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Pharma Bets Big On New Products

With earnings down again in the first half of 2015, big pharma hopes for a comeback

by Ann M. Thayer
August 24, 2015 | A version of this story appeared in Volume 93, Issue 33

For three-and-a-half years, the big pharmaceutical firms tracked by C&EN have struggled to show sales and earnings gains. Their difficulties are perhaps not surprising since, in that time, they have faced the steepest part of the patent cliff plus predictions that the days of blockbuster drugs are over.

However, eight of the top 10 new drugs approved in 2014 should achieve annual sales of well over $1 billion—so-called blockbuster status—within five years of their launch, according to EvaluatePharma, a London-based market research firm. And several drugs approved so far in 2015 are predicted to join those ranks as well. As sales of these products ramp up, pharma is expected to enter a new period of growth.

“Continued confidence in the sector is being driven by a number of positive fundamentals, including the recent increase in R&D productivity, which has resulted in a big hike in drug approvals, and the emergence of breakout drugs,” said a recent EvaluatePharma outlook report. Companies are tying their fortunes to new treatments against cancers, infections, and rare diseases.

For now, big pharma companies are doing a bit better than in recent years but still remain largely in the financial doldrums. In the first half of 2015, combined sales of 11 leading drug companies declined 1.4%. Earnings were down by a similar amount.

At the same time, growth has accelerated for the once much smaller biotech firms, with a few now posting sales and earnings on par with their more established brethren. Combined first-half earnings for five leading biotech companies were up nearly 38% on sales that rose about 22%. With an overall profit margin of 47%, the biotechs are significantly more profitable than their big pharma counterparts.

Gilead Sciences continued to stand out. Sales were up 37% to $15.8 billion, and earnings climbed 47% to $9.4 billion. Approved in late 2014, its new hepatitis C combination drug Harvoni had sales of $7.2 billion in the first half of 2015. Sales of Sovaldi, the product Harvoni supersedes, dropped more than 60% to $2.3 billion, but on balance Gilead came out well ahead.

Gilead’s therapies, although highly effective, come with high price tags that keep them at the center of a debate around drug costs and value. Even so, the company anticipates that insurer reimbursement will continue to grow, especially if the trend toward shorter treatment durations continues.

Gilead commands 90% of a hepatitis C market that it says is still in the early days, with many patients yet to be treated. Also trying to tap in are Bristol-Myers Squibb (BMS), which just launched Daklinza, and AbbVie, with its antiviral combination Viekira Pak, which was approved at the end of 2014. With Viekira sold in 47 countries, the buy-in of pharmacy benefit managers, and $616 million in first-half sales, AbbVie is starting to establish a position in the market.

In the first half, Viekira ranked as AbbVie’s second-biggest-selling product after the anti-inflammatory Humira. When spun off from Abbott in January 2013, AbbVie relied almost entirely on Humira, but it has since entered the oncology field with its May acquisition of Pharmacyclics, which markets the expected blockbuster Imbruvica.

Meanwhile, despite emerging generics competition, Humira sales grew 12% in the first half to more than $6.6 billion and placed AbbVie among only three big pharma companies posting both sales and earnings growth in C&EN’s survey. Through 2020, Humira, one of a class of older drugs targeting tumor necrosis factor, will remain the top-selling product in the world, according to EvaluatePharma.

In addition to generics, Humira’s competition will come from Celgene’s psoriasis drug Otezla, a phosphodiesterase 4 inhibitor approved in late 2014. And after approval in January, Cosentyx, the first of a much-anticipated class of interleukin-17A antibodies is starting to rack up sales for Novartis.

“Anchored by early Otezla success, we expect to see a series of blockbuster launches beginning in 2018,” said Scott Smith, president of Celgene’s inflammation and immunology business. These include the multiple sclerosis and ulcerative colitis drug ozanimod, part of Celgene’s pending acquisition of Receptos. Celgene also has extended its immuno-oncology program through collaborations with AstraZeneca and Juno Therapeutics.

