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Big Pharma’s Pipeline Promise

First-quarter results were steady, but drug companies see better times as new products approach commercialization

by Lisa M. Jarvis
May 16, 2011 | A version of this story appeared in Volume 89, Issue 20

Credit: BMS
Bristol-Myers Squibb has several new compounds poised for approval.
Credit: BMS
Bristol-Myers Squibb has several new compounds poised for approval.

In the midst of a protracted period of patent expiries on some of their biggest-selling drugs, pharmaceutical companies are trying to move the conversation away from generics competition and toward the new products emerging from their pipelines. In first-quarter earnings announcements, companies that have been most vulnerable to generic threats—Merck & Co., Bristol-Myers Squibb, and Pfizer—offered stable results and the promise of a steady flow of new products.

Merck is in the thick of generics competition for its Cozaar/Hyzaar franchise, which once brought in $3.6 billion annually. But Chief Executive Officer Kenneth C. Frazier pointed out to investors that the company managed to post solid quarterly results despite last year’s loss of patent protection on the blood thinners. Overall, first-quarter sales were up 1.4% from the same quarter last year to $11.6 billion, and earnings rose 9.7% to $2.9 billion.

“Clearly, patent expirations are a fact of life in our industry,” Frazier said on a conference call with stock analysts. “Going forward, we believe a company’s ability to consistently grow through patent expiries will be an important differentiator and measure of success.”

For Merck, that growth was in part due to expansion of the firm’s diabetes franchise across the globe. Combined sales of Januvia and Janumet jumped 47% to $1.0 billion in the quarter, helped by delays in the introduction of competing products.

And Merck has several important drugs moving toward commercialization that could further bolster its underlying business. One of the most talked about is Victrelis, formerly known as boceprevir, a protease inhibitor for the treatment of hepatitis C virus (HCV). Last month, a Food & Drug Administration advisory committee unanimously recommended approval of Victrelis, which would be one of the first new medicines for HCV in decades. The regulatory agency is expected to give the green light for the drug this month.

However, Victrelis will be competing against telaprevir, a protease inhibitor being developed by Vertex Pharmaceuticals that’s also likely to be approved this spring. The FDA panel had concerns about the safety and efficacy of Victrelis in certain patient populations. Moreover, analysts think Merck could have a tough time positioning its drug in the marketplace because telaprevir has an easier dosing regimen.

“Merck’s key lever is its ability to control the overall cost of HCV therapy,” Deutsche Bank analyst Barbara Ryan wrote in a note to investors. “We believe that aggressive pricing/rebating strategies could significantly impact overall usage, and Merck has much more flexibility in this regard.” Ryan expects Victrelis to bring in peak sales of $875 million per year.

The impending launch of Victrelis and telaprevir could also reinvigorate sales of Merck’s interferon franchise, since both HCV compounds need to be taken in combination with the current standard of care in HCV, PEGylated interferon and ribavirin. Sales of Merck’s versions of the older treatments, PegIntron and Rebetol, have dropped in recent years, in part because people with HCV have been delaying treatment until the new protease inhibitors hit the market.

In addition to HCV-related products, Merck has several other compounds coming down the pike that could spur growth. Later this year, the company plans to file for FDA approval of ridaforolimus, an mTOR inhibitor for sarcoma being developed with Ariad Pharmaceuticals. And it has already filed a New Drug Application (NDA) for tafluprost, a prostaglandin analog used to lower intraocular pressure in people with glaucoma or ocular hypertension. Merck recently gained full rights to tafluprost through its $430 million acquisition of Inspire Pharmaceuticals.

BMS also highlighted an array of new compounds that it hopes will offset the inevitable loss of revenue when generic versions of its blood thinner Plavix hit the market next year. Sales of Plavix reached $1.8 billion in the first quarter, up 6% from the same period in 2010. Overall, BMS’s first-quarter earnings increased 4.2% to $1.4 billion, based on a 4.2% rise in sales to $5.0 billion.

