Is there enough money in generic drugs?
That’s the question generic manufacturers might start asking themselves once IMS Health releases its official market growth numbers for 2007. A glimpse at the preliminary figures suggests there is, but the money may be getting harder to find.
Growth in the generic drug market slowed considerably last year, to 3.8%—the same rate as the overall prescription drug market, according to IMS Health corporate director of market insights Diana Conmy. She gave a preview of the 2007 data at the Health Industry Group Purchasing Organization’s National Pharmacy Forum last week. You can find her analysis of the branded industry in our earlier post.
Conmy found the low-single digit growth rate for generics “surprising” given the segment’s past performance. “I checked this number and checked it twice, because historically, we have seen generics growing over the last couple of years somewhere between 10% and 20%,” she said. “So to come in at the end of the year at 3.8%...is quite dramatic.”
Not surprisingly, the cause behind that slowdown is an increased level of price competition in the generic drugs market, Conmy said: “It has become an extremely competitive place to earn a profit and keep profitable within this segment."
“The generic erosion curves are much steeper. There is more of a willingness by generic manufacturers to enter the market 'at risk.' And there are just more players getting into the very large and meaty primary care markets that are going off patent,” she said. Indeed, one such product, Merck’s osteoporosis drug alendronate (Fosamax), saw competition from three generics (including a Merck-authorized product) last week.
Given that level of competition, is there a point at which the price for a generic is too low? IMS Health's 2007 numbers indicate the generic drug market may have already reached that threshold. The second half of the year was essentially the antithesis of the economic rule of supply and demand, Conmy said: a “tremendous reduction” in the price of generics in the marketplace without a corresponding increase in volume levels.
Instead, growth within the generic market is solely coming from new approvals, and any exclusivity that manufacturers can scrape together. That, in turn, is why generic manufacturers are becoming more aggressive in terms of “at risk” launches--launches like generic clopidogrel (Bristol-Myers Squibb's Plavix). The end result, Conmy said, is that while generic utilization continues to increase, the brands are still holding onto the dollar share.
But there are some bright spots: branded generics (like in the pain and ADHD markets) are still doing quite well: branded generics rose 11.1% last year, according to IMS Health. And there's still room for growth under Medicare Part D: despite the Center for Medicare & Medicaid Services' interest in increasing generic use under the drug benefit, generic utilization was no higher than in the general population in 2007, Conmy said.
And last year could turn out to be a one-year blip on the growth chart--especially given tough comparisons over the high-flying year of 2006. But for generic manufacturers looking at the 2007 data, it's still not a comfortable place to be. How the generic industry responds will determine who comes out on top in an increasingly competitive market.
Tuesday, February 19, 2008
Generic Drugs: Still a Growth Market?
If You're Betting on Acquisitions, Bet Private
It’s an odd biotech fact: given the choice within a group of more or less similarly sized and staged biotechs, drug firms generally prefer to acquire the private ones.
For biopharma companies that had gone public since 2001, only seven were acquired for more than $50 million. Over the same period, 33 private biotechs have been taken out beyond that price. (Not that this activity is anywhere near enough to either fill pharma's pipeline needs or solve biotech's financing dilemmas -- see this IN VIVO analysis of the situation.)
We don’t really know why this should be true, but we’re willing to guess.
First, there’s the natural split between investors and managers: the former want to maximize value as quickly as possible; the latter want to run companies.
In a private company, the investors nearly always win this argument because they have all the leverage: voting majority in just a few hands. In most public companies, ownership is scattered; the VCs abandon the board, leaving the managers to appoint the directors they want – all of which is why Carl Icahn lost his argument with Biogen Idec’s Jim Mullen over the company’s independence.
Moreover, VCs also talk directly with pharma’s R&D and business development world. Every senior biz dev exec worth his or her salt personally knows the key VCs and their portfolios. They by and large have no idea who the major public investors are. Far as we know, T. Rowe Price and Deerfield don’t host fancy shindigs in exclusive resorts to commingle portfolio companies and invited Big Pharma guests – but all the major VCs do (click here and here for some sybaritic reports). Indeed, we help out on one such meeting, called rEvolution (don’t blame us for the name, please), where the CSOs of the Big Pharmas and Big Biotechs eat, drink, jabber and – hopes Versant Ventures, the main host of the event – deal-make with their faster-paced but still luxury-loving cousins from biotech.
