[Ip-health] New York Times: Patent Woes Threaten Drug Firms

Thiru Balasubramaniam thiru at keionline.org
Mon Mar 7 06:23:23 PST 2011


<SNIP>

  Still, the industry faces intense pressure from generic competition  
and has tried every tactic to ward it off, including extended-release  
versions of the same medicine and new pills that combine two  
ingredients. But 75 percent of all prescriptions in the United States  
are now low-price, low-profit generic drugs.

At the same time, pharmaceutical companies are being urged by managed  
care and government health programs to cut prices and improve  
reimbursement terms for their most profitable pills.

That follows similar practices in Europe, where Germany and the  
Britain, among other countries, are all increasing pressure for lower  
drug prices.

“Europe is an ugly place to do business today and will be in five  
years’ time,” Christopher A. Viehbacher, chief executive of the French  
drug giant Sanofi-Aventis, said in an interview.

In the United States, Mr. Viehbacher said generic drugs were taking  
over the primary care market, leaving the best growth potential in  
specialty markets and in emerging nations like China, Brazil and  
Indonesia.




http://www.nytimes.com/2011/03/07/business/07drug.html?_r=2&emc=tnt&tntemail1=y

March 6, 2011
Patent Woes Threaten Drug Firms
By DUFF WILSON
At the end of November, Pfizer stands to lose a $10-billion-a-year  
revenue stream when the patent on its blockbuster cholesterol drug  
Lipitor expires and cheaper generics begin to cut into the company’s  
huge sales.

The loss poses a daunting challenge for Pfizer, one shared by nearly  
every major pharmaceutical company. This year alone, because of patent  
expirations, the drug industry will lose control over more than 10  
megamedicines whose combined annual sales have neared $50 billion.

This is a sobering reversal for an industry that just a few years ago  
was the world’s most profitable business sector but is now under  
pressure to reinvent itself and shed its dependence on blockbuster  
drugs. And it casts a spotlight on the problems drug companies now  
face: a drought of big drug breakthroughs and research discoveries;  
pressure from insurers and the government to hold down prices;  
regulatory vigilance and government investigations; and thousands of  
layoffs in research and development.

Morgan Stanley recently downgraded the entire group of multinational  
pharmaceutical companies based in Europe — AstraZeneca, Bayer,  
GlaxoSmithKline, Novartis, Novo Nordisk and Roche — in a report titled  
“An Avalanche of Risk? Downgrading to Cautious.” The analysts wrote,  
“The operating environment for pharma is worsening rapidly.”

The same concerns apply to drug giants in the United States. They are  
all struggling with research failures as they scramble to replace  
their cash cows, like Pfizer’s multimillion-dollar gamble on a  
replacement for the cholesterol-lowering drug Lipitor, which failed  
miserably in clinical trials. Drug companies cut 53,000 jobs last year  
and 61,000 in 2009, far more than most other sectors, according to the  
outplacement company Challenger, Gray & Christmas.

“This is panic time, this is truly panic time for the industry,” said  
Kenneth I. Kaitin, director of the Center for the Study of Drug  
Development at Tufts University in Medford, Mass. “I don’t think  
there’s a company out there that doesn’t realize they don’t have  
enough products in the pipeline or the portfolio, don’t have enough  
revenue to sustain their research and development.”

While industrywide research and development spending has nearly  
doubled to $45 billion a year over the last decade, the Food and Drug  
Administration has approved fewer and fewer new drugs. Pfizer and Eli  
Lilly had major setbacks last year in once-promising Alzheimer’s drug  
experiments. Merck stopped testing its top acquisition from its merger  
with Schering Plough, a blood thinner that caused dangerous amounts of  
bleeding.

Drug company executives have begun addressing the calls for reinvention.

“We have to fix our innovative core,” Pfizer’s new president, Ian C.  
Read, said in an interview recently. To do that, the company is  
refocusing on smaller niches in cancer, inflammation, neuroscience and  
branded generics — and slashing as much as 30 percent of its own  
research and development spending in the next two years as its  
scientists work on only the most potentially profitable prospects.

Consumers should see a financial benefit as lower-cost generics  
replace the expensive elite drugs, but may suffer in the long term if  
companies reduce research and do not produce new drugs that meet the  
public’s needs.

“You don’t lay off R&D if it’s just a cycle,” says Erik Gordon, a  
clinical assistant professor at the University of Michigan business  
school who follows the pharmaceutical industry. “That kills progress.”

The federal government is also concerned about the slowing pace of new  
drugs coming from the industry. Francis S. Collins, director of the  
National Institutes of Health, recently proposed a billion-dollar drug  
development center at the agency.

“We seem to have a systemic problem here,” Dr. Collins said, adding  
that government research efforts were intended to feed the private  
sector, not compete with it.

Mr. Read of Pfizer says new products can replace some but not all of  
the patent losses.

