Volume 90 Issue 20 | pp. 30-31
Issue Date: May 14, 2012

Generic Onslaught Hits Pharma Profits

Drug companies finally feel the impact of patent expirations on blockbuster products
Department: Business
Keywords: pharmaceuticals, earnings, generics
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RETHINKING R&D
AstraZeneca is shaking up operations amid tough times.
Credit: AstraZeneca
A scientist at AstraZeneca’s Waltham, Mass., R&D site.
 
RETHINKING R&D
AstraZeneca is shaking up operations amid tough times.
Credit: AstraZeneca

The first quarter of 2012 brought the bitter taste of defeat for many major pharmaceutical firms. For years, drug companies have leaned on a handful of products with multi-billion-dollar sales; as those pillars are falling to generics, so too are big pharma’s profits.

Combined sales for the 11 big drug producers tracked by C&EN were down 0.7% in the quarter compared with last year’s first quarter; earnings fell 3.1%. Earnings have faltered in recent quarters, but the first quarter is the first time the companies’ quarterly sales have fallen since 2009.

Pfizer, AstraZeneca, and Eli Lilly & Co. saw the biggest declines in both sales and earnings. All three companies are experiencing the pain of recent patent losses on top-selling products, and each is taking measures to buttress profits and revive portfolios.

The period marked the first full quarter of life without Lipitor for Pfizer. The cholesterol-lowering drug, which at its peak brought in $13 billion annually in sales, lost patent protection in November 2011. Lipitor sales were down 42% to $1.4 billion in the quarter, with U.S. sales plunging 71% to $383 million. Overall, Pfizer’s first-quarter sales fell 6.6%, and earnings were down 7.8%.

With Lipitor finally off patent, Pfizer is putting its full attention on new products with the best chances for offsetting the revenue loss.

Pfizer did not break out sales of Xalkori, approved last year to treat the 3–4% of lung cancer patients whose disease is driven by a fusion between the ALK and EML4 genes. However, in an earnings conference call with analysts, Geno Germano, president of Pfizer’s specialty care and oncology business, said the drug has been prescribed to 1,000 patients to date. Germano noted that use of the drug, which costs $9,600 per month, should increase as techniques for testing tumors for the fusion mutation become more efficient.

In the quarter, Pfizer was dealt a minor setback to Eliquis, a blood thinner being developed with Bristol-Myers Squibb. In March, the Food & Drug Administration pushed back its decision date on the drug by three months to June 28. Analysts say the delay does not diminish the blockbuster potential of the drug, which Leerink Swann analyst Seamus Fernandez calls “pharma’s most widely anticipated launch” since Merck & Co.’s diabetes drug Januvia.

Pfizer has a second potential blockbuster poised to gain approval this year. Last week, an FDA advisory committee reviewed the firm’s New Drug Application for tofacitinib, a JAK3 inhibitor for rheumatoid arthritis; the committee’s recommendation came after C&EN’s press time. Analysts say the pill, which in clinical trials was shown to be as effective as Abbott Laboratories’ subcutaneously injected Humira, could bring in sales of $2 billion to $3 billion per year at its peak.

As it waits for the next big products to flow from its pipeline, Pfizer is taking measures to tighten up its business. The company recently sold its nutrition business to Nestlé for nearly $12 billion. In April 2011, it shed its Capsugel drug capsule business to the investment firm Kohlberg Kravis Roberts & Co. for $2.4 billion. Pfizer says proceeds from the sales will largely be used to buy back stock and make small, bolt-on acquisitions. “Share buybacks remain the case to beat,” Pfizer Chief Financial Officer Frank D’Amelio told analysts.

The company’s next move will be the divestiture of its animal health business, which Chief Executive Officer Ian Read recently said will likely happen by summer. Analysts like the idea, presented in the conference call, that Pfizer will take the business public rather than sell it. “We would prefer to see this as a spin[-off] or split instead of a sale since $20 billion of cash in Pfizer’s pocket may make investors nervous about another large acquisition,” Leerink Swann’s Fernandez said in a note to investors.

AstraZeneca, potentially facing the toughest road to recovery among the big pharma firms, is also taking a variety of approaches to shore up its business. The British-Swedish drug firm faces rapid revenue erosion caused by generics competition on its long-acting schizophrenia drug Seroquel IR. The drug, which had sales of $4.3 billion last year, lost U.S. patent protection in March, and AstraZeneca has been unable to offset the loss with new products.

