Pharmaceutical firms see modest growth in 2016

It was a rocky year for the pharmaceutical industry in 2016, made even more uneasy by infighting among companies.

Dynamics stemming from the U.S. presidential election, mergers, pricing, and global markets pushed and pulled drug company fortunes in many directions. Leading drugs experienced competitive and legal threats in what seemed a particularly litigious year filled with disputes among most major firms.

Even so, the 18 companies that C&EN tracks fared well overall, with combined sales up about 5% and earnings increasing by nearly 6% from 2015. For traditional big pharma companies, it was a welcome change after four years of decline.

Factoring into this year’s averages, however, were individual company results that ranged from significant double-digit gains to a like-sized drop. For Shire, a 78% jump in sales was a one-time event due to its acquisition of Baxalta in June. In most other cases, changes up or down centered on specific products.

Complicating the situation, the pharmaceutical industry found itself on a “patent cliff,” a precipitous event occurring every three to four years when patent expirations add up. The roughly $50 billion per year in sales of products at risk in 2015 and 2016 were on the same order as that of the previous cliff, in 2012, according to data from the market research firm Evaluate.

The difference this time is the type of drugs losing patent protection and the potential blow to sales. In 2012, small-molecule drugs such as Lipitor fell off the cliff, and generic drug competitors cannibalized as much as 90% of sales. Now, several blockbuster biologics are losing protection to biosimilar versions, which are expected to cause less erosion than small-molecule generics.

Nevertheless, biosimilar competition is significant because the threatened biologics were seven of the top 10 drugs in 2016. Among those biologics is 2016’s biggest seller, AbbVie’s Humira. Sales of the anti-inflammatory rose 16% to $16 billion and accounted for more than 60% of the company’s sales. By broadening the market for Humira, AbbVie has prevented the drug from showing its age.

AbbVie has also been trying to stave off impending competitors. In September, the Food & Drug Administration approved Amgen’s biosimilar version, Amjevita, but not before AbbVie sued Amgen for patent infringement. Litigation is now under way, as is a separate dispute between Amgen and Roche about another biosimilar.

Amgen contends that Amjevita and other biosimilars it is developing will eventually contribute to growth, but for now the company must face competition to biologics it originated years ago. In 2016, Amgen’s sales of the anti-inflammatory Enbrel and blood cell stimulants Epogen and Neupogen were all depressed by biosimilars.

Amgen’s sales growth last year was just 6%, and that number may slip in the near future. “We will likely face headwinds in 2017 as declines in our mature brands will begin to offset volume growth from our more recently launched products,” Amgen Chief Executive Officer Robert Bradway said on a conference call with analysts last month.

A similar trend is happening at Roche for its three leading products—the anticancer antibodies Rituxan, Avastin, and Herceptin—which enjoy more than $20 billion in combined annual sales. Competition from biosimilars and newer immuno-oncology therapies kept sales of the three products flat or only slightly up. Roche is betting on new drugs, including its recently launched immuno-oncology antibody Tecentriq, to help it regain ground.

Likewise, Merck & Co. is seeing biosimilars start to erode the European market for the anti-inflammatory biologic Remicade. In the U.S., where Johnson & Johnson markets Remicade, FDA approved Pfizer’s biosimilar version, Inflectra, in April. J&J’s subsequent legal attempt to stop the launch failed.

Merck’s sales were also hit by patent expirations on small-molecule drugs, including the antibiotic Cubicin, allergy drug Nasonex, and cholesterol-lowering therapy Zetia. AstraZeneca felt similar pressure from lost sales of the lipid-lowering drug Crestor. The firm reported a nearly 7% drop in sales. And at Novartis, sales dropped 2% as growth in new products only partially offset lost sales of its cancer drug Gleevec due to generic competition.

Along with cancer and inflammation, diabetes was another area where competition heated up. Sanofi’s biggest product, the insulin analog Lantus, struggled against biosimilars and with patients switching to a newer product. As a result, sales of the drug fell more than 9% to about $6 billion. In August, FDA accepted Merck’s application for approval of a biosimilar version of Lantus, prompting Sanofi to sue Merck for infringing 10 patents.

Sanofi and its partner Regeneron Pharmaceuticals were also on one end of a major patent battle, although not over biosimilars. Amgen sued the companies to prevent the sale of Praluent, a monoclonal antibody that competes with Amgen’s cholesterol-lowering drug Repatha. The PCSK9 inhibitors have also attracted attention because of their high prices relative to competing drugs.

Similarly, Bristol-Myers Squibb and Ono Pharmaceuticals sued Merck over new PD-1 inhibitors for treating cancer. The companies settled earlier this year with a deal in which Merck will pay Bristol-Myers $625 million and royalties on sales of its drug Key­truda through 2026.

Despite the legal setback, Merck is generally seen as having taken the lead in the immuno-oncology drug area, especially after Bristol-Myers’s drug Opdivo failed to perform as expected in some Phase III trials. Although Bristol-Myers’s projections for 2017 are dampened, sales of Opdivo grew to $3.8 billion in 2016 from less than $1.0 billion the previous year.

Merck, meanwhile, won a lawsuit against Gilead Sciences about intellectual property rights to sofosbuvir. The compound is the active ingredient in Gilead’s multi-billion-dollar blockbuster hepatitis C drugs Sovaldi and Harvoni. Gilead has been ordered to pay Merck $2.5 billion in damages, equal to 10% of the drugs’ sales through August 2016. Gilead says it intends to appeal.

In 2016, Gilead saw sales of Sovaldi and Harvoni drop 35% and 24%, respectively, as successful treatment led to a decline in the relevant patient population. During the second half of the year, Gilead tried to fill the gap with a new product called Epclusa that can be used against all hepatitis C virus genotypes. Although lower in price than its predecessors, Epclusa still costs $75,000 per course of treatment. Sales of the drug reached $1.8 billion in 2016.

To keep a hold on its lead product, the multiple sclerosis drug Tecfidera, Biogen opted to pay the Danish biotech firm Forward Pharma a $1.3 billion licensing fee while the companies’ patent interference dispute is under way. Sales of the drug reached almost $4.0 billion in 2016. Possible future royalty payments depend on whether Forward Pharma prevails in the dispute over rights to the drug’s active ingredient, dimethyl fumarate.

The news in 2016 wasn’t entirely bad, though, and a few companies boasted double-digit sales and earnings increases. Celgene continued to see strong growth for its cancer drug Revilmid, while Regeneron’s gains were driven by sales of its eye drug Eylea. And Vertex Pharmaceuticals’ sales of the cystic fibrosis drugs Orkambi and Kalydeco helped it turn the corner to profitability.

Drugmakers should also be heartened by Evaluate’s prediction that 2017 will experience a slight drop in patent expirations that will last until about 2019. But the brakes are on sales of most of the current top 10, and to sustain growth, more new drugs will need to emerge. However, after two plentiful years, 2016 brought just 22 new drug approvals, a six-year low.