“The hurricane is making landfall,” said Jeremy Batstone-Carr, an  
analyst at Charles Stanley Securities, but he added that Pfizer is  
among several drug companies giving solace to shareholders by  
returning money through stock buybacks and dividends. Pfizer’s best  
asset, he said, is its $20 billion stockpile of cash. Yet since 2000,  
Pfizer’s and Merck’s share prices dropped about 60 percent, while the  
Dow rose 19 percent.

Several of the drug titans have bought competitors with newer products  
to fill their own sales gaps, essentially paying cash for future  
revenue as their own research was flagging. In the last two years,  
Pfizer paid $68 billion for Wyeth, Merck paid $41 billion for Schering- 
Plough, Roche paid $46 billion for Genentech, and Sanofi-Aventis paid  
$20 billion for Genzyme.

Henry G. Grabowski, a professor of economics and director of the Duke  
University program in pharmaceutical health economics, likened the  
recent pharmaceutical megamergers to those that occurred in the  
banking and telecommunications industries when they were hit by  
financial shocks in the 1990s.

But he warned that this wave would not guarantee significant research  
developments in the long term.

“It’s never been shown that these big horizontal mergers are good for  
R&D productivity,” Dr. Grabowski said. “I’m in a show-me mode that  
they get you any real advances other than some short-term cost  
efficiencies that wear out.”

As they move beyond the blockbuster model, companies are refining  
their approach toward personalized medicines and forming more  
partnerships. Using genetic or other tests, the plan is to sell new  
drugs not to millions and millions of people, but to those who would  
most clearly benefit.

Still, the industry faces intense pressure from generic competition  
and has tried every tactic to ward it off, including extended-release  
versions of the same medicine and new pills that combine two  
ingredients. But 75 percent of all prescriptions in the United States  
are now low-price, low-profit generic drugs.

At the same time, pharmaceutical companies are being urged by managed  
care and government health programs to cut prices and improve  
reimbursement terms for their most profitable pills.

That follows similar practices in Europe, where Germany and the  
Britain, among other countries, are all increasing pressure for lower  
drug prices.

“Europe is an ugly place to do business today and will be in five  
years’ time,” Christopher A. Viehbacher, chief executive of the French  
drug giant Sanofi-Aventis, said in an interview.

In the United States, Mr. Viehbacher said generic drugs were taking  
over the primary care market, leaving the best growth potential in  
specialty markets and in emerging nations like China, Brazil and  
Indonesia.

Even in those markets, health systems will not be the profit centers  
that the United States has been. China, emerging this year as the  
third-largest pharmaceutical market behind the United States and  
Japan, plans to cut hundreds of drug prices by an average of 40 percent.

The drug industry has long said that Americans fueled the research  
engine, spending much more per capita on prescriptions than in any  
other nation, and paying the highest prices for prescribed medicines.

Drug industry lobbyists have beaten back Democratic proposals to set  
prices at the lower levels of nations like Canada or to allow Medicare  
to directly negotiate prices. The industry, by supporting President  
Obama’s health care overhaul, capped its contribution at $90 billion  
over 10 years in return for the promise of up to 32 million newly  
insured customers starting in 2014.

The new law also contains a major threat to drug industry profits in a  
little-known section that would allow centralized price-setting.  
Beginning in 2015, an independent board appointed by the president  
could lower prices across the board in Medicare unless Congress acted  
each year to overrule it. Medicare pays more than 20 percent of the  
nation’s retail drug bills.

The industry has also been unsettled by the scores of fraud, bribery  
and kickback cases involving conduct that federal investigators  
contend have added billions to the nation’s drug bill. The penalties  
have been stiff, and the settlements steep.

In 2009, Pfizer paid the largest criminal fine in the nation’s history  
as part of a $2.3 billion settlement over marketing drugs for  
unapproved uses. Some analysts say larger fraud and foreign bribery  
cases will come. The drug companies are responding with extra-careful  
sales training and vows to restrain marketing zeal. But the change in  
corporate culture could cost them: internal documents show some of the  
companies have profited spectacularly from seeking federal approval of  
a new drug for a limited use, then marketing it far more widely off  
label.

Other changes are afoot that will no doubt affect the bottom line.  
They include growing restrictions on gifts, fees and trips to  
influence doctors to use their products; curbs on the ghost writing of  
medical journal articles and a push for more disclosure of negative  
study results. As the golden age of blockbuster drugs fades, so are  
some of the marketing excesses of the past two decades — the tactics  
that helped bring in immense profits.

Some analysts see the industry’s decline as an investment opportunity.  
They say drug stocks are good buys because of low price-to-earnings  
ratios, which typically reflect industry decline or investor  
pessimism, and high dividend yields averaging more than 4 percent a  
year.


------------------------------------------------------------


Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
thiru at keionline.org


Tel: +41 22 791 6727
Mobile: +41 76 508 0997








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