Seroquel IR sales were down by 25% to $754 million in the first quarter. Overall, AstraZeneca suffered an 11.4% decline in sales from last year’s first quarter and a 25.8% plunge in earnings. Most of the sales decline is due to generics competition for Seroquel IR, the breast cancer drug Arimidex, and, in some markets, the heartburn drug Nexium.

Since the beginning of the year, AstraZeneca has made several drastic changes to reinvigorate its business. In January, the company said it will cut its workforce by 7,300 positions, including roughly 2,200 R&D jobs. Research activities ended in Montreal and Södertälje, Sweden, moves that primarily affected its neuroscience unit. AstraZeneca has since set up a virtual neuroscience arm that operates with just 40 to 50 scientists who seek out academic and industry partners.

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PHARMACEUTICAL RESULTS
First-quarter sales and earnings were squeezed by patent losses on blockbuster drugs.
A table showing the first-quarter 2012 sales, earnings, and profit margins of 11 pharmaceutical companies and six biotech firms.
 
PHARMACEUTICAL RESULTS
First-quarter sales and earnings were squeezed by patent losses on blockbuster drugs.

In another big shake-up, Astra­Zeneca’s CEO, David Brennan, has stepped down from his post. Simon Lowth, the company’s chief financial officer, is acting as interim CEO until a permanent replacement is found.

To refill its pipeline, AstraZeneca has embarked upon some creative deals this year. For example, last month, the company paid Amgen $50 million for the right to jointly develop five monoclonal antibodies for inflammatory diseases. In addition to paying the fee, AstraZeneca is bankrolling half of the development costs for the drug candidates, the most advanced of which is in Phase II studies.

AstraZeneca has also established two collaborations with government organizations to help revive molecules that failed clinical tests for one disease. Last December, AstraZeneca and the U.K.’s Medical Research Council established a pact that will allow U.K. researchers to propose new uses for 22 compounds that AstraZeneca has already tested in humans. MRC will then fund new trials of the compounds. Earlier this month, AstraZeneca was one of three drug companies to sign up for a similar drug-repurposing arrangement with the National Institutes of Health’s new National Center for Advancing Translational Sciences (C&EN, May 7, page 6).

Lilly is in a similar predicament: The Indianapolis-based drug firm was unable to come up with a replacement for its schizophrenia drug Zyprexa before the patent expired in October 2011. First-quarter sales of Zyprexa, previously Lilly’s top earner, dropped 56% to $563 million. Overall for the quarter, Lilly’s earnings fell 25.3% year-over-year, and sales dropped 4.1%.

The firm’s efforts to push new products through its pipeline have made little impact on the bottom line. Lilly and Boehringer Ingelheim recently gained approval for Tradjenta, a DPP4 inhibitor for type 2 diabetes, and in the first quarter the companies launched Jentadueto, a fixed-dose combination of Tradjenta with long-acting metformin. Although the diabetes market is large, Tradjenta is the third DPP4 inhibitor on the scene; in the first quarter it brought in just $13 million in sales.

Last month, FDA approved Lilly’s amyloid-β imaging agent Amyvid, acquired in 2010 along with Avid Radiopharmaceuticals, for use in adults being evaluated for Alzheimer’s disease. But the agency said Amyvid could be used only to rule out Alzheimer’s, not to diagnose it, significantly narrowing its market potential. Furthermore, the test is expensive—$31,600 per dose—and the Centers for Medicare & Medicaid Services has so far said it won’t pay for the test. As such, many analysts aren’t even figuring Amyvid into their revenue models.

Lilly is pinning hopes on the success of solanezumab, an antibody that binds amyloid-β. Results from a Phase III study of solanezumab are expected in the third quarter, but industry watchers say the antibody’s chances of success are small.

“The next nine to 12 months will be a decisive period for Lilly, as key study results will emerge for the late-stage pipeline,” Deutsche Bank analyst Barbara Ryan said in a note to investors. In addition to results of the solanezumab studies, Ryan noted, data from Phase III trials for its schizophrenia and depression drugs should come in the first half of 2013.

 
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