Drug Truths

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Is the Road to Big Pharma Success Slimming Down R&D and Focusing on Mini-Blockbusters?

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Today’s long awaited launch of the generic form of Lipitor, atorvastatin, has been the inspiration for a number of recent news stories.  One that particularly caught my eye is by Bloomberg’s Drew Armstrong entitled “Pfizer After Lipitor Slims Down to Push Mini-Blockbusters.”  The gist of the article is contained in the following line: “The next step will be rebuilding the world’s biggest drugmaker into a smaller, faster-moving company that focuses on development of biologic drugs and specialty medicines….”  The implication of this statement is that Pfizer previously had a strategy that was based on discovering compounds like Lipitor that would each generate annual sales of $12 billion and that Pfizer now realizes that this is a flawed plan and is going to get leaner and smarter.

If it was only so simple.

First of all, the original peak sales predictions for Lipitor were on the order of $700 – 800 million, as it was the fifth statin to reach the marketplace.  As discussed in this blog previously, the fact that it evolved into the biggest selling drug of all time was due to a “perfect storm” of great efficacy, excellent safety and the growing realization of needing to lower bad cholesterol (LDL) more than had been previously recognized.  Lipitor is a once in a generation product.  To base a company’s strategy on this luck is foolish – and it’s not what happened at Pfizer.

What is a mini-blockbuster?  Is it a compound that has sales of $750 – $1 billion?  Pfizer generated a number of these internally in the last decade: Chantix, Vfend, Geodon, Sutent, etc.  Interestingly, most analysts paid little heed to these compounds.  The general refrain was: “These are nice compounds, but none of them are Lipitor.”  Yet, many of these same analysts are now advocating this as the direction that Pfizer should take.

Will focusing on these biologics and specialty drugs make Pfizer “a smaller, faster-moving company” as the author suggests?  These drugs should be quicker to develop after all, right?  Not exactly.  A recent issue of the New England Journal of Medicine published an editorial titled “Therapy for Cystic Fibrosis (CF) – The End of the Beginning?”  (NEJM, 365;18, November 3, 2011) which discusses the truly outstanding research that led to the CF drug ivacaftor.  This is an important new medicine that will meet an important medical need.  It is also a specialty drug.  And this research STARTED in 1989.  A focus on specialty drugs doesn’t ensure rapid R&D programs – nor robust revenues.

Analysts give high grades to compounds in the company’s late stage pipeline, including tofacitinib for rheumatoid arthritis, criizotinib (Xalkori) for lung cancer and apixiban (Eliquis) for heart disease (which was co-developed with BMS).  All of these drugs are traditional small molecules and all resulted from extensive R&D programs.  In fact, the tofacitinib program began in 1993.  The predictions for peak sales of these compounds range from $1.5 billion for crizotinib to over $4 billion for tofacitinib and apixiban – not exactly “mini-blockbuster” numbers.  Pfizer also has important biologics in its pipeline, including the vaccine Prevnar, which is also on its way to being a blockbuster.  Pfizer’s portfolio is diverse; its problem is that with top line revenues of over $60 billion, it needs more of these great compounds.

There are a few lessons in all of this. First of all, predicting commercial success for a new medicine is always tenuous.  The biopharmaceutical industry has always been surprised, both positively and negatively,  by the performance of new drugs.  That is not going to change.  As I’ve written before, to say that you are going to focus on niche or specialty products is a prescription for disaster.  Such compounds can play a role in a company’s portfolio of products, but this shouldn’t be a driver for companies with sales of $25 – 60 billion.

Second, from a discovery research standpoint, the resources needed to come up with a new compound for clinical development differ little for a niche product or a projected blockbuster.  Admittedly, the development costs for a specialty products can be less, particularly for a so-called orphan disease for which there is no treatment and relatively few patients worldwide with the disease.  But a big pharmaceutical company’s portfolio should have a very limited number of such approaches if it is to thrive.

