News on trends and issues in the biopharm and pharmaceutical industry. Commentary on current events,clinical pipelines, facility expansions, competition, technology, legal and economic matters. M&A and licensing activity across the globe.
I am a Director of Research and Devopment for a leading supplier to biopharmaceutical producers. The views expressed are mine. I do not speak for any company or corporation.
Yesterday there was a report in Fierce Pharma regarding India placing price caps on a large number (>100) of big selling diabetes and heart drugs. These caps have hurt Sanofi's local sub already as it is a big player in these therapeutic areas. Their stock has already dropped 10% on the Bombay Exchange. But worse yet, Sanofi -- according to analysts -- could see revenue drops up to 9.5% and drops in profits by as much as 30%.
According to Fierce, India expanded price controls from 74 to 652 drugs last summer and their sales fell by almost 8% as a result (though volumes may be up). When Pharma tried to make up the price difference by cutting the margins it offered to its distribution network, they rebeled by cutting orders.
This is yet another indication that the rules will change for pharma in many emerging economies. These same markets are perhaps NOT the saving grace they were envisioned to be when Big Pharma eyed them as fertile marketing zones with a burgeoning middle class ready to be treated.
Mylan CEO Heather Bresch had openly worried about it being the last US based generics company who did not have a foreign domicile for tax purposes. She needn't worry anymore. Mylan snapped up Abbott's generic drug business outside the US -- mainly in Europe -- in a $5.3 B stock deal. Abbott will retain 21% ownership in the new company that will be domiciled in The Netherlands for tax purposes.
Analysts again hailed this as a good deal for both parties. Abbott is freed from low growing generics and can concentrate its investment elsewhere. Mylan pickes up about $2 B in product sales, cuts its tax rate ultimately to the teens, and also picks up commercial infrastructure to better exploit opportunities in Europe to complement its US operations, and expanding work in developing countries like India.
The deal will boost Mylan sales from $7 B to $9 B and add about $0.25 per share in 2014. With the stock swap, Mylan will also conserve its cash for its current buy back program to further bolster its price per share. This type of merger and tax inversion deal is now termed a "spinversion'. Cute perhaps, but effective.
Sovaldi is drawing more flak from the payers' side of the fence. This time AHIP -- the largest health insurance trade group is saying the drug works great in the clinic but costs too much. They characterized its cost as "unsustainable" in the US healthcare market.
Curiously, at least to me, Sovaldi does appear to offer such great clinical benefits -- it actually cures significant numbers of Hep C infections -- that it probably is worth its costs in downstream medical savings. But, I think it suffers from the fact that its target patient population is so vast that the total amount that could go to the drug will likely exceed $10 B this year alone -- and it was just launched!! Payers don't seem to like that much.
But I still think it likely pays for itself with other medical savings and increased quality/productivity of life for those treated patients. One would think that some of the other drugs with less glorious clinical profiles and equally high prices would draw more fire. But again, I think the total payout is so large with Sovaldi that it is just too difficult to ignore by payers. I'd like to see a real cost/benefit analysis done on this drug so we can truly assess whether it is "too expensive". One shouldn't only react to the sticker price but also to the clinical result.
I suspect Sovaldi is one drug that is actually worth its price. That likely isn't true for some of the other therapies -- particularly in the cancer arena that are expensive but only have shown months worth of life extension. See Fierce Pharma.
In recent Bloomberg interviews, the CEOs of both Merck and Mylan indicated that they didn't want to leave the US yet to gain foreign tax advantages. Merck's Ken Frazier was more firm in saying he didn't want to leave US shores but rather wished to work with the Congress to reform the US tax code to make it more of a "level playing field" against foreign competitors. He did indicate that he was at a current tax disadvantage as many Big Pharma are fleeing for better rates in places like Ireland, UK or Switzerland.
Mylan's CEO, Heather Bresch, was less definitive. She indicated that Mylan didn't want to go now but that she has thought about it. She feels she is at a competitive disadvantage to bigger competitors like Actavis (recently relocated to Ireland), Teva or Sandoz. She'd like to see a lower US tax rate. She also expressed fears that the US Congress might make it harder for a US company to relocate in the future. In that instance, she says she will not only be penalized by a higher rate but that competitors who left early will benefit further in not having to pay penalites for leaving like her company would if it left post-legislation.
