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Pharma Growth Still Stagnant

Major drug firms continued to see declines in 2013, while biotech companies shined

by Lisa M. Jarvis
March 10, 2014 | A version of this story appeared in Volume 92, Issue 10

Credit: Gilead
The pill that treats HCV, Sovaldi, is driving robust growth at Gilead.
This is a photo of a hand holding Gilead’s HCV pill Sovaldi.
Credit: Gilead
The pill that treats HCV, Sovaldi, is driving robust growth at Gilead.

Big pharmaceutical companies continue to suffer the ill effects of their decades-long addiction to blockbuster drugs. Many of the multi-billion-dollar sellers that once fueled double-digit profit growth lost patent protection years ago, but companies still have not managed to replace the lost revenues. Last year was no different: Most firms sustained themselves on older drugs still protected by patents.

After a rocky first half, marked for many companies by declines in sales and earnings, the pharmaceutical industry began to recover in the second half of 2013. Still, the modest rebound had more to do with adjusting to the new normal—life without as many multi-billion-dollar drugs to sell—than it did with innovation. Biotech firms fared better, thanks to recent launches of promising new treatments.

Overall, sales for the big pharma firms tracked by C&EN were down by 1.0% in 2013, while earnings declined 3.2%. By comparison, biotech companies saw sales improve by 12.6% and earnings rise 12.9%.

Of the big pharma firms, AstraZeneca is on the longest road to recovery. Generics competition is eroding sales for many previous blockbusters, or drugs with sales exceeding $1 billion, including the anti­psychotic Seroquel, which continues to lose steam in its second year off patent. The result was a 26.6% drop in earnings for AstraZeneca on an 8.1% sales decline.

The next few years will continue to be tough for the firm. The heartburn pill Nexium, which had sales of $3.9 billion in 2013, is expected to face generic competition in May. And although the company is on track to meet its goal of advancing five to seven molecules into Phase III trials between 2013 and 2014, the payoff will not be immediate. The decline in sales and earnings will continue this year, and AstraZeneca projects it won’t climb back to 2013 sales levels until 2017.

For Sanofi, which in recent years has experienced similarly painful patent losses, 2013 brought the first signs of better times. Sales decreased 5.7% and earnings fell 17.5%, but the firm attributed the decline to a tough first half. Sanofi’s performance started to improve in September, and by the fourth quarter both sales and earnings had grown modestly.

That momentum is carrying over into 2014. Sanofi Chief Executive Officer Christopher A. Viehbacher told investors that this year will be an exciting one for the company. “This is the first year that we’re looking at growth for the whole year,” he said. “This is the first year that we’ve got the patent cliff behind us.”

The company is also seeing early results of an effort to rely less on small molecules. Biologic drugs represent 45% of Sanofi’s sales but make up 80% of its development pipeline. “You don’t have to be a math genius to figure out that the percentage of sales from biologics is going to increase over time,” Viehbacher told investors.

Biologics are also the key to future success at Bristol-Myers Squibb, which saw earnings decline by 10.3% last year on a 7.0% dip in sales. BMS is poised to benefit from its growing portfolio of cancer immunotherapies such as Yervoy, an antibody approved in 2011 to treat melanoma. Industry watchers are also excited about nivolumab, a PD1 checkpoint inhibitor in Phase III trials as a lung cancer and melanoma treatment, and three other immuno-oncology drugs in Phase I trials.

Sales of Yervoy, which totaled $960 million in 2013, are expected to grow modestly in the next two years, and nivolumab is forecast to surpass the $1 billion mark by 2016. Seamus Fernandez, an analyst at the investment firm Leerink Swann, projects that cancer immunotherapies will represent more than 60% of BMS’s revenues by 2026.

Biologics will also play a role in Merck & Co.’s turnaround effort. Merck, which saw a 6.8% decline in sales and an 11.1% dip in earnings last year, has several new products on the horizon, including its own anti-PD1 antibody. Industry watchers had expected BMS to beat out the field with nivolumab, but earlier this year Merck revealed that it had started the regulatory approval process for its anti-PD1 antibody, MK-3475. Analysts quickly revised their forecasts for the drug and now believe it will reach blockbuster status in 2016, rather than 2017.