Finally, public companies are a lot more expensive than private ones – on average about 3½ times pricier, perhaps because the ones interesting enough for acquirers are also the ones which have done pretty well (like Pharmion or Myogen). And there aren’t many of those.
All of which is to say: given the tar-baby quality of IPOs (VCs can’t shake them for quite a while – often having to add their own money into the offering and then stay on boards for longer than they want to), any company that goes public had better figure on staying public for a very long time. And that’s not a message most public investors, acquistion-minded as they are, want to hear.While You Were Taking a Breather
Nothing like a long weekend to kick back and recharge. And it was a nice, quiet long weekend from where we sit. No primaries, not a lot of interesting sports (the cupcake dunk at NBA all-star weekend notwithstanding), only a small handful of multi-billion dollar bank write-downs. Oh, and apparently enjoying the time off so much, Fidel Castro decided to retire. What are the odds he moves to Florida? Elsewhere ...
- '60 Minutes' goes after Bayer's Trasylol and FDA (hat tip Pharmagossip)
- GSK licensed a preclinical antibody targeting interleukin-6 from Eusa Pharma, for a total consideration of up to $44 million in upfronts and milestones (half of which will go to Eusa partner Vaccinex).
- Bayer abandoned a late-stage Nexavar/chemotherapy combo trial after a monitoring board suggested the cocktail wasn't prolonging survival in patients with non-small cell lung cancer.
- For Sale: yet another UK biotech company. Two marketed products. Endocrine specialist. $50mm ONO.
- A shake-up at Edwards Life Sciences sees some long-standing executives leaving the device firm.
- Time for consolidation in the pharmaceutical supply sector? The Boston Globe finds a few people who think so.
photo from flickr user chadh used under a creative commons license
Friday, February 15, 2008
JP Garnier's Farewell Address: The Lessons of Avandia (Part 2)
The Avandia disaster is probably not what JP Garnier imagined he would spend most of his time talking about in his swan song as CEO of GlaxoSmithKline.
But give him credit: Garnier is using GSK's setback to draw attention to some important trends that we think, at least, will indeed be ever more critical for the biopharma sector in the years ahead.
Earlier we laid out Garnier's argument that the drug safety pendulum will never swing back. So what is industry to do? Here is the outgoing GSK CEO's six-step program. (1) If you have important new safety information, get it out as soon as possible (even if the regulator wants you to wait.)
“You should do the meta-analysis as we did with Avandia,” Garnier said. “But then you should absolutely demand that this would be issued and put in context by the appropriate authority. That didn’t happen in every country. That’s why we had a problem in the U.S. where the FDA wanted to do the work first.”
Indeed, one underappreciated benefit to industry from the new FDA safety law is that, by giving FDA the authority to mandate warning labels, it also creates deadlines that will help ensure that sponsors do get new safety information out sooner. (2) Be proactive with payors.
“Payers don’t necessarily wait for the FDA,” Garnier said. “Think about it. If you’re an insurance company reimbursing Zetia and Zelnorm and products like this including Avandia, you will also get the phone calls from the patients. What you’re going to do? Say I’m waiting for the FDA, maybe in six months I will have an answer for you?”
“So we have seen payers jump in and take a stand while the dust has clearly not settled and before the body of scientific evidence has been really reviewed in appropriate way, and that is also something that needs to be managed very carefully. You could quickly lose formulary position for reasons which are not solid.”
GSK is hardly the only company to learn that lesson in 2007. (EPO anyone?) (3) Don’t rely on labeling to communicate warnings to prescribers.
“Black boxes are becoming trivial. It used to be a very rare event to get a black box on your product, [but] they have tripled in the last four years. So now there is so many of them that frankly they don’t make the same impact with the medical profession, which is a pity, because sometimes we really need to warn our physicians.”