I suspect the Pfizer deal, if it goes through, will be the trigger to change the US code but it may indeed be a case of too little too late. Unless of course, incentives are offered for coming back. Let's Make a Deal.
I saw an article touting the possible superiority of biobetters over biosimilars in Biopharma-reporter. In it, the author was suggesting that biobetters could establish a new bar that biosimilars could not meet and would therefore render them obsolete before they even got to market. To that I say, "Really?"
Does anyone out there, besides Roche, really believe that? I say "Wake up People!" Have you been looking at world economies recently? Have you noticed governments all over the world talking about problems of health care costs? Have you noticed these same governments becoming increasingly friendly to biosimilars? Have you noticed 3rd party payers increasingly bristling at high high high priced new drugs? If you haven't then where the hell have you been?
Biosimilars will make it to market -- all markets -- even in the US because they offer governments a way to push down drug costs on biologics. It's that simple. Get over it. All the arguments about how difficult it is to be biosimilar, automatic substitution, blah blah blah will be overwhelmed by economics. Third party payers simply will NOT pay for new drugs that don't show SUBSTANTIALLY increased benefits. That's all there is to say.
Express Scripts says drugs for conditions like rheumatoid arthritis, MS, cancer and in particular hepatitis C are pushing costs to unsustainable levels. The so-called specialty drugs account for about 1% of US prescriptions but accounted for 27.7% of the pharma spend in 2013. Hepatitis drugs have been singled out (Gilead's Solvaldi is new) as a 12 week course costs $84,000. Plus, hepatiis C drugs apply to a large patient population.
The Express Scripts analysis says drugs like Sovaldi will drive specialty prices by 63% over 2014-2016 period. Analysts project that Solvaldi could rack up $10 B in revenues in 2014 alone. Express Scripts says that the US will spend 1800% more on hepatitis C drugs in 2016 than now --- an unprecedented hike.
Express Scripts chief medical officer, Steve Miller, said that "never before has a drug been priced so high to treat a patient population this large, and the resulting costs will be unsustainable for our country" (cue Star Spangled Banner). Gilead for its part says the drug's extraordinary cure rate is worth it and saves money to healthcare overall.
I think Gilead has its point but the sticker shock of the new drugs is a big issue. Express Scripts isn't the only one making noise. WHO also said today that it thought hepatitis C pricing was out of hand and other emerging governments have voiced complaints as well --- particularly with regard to low income patient access issues. This is not the type of issue that will go away quietly. See the PharmaTimes and Bloomberg.
A new McKinsey report, written about in Fierce Biotech and In the Pipeline, is stirring the pot once more regarding pharma so-called mega-mergers by stating that these have worked to create shareholder value. Derek Lowe, in particular, questions this in his blog citing the disruption to R&D pipelines/their productivity, internal politics jockeying for position, downsizing, and plain drama in people's lives. He further cites John LaMattina's support for this view as a key exec who lived through Pfizer's acquisition of Wyeth. He also pulls out the argument that we'll never know what might have been produced by the separae entitites -- an opportunity cost as it were. I see this latter argument as more speculative and less compelling. It might have been worse too.
For their part, McKinsey says shareholder value was created as evidenced by higher EBITDA, higher ROIC and increasing economic profit -- two years post-merger. The analysis was done on 17 deals larger than $10 B. McKinsey suggested that these should be divided into two camps as well -- deals that were consolidations and deals that were aimed at growth creation. Not surprising to me, consolidations kicked off way higher economic profits two years -- post merger. C'mon though. It is only TWO YEARS. This is the pharma industry where normal investment horizons are 15 years or more. The consolidated deals largely paid off due to accelerated revenue (for some), reduction in COGS, reduced overhead (i.e. we fired staff), R&D consolidation and rationalization (i.e. we fired staff). In other words, the dreaded S-word kicked in, synergies, which meant we cut programs and staff to pay for the merger. It did pay in this time span though, with a 60% growth in economic profit.