To offset lost sales resulting from patent expirations, many firms in recent years diversified their portfolios, adding or expanding units such as consumer products and generic drugs. Now, as they slowly revive their core businesses, some are rethinking those strategies.

Last year, for example, Abbott Laboratories split off its pharmaceutical business to form the pure-play drug company Abb­Vie. Pfizer is in the midst of dividing into three units—innovative pharmaceuticals; generic drugs; and vaccines, oncology, and consumer health care—in advance of what many industry watchers expect will be a formal breakup of the company.

Merck, meanwhile, is evaluating options for its consumer care and animal health units; their fate is expected to be decided later this year. Last month, reports surfaced that potential bidders including Bayer and Novartis had emerged for the consumer care business, which is expected to fetch as much as $12 billion.

Drug companies also continue to scour the biotech landscape for promising molecules to bolster their pipelines, but last year they met with heightened competition from big biotech firms. According to a report from the consulting firm Ernst & Young, robust growth at the biotechs means they have more “firepower” to win bidding wars for promising assets. Big ­biotech and specialty pharmaceutical firms accounted for more than 80% of merger and acquisition activity by value last year, and they will make even more potent competitors in 2014, Ernst & Young says.

Indeed, most of the big biotechs enjoyed strong growth in 2013. Biogen Idec was the most improved, thanks to the approval in March 2013 of the oral multiple sclerosis (MS) treatment Tecfidera, which is quickly catching up to its competitors, Novartis’s Gilenya and Sanofi’s Aubagio. Tecfidera’s sales in its first nine months on the market totaled $876 million; by comparison, Gilenya, approved in the U.S. in 2010, brought in $1.9 billion.

Tysabri, another treatment in Biogen’s MS portfolio, also had a strong year. The drug pulled in $1.5 billion in 2013, up 34% from the prior year. Overall, Biogen saw a 36.3% surge in earnings on a 25.7% jump in sales.

Another biotech standout was Gilead Sciences, which saw earnings grow by 11.9% on a 15.4% leap in sales. Sales for Gilead’s cornerstone HIV franchise were helped by the 2012 launch of Stribild, a single pill that combines two older HIV drugs and two new ones. Stribild sales in 2013 totaled $539 million.

The tail end of 2013 offered the first glimpse of what will likely be a major growth spurt at Gilead. On Dec. 6, the firm gained Food & Drug Administration approval for Sovaldi, a nucleotide analog polymerase inhibitor for the treatment of hepatitis C virus (HCV). The drug eliminates the need for injections of interferon, a mainstay in HCV treatment for decades, and significantly shortens treatment time for some patients.

Many HCV patients had delayed treatment in anticipation of Sovaldi. In less than one month, Sovaldi racked up $139 million in sales. Analysts are projecting the drug will bring in more than $5 billion this year, making Sovaldi the fastest drug launch in pharma history.

Last month, Gilead filed a New Drug Application for a fixed-dose combination of Sovaldi and another oral antiviral, ledipasvir. If the combination is approved later this year, treatment time for some HCV patients could be shortened to just eight weeks.

Gilead’s good fortune is Vertex Pharmaceuticals’s loss. As data supporting the promise of Sovaldi were released last year, fewer HCV patients elected to take Vertex’s Incivek, which had previously been the fastest drug launch. Incivek sales fell from $1.2 billion in 2012 to $466 million in 2013.

As a result, Vertex’s overall sales were down 20.6% to $1.2 billion. And after turning a profit for two years, after more than two decades in the red, Vertex again sank to a loss in 2013.

Vertex is now reliant on its cystic fibrosis portfolio for near-term growth. Sales of Kalydeco, a CF drug approved in early 2012 for a small subset of patients, more than doubled to $371 million in 2013. Earlier this year, the drug was approved for eight other patient groups, although in total they still represent less than 1% of the CF population in the U.S.

Vertex is pinning hopes on its efforts to develop combinations of Kalydeco and complementary compounds. It expects results midyear for two Phase III trials of Kalydeco and VX-809, which has the potential to be used in patients with the ∆F508 mutation, the most common mutation in the gene causing CF. Meanwhile, Vertex has started a Phase II study combining Kalydeco and VX-661, a follow-on to VX-809.  


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