“We’ve already adjusted to this and we’re taking on now the role of communicating … to the physician who is not waiting for FDA. We have sent physician letters because in some cases we do want to alert them to what is likely to come out based on what we know about the products.” (4) Expect to do more outcomes studies.
“There will be more demands for outcome studies. People are even questioning whether hemoglobin A1c is a good indicator for diabetes. It is very easy to say well why don’t you do outcome studies and show us that over five or six years you can reduce the rate of gangrene and heart attacks and the like. Well, if we have to do that, it is going to be a long time before the product can hit the market. So we’re going to have to deal with this issue.”
Once again, it is not just Avandia that supports that argument. Look at ENHANCE. (5) Get ready for the “Progressive Blockbuster.”
“The development of new chemical entities and new biologicals is going to change,” Garnier says. “One way is to slice the patient populations, not to try to put the drug on the market for all the patients that could benefit, but focus on the easiest slice, the ones where they would be the least amount of controversy from a safety efficacy standpoint.”
Then you “get the drug on the market because there you will have … an easier file for the FDA to react to.” And “then build up your product as you would an oncology drug” by adding more and more slices of the potential patient population. “By that time you have developed a lot of knowledge about your drug anyway, so it becomes easier to do the right development.”
“You are not going to get instant blockbuster with this kind of technique, you are going to get progressive blockbusters.”
That, to us, seems spot on—though we would argue that there is also room for “minibusters,” products that never reach traditional blockbuster sales levels, but still generate healthy returns because they deliver high value to patients (and correspondingly high gross margins to the manufacturer) without requiring the conventional Big Pharma sales and marketing infrastructure. (6) Innovate, innovate, innovate.
“If you had any doubts, with this kind of environment, we need not just new products, we need breakthrough new products. We need added value. We need best-in-class and first-in-class, nothing else. Line extensions are on the decline, there is no question about it.”
Once again, Garnier is hardly alone in stressing the importance of first in class products in Big Pharma pipelines. But we haven’t heard anyone in pharma say quite so clearly that line-extensions are passé.
We’ll give the last word to Garnier:
“In a fast changing environment, you can’t fight the government agenda. You can’t fight the environment. You have to fit to the environment, take advantage and ride the wave.”
Changes in Attitudes, Changes in Latitudes
Warren Buffett's Berkshire Hathaway said yesterday it had taken a $76 million stake in GlaxoSmithKline. That's some Valentine--even though the stake is relatively tiny (Berkshire also announced a $4.3 billion stake in Kraft Foods) where Warren Buffett goes, others are sure to follow.
It also got us thinking--what if longtime Berkshire Hathaway shareholder and well-known troubadour/leisure-man Jimmy Buffett had taken the stake instead? (Though friends, the two men are not related, according to consumer genomics co 23andMe.)
Hmmmm ...
- Dual Philly/London HQ controversy solved by moving base of operations to Margaritaville
- All GSK salespeople required to grow pencil-thin mustasche
- All Cheeseburgers in Paradise now come with complimentary Avandia scrip
- Piña colada flavor introduced to OTC cough meds
- Alli slogan changed to: "I don't know where I'mma gonna go when the volcano blow!"
Believe it or not, that's all we got. Feel free to add your own (or lament the quality of our Friday humor) in the comments.
photo from flickr user J.E.S. used under a creative commons license
Deals of the Week: The Song Remains the Same
Are you having a case of deja vu? We don't blame you. The main headlines this week echoed those of last week and the weeks prior.
AstraZeneca/ Albireo Pharma: If you feel like AZ's spin-out of its GI assets into Albireo is old news, you're right. We broke news of the rumored event back in November. On Thursday came more specifics about the new Swedish biotech, which is named after a double star in the Cygnus constellation, and has raised $27 million out of a planned $40 million Series A. The new venture inherited several early stage assets and one clinical stage compound from AZ, which maintains a significant minority stake in the company. (For an in-depth discussion of GI R&D strategies, see this story in the November IN VIVO). In their write-up of the deal, our good friends over at the WSJ Health Blog and Fierce Biotech noted that this is an example of pharma's "dis-integration," the industry's need to shed some of its weighty infrastructure, particularly in R&D. Hmmm, that ought to sound familiar to loyal Windhover readers too. (Check here and here and here for more.)JP Garnier’s Farewell Address: The Lessons of Avandia (Part 1)
“This is here to stay.”