On the flip side, the so-called growth oriented mergers actually caused a 3% decrease in economic profits over the two year window. They didn't have enough people to fire. But they did increase trading multiples by nearly 60% for the acquirer, or 20% relative to top 20 peers. The market rewarded the promise in these deals. Maybe the promise will deliver and maybe it won't -- but from my perspective this cohort is more interesting to watch over an expanded time frame more conducive to the actual operation of the pharma business. The consolidations actually caused a 5% drop in multiples. Whereas their excess returns were positive over a 3 year period they were ALL negative by year 5. That suggests to me that these may NOT be judged successful over a more appropriate time span. Growth platform deals are 100% positive (TRS = total shareholder return) over that same 5 year span.
So despite the headlines, I think the jury is still out. I don't think a pharma company's "success" is judged over two years.
BioMarin has set the price for its newly approved drug Vimizim, a treatment for Moquito A syndrome, at $380,000 per year. At that price, it expects to garner about $500 M in annual sales and the drug clocks in with the 3rd highest overall drug price.
Orphan drugs, typically for very small patient populations, hold all the top spots for highest priced drugs. The top 5 are listed below:
All of these drugs achieve sales between $500 M and $2 B annually which helps make the orphan drug area attractive now to biopharmaceutical companies. Not surprisngly, it also makes the companies themselves attractive targets for acquisition rumors as all 4 above have been prominently mentioned by various analysts and industry pundits. See Fierce Pharma.
A couple weeks ago, I published a piece from the Economic Times quoting an IMS study that predicted that India's drug market growth would slow to high single digits and that India would slip in the overall world rankings in market size from 8th to 11th. Today's Economic Times article quotes a Deloitte study that predicts India's drug maket will grow by 14.4% through 2016, at which time it will reach $27 B in size.
Deloitte says that India's growth will be challenged by several factors. "The outcome of of new product patents, drug price control, poor regulatory enforcement, inadequate health care infrastructure, shortage of skilled workforce, increasing patient expectations, ever-changing technology, and quality management and conformance to global standards act as critical barriers in delivering products and services in a sustainable manner."
Nevertheless, India has some things going for it. Namely, it has 119 manufacturing plants approved by FDA -- more than any other country. It accounts for 10% of global pharma production. It makes more than 400 different APIs. Deloitte says India has the opportunity to garner as much as $40 B in sales with 46 US drugs comping of patent by 2015.
Last week, I reported IMS projections that India's overall market size and world ranking would decrease from number 8 to number 11 in the next couple years, largely based on slowed domestic growth rates. A new report by India Ratings & Research says that India's drug exports will be greater than its domestic sales by 2015. This is due to the relatively modest, 10.4%, growth rate internally as compared to a projected continued robust 22% rate for exports.
The report says that $92 billion in drug sales are expected to come off patent in the next few years which will continue to spawn opportunity for India's drug industry -- particularly for generics and biosimilars. India has the most US FDA approved facilities outside the US. This point may be obscured by the recent problems some India sites have been having but this report says they don't expect any material negative impact due the recent citations by FDA. Thw WHO and EU also have approved many drugs sold from India. See The Economic Times.
Pfizer achieved its goal of reducing R&D expenses -- by an estimated $800 M in 2013. Their curent spend of $6.6 B is almost $2.8 B below its peak established in 2010. But they had only 1 midling new drugs last year, and the new drugs that were approved in 2012 have not as yet resulted in big revenues. Yesterday, Pfizer reported that is touted drug, dacomitinib, failed in two phase III trials for lung cancer.
It has other drugs in the pipeline that may yet pan out but there are no sure signs of success as yet. Which leads us to a variation of the age old question, "If R&D falls in Pfizer does is still make a drug?" See Fierce Biotech.
Well, Bayers CEO deserves kudos for honesty and forthrightness if not for PR savvy. Marijn Dekkers recently told reporters that at an industry forum that "We did not develop this medicine (Nexavar) for Indians. We developed it for western patients who can afford it."
This comment arose as a result of India's government awarding a compulsory license for the medication to an generic competitor that promptly dropped market price by 80%. Dekker termed the goverment/regulatory action as "essentially theft." Masterfully stated if not exactly PC. Bayer confirmed the accuracy of the statements when asked. Dekker further elaborated that these were quick response statements to a question and that he had been "particularly frustrated" by the licensing action.
