past. For example, in the past year Sanofi-aventis has expanded its generics business with the acquisition of Czech generics company Zentiva, Japan’s Daiichi Sankyo bought India’s Ranbaxy and Pfizer has acquired a portfolio of generic medicines from another Indian company, Aurobindo Pharma. ‘It’s slightly depressing to see the innovative pharma industry moving into generics,’ concludes Phelps. ‘But they might as well pick up that revenue and steady cashflow.’

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