Finally, there is a view that there are fewer and fewer opportunities for major blockbusters.  I beg to differ.  A truly effective and safe drug to cause weight loss would likely have sales in excess of Lipitor’s.  The challenge in this field is clearing the high regulatory hurdle that exists for such a compound.  A new drug that can slow or reverse Alzheimer’s Disease would also have tremendous commercial potential as the incidence of this disease will surge over the coming years with the increasing life spans of people globally.  Heart disease continues to be a problem, and the obesity/diabetes epidemic will likely reverse the progress made in this arena over the past decade.  Will an agent that raises the good cholesterol, HDL, be a new breakthrough for treating cardiovascular disease?  If yes, major blockbuster status will be achieved here as well.  There also other major medical needs awaiting new, effective treatments.

You don’t build a business strategy on the hope of discovering $10 billion/year products.  You DO base it on having the most robust R&D organization possible.  And this leads to my final point.  Slimming down R&D isn’t the answer.  Rather focus, stability and resources are required for an R&D organization to thrive.

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Written by johnlamattina

November 30, 2011 at 2:44 pm

2 Responses

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  1. John,

    Great blog post! It’s interesting to read how the former head of a major R&D unit views these issues. As you aluded to, what the public thinks drives R&D decisions is very different from the discussions that go on in boardrooms.

    I agree that Lipitor will not be the last blockbuster. There are too many diseases with unmet needs. If a safe and effective therapy is found, it could easily exceed Lipitors revenues.

    And don’t forget Lyrica. I remember when it launched and analysts were predicting maybe $1B in peak revenue? It’s almost $4B in annual revenue now.

    I think in pharmaceutical R&D we often underestimate the risk, even those who are quite close to the industry. When things go well or things go bad, we start trying to assign a cause and effect relationship, when in fact, a lot of it just comes down to luck and timing.

    Mike

    Mike Hamilton

    November 30, 2011 at 11:19 pm

  2. I bought a new toaster oven a few months ago and it left me wondering: what’s the difference between Black and Decker and Pfizer? It seems to me there are three primary ones:

    * Black and Decker sells the same toaster year after year. Some years, the model is boxy, and some its swoopy; they move the dial; use bigger numbers or italic numbers or a slide instead of a dial. They have something that is probably called “R&D” and makes patents but end of the day usually doesn’t have all that much baring on sales. When they “innovate”, it probably takes six to twelve weeks to hit the market.

    Pfizer has to have a brand new portfolio every single year because 5% (give or take) of the compounds go off patent on average every year. Lead time is decades, not weeks. There is no guarantee that any R&D dollars will have any sort of payback.

    * Black and Decker sells at a preimum to “Toasters-R-Us” brand toasters of 10-20%. Pfizer products sell at a premium of something like 400% (numbers from memory; comparison of price per pill while on patent vs. the generic after pricing has settled in the marketplace).

    B&D can coexist with TRU on the same products because their brand has enough value to justify the markup and because the markup isn’t enough to push someone out of necessity to the lower priced option.

    Pfizer’s price premium makes that almost impossible. Few pharmaceuticals (Warfarin comes to mind as the exception) have enough quality difference to justify any branding.

    * It sums up this way: the basic business model is different. Most manufacturers can spend money on R&D that has definite (or almost definite) and immediate payback. Most manufacturers have revenues that are stable, year-to-year, even when patents roll or there are innovations in the marketplace.

    The pharmaceutical industry has a high-barrier for initial entry and then a well-amortized income stream with a defined end date.

    Here’s the real problem: Wall Street just fundamentally doesn’t understand the difference. The mantra of “a good manager can manage anything” means they just don’t understand the differences in the pharmaceutical industry and they expect the same kind of steady revenues, and they don’t appreciate the needs for R&D.

    That’s a long way to say that the truth in your last line: “focus, stability and resources are required for an R&D organization to thrive” means that big pharma is in trouble as long as Wall Street managers are behind the scenes, calling the shots.

    Yes, we need to look at how to streamline drug approval to reduce cost while maintaining safety. Yes, we need to figure out how to do R&D better, more efficiently, and more effectively.

    But, end of the day, if you bring a Black and Decker mindset– we can keep pulling water out of the lake– to a farming business– we need to keep investing and today’s investments won’t pay off this week– then you’re doomed to be disappointed.

    davesnyd

    December 5, 2011 at 9:14 am


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