A patient advocacy group, Medecins Sans Frontieres (MSF) said on Friday that the Bayer chief's remarks summed up "everything that is wrong" with the multinational pharmaceutical industry. Bravo, Marijn! See The Economic Times story.
The Economic Times reports that Lilly will experiment with pricing models for its drugs in India. I think this is smart. Afterall, Lilly is looking at a very DOWN revenue year with Zyprexa already off paent and Cymbalta off wihtin the past month. It has a myriad of well publicized pipeline failures and times ae tough.
The company recently announced that it has designs on being among the top 20 drug companies in India in the very near term. With that in mind, and with all their other economic challenges, why not take a bold move to do someting different with pricing? Clearly, India and other developing nations have made it increasingly clear that their regions/governments cannot bear the costs of Western pricing models for their large and often poor populations. Who can affort multi-hundred thousand pricing for the latest cancer drug or rare disease biological? Even the more mainline cancer biologics ae often well out of economic range of the average developing nation citizen.
So it seems to me that Lilly is in a good place to experiment. Perhaps they will develop models they can use throughout developing nations to be a power in that sphere. Certainly, a systematic exploration of the possibilities is warranted given their economic/competitive state and the stated aims of these governments and advocates. Perhaps, there is a chance that this type of pricing could just erode the attractiveness of these markets more rapidly, but that should be a controllable risk and the upside could be much greater for Lilly and in satisfying demand within these populations for more affordable drugs.
How big? Well at the recent JP Morgan conference, a Hospira spokesman put the figure at a potential $250 B. For that reason alone, Hospira thinks biosimilars will make it very successfully in the USA despite no products coming through the FDA as yet. Hospira syas it expects to submit its first application to FDA within a year and say they have a biosimilar pipeline in R&D worth more than $40 B in local currency. Big talk and big aspirations.
Hospira does have three marketed biosimilars in Europe, including the world's first monoclonal antibody, Inflectra. Hospira says its biosimilar Filigrastim has taken 60-70% of the market share of Amgen's branded Neupogen in Europe and they want to do the same in the USA. Hospira says a biosimilar behaves much differently than a small molecule generic. It has a much slower ramp up period but then has a much longer share of market. Instead, you get a nice profitable build of business. See Biopharma-Reporter.
Luke Timmerman had an interesting piece in Xconomy today coming on the heels of the recently concluded JP Morgan biotech industry get together. He points out that the scales have shifted to put smaller biotechs with an asset on more even footing with Big Pharma when it comes to negotiating over that asset. The reason? More financial options for the little guy now that the IPO market has revived. Plus the run up in stock prices has put more money into the pockets of other potential bidders -- like Celgene, Gilead, etc who can now conceivably pitch better deals than the Big Bad Boys of pharma to give them a run for their money. All this is good for the smaller, formerly less empowered seller and makes for a healthier market environment. Now the little guys can get paid for their innovative efforts and Kevin Kinsella won't have to defend their honor with any more Richard Sherman like rants. As long as this more dynamic market holds then the whole ecosystem will maintain better health. See Xconomy.
Also, Timmerman's gym teacher seems like a real jerk.
This comes from an article in Fierce Biotech that is talking about BMS' attempts to shame Gilead into a combination study for the two companies respective hepatits C treatments. I like this article as it likely is a harbinger of things to come in industry and healthcare over the coming years and raises a host of interesting issues --- at least from my point of view. I shall elaborate.
First off, I think the idea of combination therapies is much more common and regulatory bodies are more attuned to considering how you set up clnical trials to establish this will benefit patients and set a new standard of care. Soooo -- if you have evidence or reasonably founded strong belief that a combination of two companies therapies will actually radically benefit patients? Aren't you ethically bound to try it? You will help people.
Moreover, in this day and age of more intrusive goverment funding of therapies, and the cost issues this raises, wouldn't we expect more goverment pressure or public policy to evolve toward forcing these types of marriages on companies even if they don't want to (and we'll get to their possible reasons)? A shotgun clinical trial so to speak? I would think 3rd party payers would also jump on this bandwagon if they felt the combined therapy was going to be much more medically effective and especially if the perception was that it would be more cost effective. I can't see anything bucking trends to make therapies more cost effective -- comparatively effective.