“This” refers to what outgoing GlaxoSmithKline CEO JP Garnier sees as a vicious cycle of safety signals damaging blockbuster brands--the phenomenon that he says caused a $1 billion decline in sales of GSK’s Avandia. (See diagram.)
Garnier’s message: the safety-first regulatory climate of 2007 is not going away. “This is long-lasting. This is not a bad year and then the statistics even out.” And the need to adapt to that reality was a major theme of Garnier’s final year-end presentation as the company’s top exec on Februay 7.
Here is how Garnier sees the new reality:
“In the past these meta-analyses were conducted among scientists with not much interest from the media. Things have changed. Those kinds of desk researchers want their publications to get some play. So the news is then digested by the media, and I can’t expect the media to know the subtle points about hazard ratios and confidence intervals and the like.”
“If you think about Avandia, the signal was if you compare Avandia to placebo out of 10,000 patients, five more in the Avandia group will have some kind of cardiovascular event, versus not treating a patient—which is not exactly realistic. When you compare Avandia to other type 2 diabetes agents the signal goes away.”
“That is what the FDA put in the labeling.”
Nevertheless, “that signal was publicized by the newspapers in America as saying there is a 43% increase in the risk of heart attacks if you take Avandia.”
In case you missed it, that was a dig at Steve Nissen, the Cleveland Clinic Cardiologist whose meta-analysis triggered the Avandia safety scare, along with a healthy dose of blame-the-media, always a popular explanation for unexpected safety disasters.
But the more important point is Garnier’s assertion that, like it or not, the Nissen effect is not going away anytime soon. And as we wrote here, industry has no choice but to adapt.
Or, as he put it, “It’s always going to be with us, because as you can see the fundamental parts of mechanisms are with us now. And we better be ready as a company to deal with this.”
Check back later today for six lessons Garnier learned from GSK’s unwitting experience as the guinea big for the new meta-analysis driven safety model.
Thursday, February 14, 2008
A Curveball for hGH
Here's a question: Shouldn't there be a law giving the Food & Drug Administration the power to keep human growth hormone out of the hands of anyone except for those who need it for approved uses?
Oh wait. There is--the FDA Amendments Act of 2007 gives FDA the authority to impose restricted distribution programs on drugs as part of a Risk Evaluation & Mitigation Strategy.
Say, didn't Henry Waxman have something to do with enacting that law?
The new REMS authority takes effect March 28. Just before opening day....
The Wacky World of Generics: Risperdal Edition
They don't call them atypical antipsychotics for nothing.
So Lilly’s $2.2 billion olanzapine (Zyprexa) and AstraZeneca’s nearly $3 billion quetiapine (Seroquel) are in big trouble, right?
Not so, say those two companies.
First off, the Medicare program’s overall generics-first emphasis is more than offset by the Centers for Medicare & Medicaid Services requirements that managed care plans cover all products in the atypical antipsychotic class (and five other protected classes). So plans will be free to switch Risperdal patients to the generic, but will find it difficult if not impossible to drive therapeutic substitution from other brands, as we wrote here.
Or, as AZ CEO David Brennan put it during the company’s January 31 earnings call, “the antipsychotic market is quite unique. A product is a product. There is not a history of therapeutic substitution in that area, and we expect to continue to grow our Seroquel franchise.”
Lilly CEO-designate John Lechleiter took it one step farther, telling investors during a January 29 earnings call that Lilly plans to “retain the broadest possible access for Zyprexa” by emphasizing the “superior efficacy evident in CATIE the longer the duration of therapy.”
You remember CATIE, right? That is the government run comparative trial completed in 2005, with headlines at the time declaring it showed that older off-patent antipsychotics are just as good as the atypicals.
That interpretation, needless to say, has not won out in the marketplace, since Lilly, AstraZeneca and the other companies in the market astutely anticipated the negative headlines and worked diligently to develop alternative interpretations.