A chief product that could help ease the pain of the Plavix patent expiry is Yervoy, a cancer immunotherapy that received FDA approval in March to treat melanoma. Yervoy, previously known as ipilimumab, prevents cytotoxic T lymphocyte antigen-4 from interacting with its ligands, causing T cells to spring into action and potentially combat tumor cells.

FDA is allowing the drug to be used in a broader patient population than analysts had expected, and BMS will sell it at twice the price—$120,000 per patient per year—they had forecast. As a result, analysts are boosting their expectations for what Yervoy will bring in for BMS. For example, Leerink Swann analyst Seamus Fernandez raised his 2012 sales estimates for Yervoy by $275 million to $625 million and his 2015 forecast by $375 million to $1.15 billion.

BMS has several other drugs on the brink of approval. European regulatory authorities are expected to give final approval for apixaban, a blood thinner being developed with Pfizer, later this quarter. FDA is expected to decide in June whether to approve the kidney transplant rejection treatment belatacept, following resolution of a manufacturing issue at BMS’s plant in Manatí, P.R. And the agency should hand down a decision on dapagliflozin, an oral diabetes drug that BMS is developing with AstraZeneca, by the end of October.

Pfizer is also trying to shift investor attention away from the looming expiration of its patent on the cholesterol-lowering drug Lipitor and onto a handful of candidates moving toward commercialization.

Pfizer’s first-quarter sales declined 0.4% to $16.5 billion, and earnings were down 1.1% to $4.8 billion. But the relatively even results were largely driven by Pfizer’s non-prescription-drug businesses. Notably, its animal health, consumer health care, and emerging markets units grew by 16%, 12%, and 10%, respectively.

Meanwhile, sales of Pfizer’s biopharmaceutical unit fell by 2% from the same quarter last year to $14.2 billion, hampered by the 13% dive in sales of Lipitor, which is already experiencing generics competition in some European countries.

But the firm highlighted progress on several late-stage drug candidates that it hopes will revive growth in its prescription drug business. For example, Pfizer began a rolling submission in January of its NDA for crizotinib, an ALK inhibitor for the treatment of lung cancer. It expects to complete the process in the first half of the year. An FDA decision on the pain medication Remoxy is expected on June 23, but Pfizer says it could be delayed because of the agency’s requirement that all extended-release opioids, which are prone to abuse, have a risk evaluation and mitigation strategy.

Pfizer is also planning to unveil Phase III data this year on several other compounds, including tofacitinib, an orally administered JAK-3 inhibitor for the treatment of rheumatoid arthritis; axitinib, a multikinase inhibitor being developed to treat kidney cancer; and the blood thinner apixaban.

As it touted compounds heading toward the market, Pfizer also sought to reassure investors that it is taking other measures to improve its performance. In R&D, Pfizer is narrowing its activities to several core therapeutic areas—neuroscience, cardiovascular health, metabolic and endocrine diseases, inflammation and immunology, oncology, and vaccines—and overhauling its pipeline. CEO Ian Read told investors that the company has completed a review of its early to mid-stage pipeline, shedding 39 programs in order to focus on “high-priority projects.”

Pfizer is shaking up its business as well. At the end of the first quarter, Bernstein Research analyst Tim Anderson suggested Pfizer is planning to spin off or sell the bulk of its noncore assets in order to concentrate on its prescription drug business. Noncore units said to be potentially on the block include nutritionals, consumer health, animal health, and generics and biosimilars, or generic versions of biologic drugs. Anderson noted that the units account for some 40% of Pfizer’s revenue base. Pfizer has since announced the sale of its capsule-manufacturing business Capsugel for $2.38 billion.

In a first-quarter conference call with investors, Read reiterated Pfizer’s plans to complete a review of its portfolio in the second half of the year. When analysts asked for clarity on the review, Read would say only that the company is considering synergies between businesses, the opportunity costs of continuing individual businesses, and strategic alternatives for units. However, he also told investors not to expect some sort of “big bang” announcement in which a master plan will be unveiled.


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