From the individual compaines persepctives, I still think they have the better standard of care issues and medical ethics issues to provide patients better treatments, but they also have fiduciary motives and responsibilities as well. They do need to reasonably maximize rreturns for their shareholders. You can see where they might have reason to believe this is best doen through their solo therapy or by combining with one of their own therapies that they can see in their own pipeline -- that's harder to evaluate from the outside -- certainly from financial point of view but even from an availability angle. The counter argument is that the two company combined therapy might be more rapidly available and it may even be medically better -- if not financially better for eeither individual company. On the other hand, a combined approach may actually enlarge the pie for either individual company with their own drug? Again, I can't really tell without more specific data on the situation being examined.
Nonetheless, I woud expect this type of issue to arise more often in the future, and it would not surprise me to see public policy pushing to make this type of multi-company combination approach more likely to happen with either a carrot or a stick if necessary. Economics will increasingly drive some of these decisions in my view.
A new report from the Center for Medicare and Medicaid Services (CMS) reported that overall healthcare spending in 2012 was only up by 3.7% which is very comparable to the previous years since 2009, ranging from 3.6%-3.8% over the period. Drug expenditures did their part in keeping costs down. Drug revenues in 2012($263 B) were only up by 0.4% as opposed to 2.5% the prior year. It is believed this may be due to a combination of big drugs coming off patent - e.g. Lipitor, Plavix, and Singulair -- and the enactment of the Affordable Healthcare Act. Generic drugs now make up 77% of scripts in the US versus 70% after 2011. IMS says the utilization rate can only go a few percent higher before it plateaus.
The other notable trend is the rise to power of PBMs (pharmacy benefits managers). PBMs have excluded some major new drugs from their 2014 National Formulary -- such as Xeljanz, Breo Ellipta, Simponi and Stelara. Express Scripts (one of bigger PBMs) also indicates it will take aim at holding costs down on new hepatitis C drugs -- like Solvadi. There will continue to be more pressure on comparative effectiveness data to justify using any of the new VERY expensive products. See Fierce Biotech 1 & 2.
Leerink Swann's analyst, Seamus Fernandez (should own Irish-Mexican bar), didn't mince words. He says Merck's Roger Perlmutter, R&D Chief at Merck, needs to slash its budget by at least $1B now. He said that would bring it in line with other competitors like, Pfizer, at 14% of sales.
Perlmutter, new to the job after coming from Amgen, had proposed a much more modest $144 M in cuts. Certainly, not enough to assauge Fernandez's chopping mentality. He says the R&D group is clearly underperforming with recent failures -- odanacatib, suvorexant, Bridion, and Tredaptive to point to as evidence. He further stated that for every $1B excised from R&D, Merck would see a $0.25 per share gain. And we must protect those shareholders, mustn't we?
Merck is quickly becoming a poster child for underperforming R&D groups that seem to be plaguing the industry generally and certainly are a bane in big pharma right now. Fortunately, Merck still has groups like Lilly and AZ that appear capable of racing it to the bottom for R&D productivity. See Fierce Biotech.
China today revoked Gilead's patent to the AIDS drug Viread in China. In a move similar to recent happenings in India, China has declared the patent invalid -- and not granted a compulsory license -- but opened the drug up to manufacture by anyone in the country who can. The rationale cited was the drug lacked novelty.
While this might be a somewhat special case, as the drug is very old having been discoverd in 1985, and is for the treatment of AIDS which is a big problem, it still represents an instance where a patent is being disqualified. Presumably, this is motivated in large degree to make this important AIDS treatment more affordable for the populace in China. But it does so in a sweeping way, as it completely bypassed the compulsory license route and went straight to nullification of the patent.
Gilead had already agreed to lower pricing, and had made its patents available in a pool with generic drugmakers from several countries. China decided not to participate though. Apparently, in this case, they will opt to just take the drug and make it. Stay tuned for more drug wars. See Pharmalot.