A hot development area, immuno-oncology is projected to eventually rank among the largest drug classes. Yet despite substantial gains in survival and quality of life from new cancer drugs, patients, insurers, and doctors’ groups are questioning the cost of using them. Global spending on cancer drugs topped $100 billion in 2014, and the cost of individual therapies can total more than $100,000 per year.

BMS’s Opdivo got accelerated U.S. approval as a breakthrough immuno-oncology therapy for melanoma at the end of 2014 and for lung cancer in 2015. The PD-1 inhibitor, being studied in a variety of other cancers, costs about $150,000 per year. In the first half of 2015, sales were just $162 million, but they are predicted to exceed $8 billion by 2020, a figure that would make it the third-best-selling drug worldwide.

Opdivo competes against Keytruda, Merck & Co.’s similarly priced PD-1 inhibitor. Keytruda got accelerated approval about three months before Opdivo and, with approvals in other cancer types, is predicted to bring in $5 billion in sales by 2020. For now, first-half sales of $192 million were nowhere near enough to turn around Merck’s sales, which fell more than 9%.

Other breakthrough drugs positioned for success include Vertex Pharmaceuticals’ cystic fibrosis treatment Orkambi. The firm’s first cystic fibrosis drug, Kalydeco, accounted for the bulk of its first-half revenues. Approved in July, Orkambi is a follow-on combination that can be used by a larger portion of the 30,000 people with the disease. Priced at $259,000 per year, Orkambi is predicted to achieve peak annual sales near $5 billion.

A table forcasting recently approved products sales for 2020.

Another new class of pricey drugs, the cholesterol agents called PCSK9 inhibitors, is entering the market to the chagrin of pharmacy benefits managers.

Amgen’s Repatha was approved in Europe and will likely soon be approved in the U.S. Repatha will compete against Sanofi’s Praluent, which received U.S. approval in July and has been recommended for approval in Europe. In the U.S., Sanofi has priced Praluent around $15,000 per year.

Credit: Gilead Sciences
Targeting hepatitis C, Gilead Sciences’ Harvoni combines sofosbuvir and ledipasvir.
Gilead’s Hepatitis C combo drug approved late 2014.
Credit: Gilead Sciences
Targeting hepatitis C, Gilead Sciences’ Harvoni combines sofosbuvir and ledipasvir.

Sanofi, which posted double-digit sales and earnings growth for the first half, sees Praluent becoming a significant growth driver. The company has tried to strike “the right balance between the medical benefits to individual patients as well as the overall total value to the health care system,” Chief Executive Officer Olivier Brandicourt told analysts. He pointed out that cardiovascular disease costs the U.S. health care system about $315 billion annually and acute care patients between $50,000 and $119,000.

Meanwhile, to reverse a nearly 6% decline in first-half sales and earnings, Novartis is advancing a handful of new cancer drugs. These include Zykadia for lung cancer, Farydak for multiple myeloma, and Odomzo for basal cell carcinoma. At the same time, it is integrating GlaxoSmithKline’s oncology business, acquired this year.

But the biggest event for Novartis was its July launch of Entresto, a combination therapy for chronic heart failure. In contrast to cancer drugs, Entresto will be priced at a mere $5,000 per year. But because the drug addresses a very large number of patients, it too is expected to become a multi-billion-dollar blockbuster.

The spate of new products comes amid a growing reluctance on the part of government and private health care providers to pay for very expensive, albeit effective, drugs, according to EvaluatePharma. “With many predicting that, for the first time, the industry could produce a series of real ‘cures’ for previously intractable diseases, it is clear that these innovative drugs will come at a price.”

“Standing at the midpoint of 2015, the pharma and biotech industry looks as if it is in very good shape. Things are at least moving in the right direction,” the research firm added. “The only clouds currently on what looks to be a sunny horizon for pharma and biotech are global pricing and market access.”  


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