How successful were they? Well, less than three years later Lilly will be using CATIE to help support continued use of Zyprexa over a generic from the atypical class itself.
And there is nothing typical about that.
Botox, Friday Afternoon Press Calls and the Nissen Effect
Blaming the media will never go out of fashion, at least not when it comes to drug safety scares.
Here is Schering-Plough EVP Carrie Cox, summarizing the battle to rebuild Vytorin after the ENHANCE debacle during its earnings call February 12: "Physicians ... understand that the furor around ENHANCE is largely a media driven event."
And GlaxoSmithKline’s recap of the Avandia meltdown of 2007: it resulted from a “distortion of the media” about the risk profile seen with the Type 2 diabetes drug, outgoing CEO JP Garnier said February 7.
There is no question that front-page headlines and national news broadcasts can do immediate and lasting damage to even the most well-established brands, damage that may go far beyond any appropriate medical response to new data.
But that only begs the question: what prompts some safety scares (or, in the case of ENHANCE, a failed efficacy trial) to create a media feeding frenzy, while others seem to pass with barely a ripple?
One answer, to borrow a phrase from religious themed bumper stickers, could be WWSNS: What Will Steve Nissen Say? There certainly does seem to be a strong correlation between the Cleveland Clinic cardiologist’s reaction to new data and the amount of play it gets in the media.
Wall Street seems to believe in the Nissen effect. In a February 11 note, Wachovia’s Larry Biegelsen argued that investors over-reacted to an “early communication” about a potential safety issue involving Allergan’s Botox. The issue, announced by FDA February 8, involved serious adverse events primarily associated with off-label use of Botox in children with cerebral palsy. Investors worried that a safety scare could significantly impact Botox widespread cosmetic use.
Not to worry, says Biegelsen. An “ENHANCE-like impact” on Botox use is “unlikely in our view.” Why? Well, for one thing, “Dr. Steve Nissen has not spoken out against Botox,” the way he did against Vytorin.
Talk about a case where silence is golden.
Biegelsen, of course, knows it isn’t quite as simple as that. Nissen’s silence is one of four factors the Wachovia analyst sees as reassuring differences between the Botox safety issues and the ENHANCE fallout. Only one is under the control of the sponsor: “There does not appear to have been any delay in the reporting of the serious adverse events.”
The other three involve reactions by external parties who have no formal regulatory role: (1) Nissen’s silence; (2) “Congress has not started an investigation into the handling of the Botox data”; and (3) The media coverage of Botox is more benign than the coverage of the ENHANCE data.
How so? “We couldn’t find a story in the print version of the New York Times on Saturday, whereas ENHANCE was front page news the day after the results were released.”
Of course, that last point is not entirely good fortune for Allergan. As we pointed out, FDA issued the “early communication” about Botox on Friday afternoon—part of what is becoming a pattern at the agency. (A safety update on Pfizer’s emerging blockbuster Chantix came out the week before Botox, and FDA’s first response to ENHANCE came the week before that.)
It so happens that Friday afternoon is the time least likely to generate significant news coverage. FDA swears there is no deliberate strategy to bury drug safety events. (At least, they assured Pharmalot of that—you can read more here.)
It certainly is plausible that FDA didn’t get all its ducks in a row to issue the early communications until Friday afternoon. We’ve talked to media savvy FDAers over the years (both in the press office and elsewhere) who routinely lament the review divisions’ habit of issuing approval letters at or after the close of business, often on Fridays, thereby all but assuring that even the most important new drug approvals would not be covered in the national news broadcasts, and sometimes even receive scant notice in newspapers.
The fact is that if FDA is not taking the news cycle into account when making safety announcements, it should be. Overblown safety scares do not serve the public health, so FDA certainly could justify Friday afternoon announcements as a way to better ensure that important new information gets into the public sphere in a more measured fashion.
On the other hand, the news media is the best way to amplify an urgent safety message. If that is the goal, the agency is better served by getting the news out early in the day and early in the week whenever possible.
In fact, that’s what FDA did on Monday February 11, when it announced that Baxter is suspending production of heparin due to severe adverse events--an announcement with urgent public health implications.