India has partially revoked another Big Pharma patent -- this time Roche's Herceptin -- apparently in an effort to stem the drug's price ($1400 per month) in the market and improve its accessibility to patients. It appears that Indian officials are trying to negate any connection that is being made between the latest decision and perceived expensive pricing for the drug in question.
Let's total the score now. India has now disallowed patents or granted a compulsory license for Bayer's Nexavar, Novartis' Gleevec, GSK's Tykerb and Roche's Herceptin. Any wonder that pharma companies and the US government have been increasingly vocal about the Indian Governments apparent disregard for intellectual property rights?
Pharma is no doubt frightened that this will continue in India and that this trend may spread to other countries in the region. It also may call into question and Big Pharma strategy tha exists for making up sales losses in the US or EU due to patent cliff issues by selling more product in the less developed regions of thw world. These latter countries may not turn out to be fertile pickings -- and actually may make things worse if IP starts disappearing. See Pharmalot.
Lonza and Teva announced today that they will be ending their short-lived venture to jointly develop biosimilars. Senior Lonza executives say that developing biosimilars is expected to be too costly and take too long to bring to market given current regulaory policy (e.g. FDA guidelines). So given new the newer regulatory information that emerged after the JV was started, Lonza assessed it and decided to get out. Lonza says it will stick to its core expertise in the CMO business.
Teva for its part has said it will continue to play in the biosimilar market by pursuing a "highly selective approach in our efforts to create a balanced portfolio of biosimilars, biobetters, and innovative biologics....."
Bottom line: FDA regulations calling for liklihood of clinical trials with most biosimilar applications is deemed to be more expensive and time consuming than previously thought and will scare some players out of the market. Lonza is first to go. See Fierce Biotech and In-PharmaTechnologist.
As Fierce Biotech reports via IMS data, te US drug market shrunk by 1% in 2012. This is the first time that has ever happened. This is due, of course, to the much talked about patent cliff arriving in a big way -- mpacting market share and revenues of some of the world's top selling small molecules. The US market is now down to $325.8 B.
Patent cliff drugs took a $29.8 B dollar hit. Yes, with a Big B. Branded producers in general saw revenues decline by $11.8 B. Generics producers of course saw he upside of things as their sales increased by $8 B. A drug market Yin and Yang as it were. Generics now account for 84% of all drugs prescriptions dispensed in the US.
The bright side for branded manufacturers are for their new drugs (< 24 months old). These actually grew by $0.5 B to a total of $10.8 B. These all fell into the specialty category with drugs like - Incivek (hep C), Eylea (macular degeneration), Xgeva (bone drug), Gilenya (MS), and Yervoy (melanoma). At least the FDA is on an upward trend with approvals, so there may be hope for a continued flow of more new drugs to bolster brand name revenues.
However, the next wave over the patent cliff is also still coming. Here's a report from the end of last year in Fierce Biotech that outlines the next 15 top sellers to go off patent this year.
This post from Patent Docs blog is self-explanatory. Suffice it to say that any hoo-haw over the exhorbitant price of a BRCA diagnostic test at $3000 is -- shall we say overblown. Assertions of this sort couldn't be more wrong-headed. If you want to blame somebody on this front, it is likely more apt to blame a particular insurer for NOT covering the test cost.
New reports from PricewaterhouseCooper (MoneyTree Report) and National Venture Capital Association (Reuters data) show that VC investment in Qtr 1 2013 dropped 12% by dollars and 15% by number of deals as compared to Qtr 4 2012. In a Qtr over Qtr comparison with Q1 2012, the amount of dollars invested this Qtr was down 6%.
VC funding was therefore $5.9 B for 863 deals in Qtr1 vs $6.7 B for 1013 deals in Qtr4. Life Science specific investment fared even worse - with $875 M for 96 deals versus $1.3 B for 138 deals in Qtr 4. That represented a 33% drop in dollars and 30% drop in deals. Even worse, first-time deals dropped 52% and garnered only $98 M dollars for 20 companies, the worst performance since Qtr 3 1996 and Qtr 2 1995 respectively. See Fierce Biotech.
If there is a silver lining (and maybe there is), some speculation exists as to whether more companies are preparing for IPOs, as 175 IPO filings have been submitted to the SEC for review. This is discussed extensively in Xconomy.