Lipitor, the cholesterol-lowering drug from Pfizer , ( PFE ) has been the world's best-selling drug since the start of the decade. But its lead is withering as a slew of cousin lipid drugs and generics enter the market.
Pfizer expects global Lipitor sales to drop 3% to 5% this year from last year's $12.9 billion. In the U.S., Lipitor revenue fell 13% to $1.8 billion in the first nine months of this year. Sales are expected to plunge further in 2011, when its patent expires.
Though it faces one of the toughest challenges in the industry, Pfizer is not alone.
Branded prescription drug firms are under constant assault from many directions.
At the top of the list: generic copycat drugs, which are chipping away at blockbusters and other top-selling brands. In 2006, two of the most successful branded drugs lost patent protection — Pfizer's depression drug Zoloft and Merck 's ( MRK ) cholesterol drug Zocor.
Next year, the ax will fall on ulcer drug Prevacid and the bone-loss slowing drug Fosamax.
The drug companies face further pressure from large private insurers, which are negotiating with drug firms to lower prices.
At the same time, it's getting harder to develop new blockbuster drugs to fill the product pipeline as regulators apply closer scrutiny.
In some ways, drug companies are victims of their own success.
"Certainly the bar has been raised with the success of products like Lipitor and Zoloft, which addressed unmet needs and created whole markets," said Martha Freitag, the pharmaceutical analyst with Argus Research.
The industry is still one of the most profitable in the U.S. — just not as much as it was five years ago. As of Friday, pharmaceuticals ranked No. 19 among IBD's 197 industry groups, up from 116 six months ago.
Prescription drug companies are fighting back to stay healthy. In doing so, they're acting like much of the rest of corporate America when trouble hits. They're cutting costs, restructuring, outsourcing and diversifying.
"I think they are going to manage the business through this," Freitag said.
1. Business
Prescription drug companies develop new drugs, bring them to market and then sell the daylights out of them.
It takes about 12 to 15 years to bring a new drug to market, at a cost of around $800 million, according to Pharmaceutical Research and Manufacturers of America.
Of 10,000 compounds investigated, only five typically make it to clinical trials. And of those five, only one of them goes on to be approved for human use.
"Revenue from one successful medicine must cover the costs of the vast number of 'dry holes,' " the PRMA said in a recent report.
IMS Health estimates that just 22 to 27 new drugs will have been launched this year worldwide, down from 30 to 32 in each of the last four years. In 1997, 52 new products hit the market.
Some pharmas are taking an "if you can't beat 'em, join 'em" stance: They're starting or acquiring their own generic businesses. What's more, they're expanding into faster-growing biologics, as drug discovery and development shifts from cellular to molecular and gene-based methods.
The line between traditional branded drug companies and biotechs is blurring as drug firms acquire smaller biotechs or license biotech products.
"Big Pharma has recognized that the best way to fill their pipeline is to balance internal development with external acquisitions of innovation. And often that is coming from small biotech companies," said Murray Aitken, senior vice president at IMS Health.
As branded prescription drug firms adjust their business models, sales and marketing are undergoing big shifts.
Companies have cut back on sales reps, deploying those left in areas where returns are greatest, such as fast-growing specialty areas such as oncology.
More focus is being put on building relationships directly with patients through print and broadcast ads rather than with doctors. Full-page color newspaper ads for Lipitor, for example, recently joined holiday consumer ads for jewelry, clothing and cars.
Name Of The Game: Manage business smartly while shepherding compounds with unmet needs through trials, making sure they meet the high hurdles set by regulators.
Anticipate failures.
2. Market
Though overall drug sales keep rising, the pace of growth has slowed since 1999, says IMS Health. Global pharmaceutical sales grew 7% in 2006 to $643 billion, about half the rate in 1999.
But North American sales in 2006 jumped 8.3% to $290.1 billion, due in part to the impact of the newly launched Medicare Part D drug benefit, which helps subsidize prescriptions.
The industry won't see the same spike this year from the Medicare D program, and U.S. sales growth will likely slow as more generics enter the market, IMS says.
About 20% of all retail prescriptions filled today are related to Medicare Part D, says IMS Health. Of those, only 31% are for branded drugs. The rest are filled by generics.
It's no secret that seniors take more meds than any other age group. The PRMA says people 65 years and older fill prescriptions more than 25 times a year, vs. seven times a year for those under 65.
Some nimble specialty drug companies are growing faster than the big drug firms, showing double-digit gains to Big Pharma's single digits. One of them is Allergan , ( AGN ) which markets Botox, the injectable wrinkle eraser.
The market for other specialty drugs is rising as new compounds come to market to treat cancer, diabetes, autoimmune disorders and other diseases.
"Oncology is the fastest-growing sector in pharmaceuticals, driven by the enormous amount of innovation coming into the market and the enormous unmet need by patients," Aitken said.
Sales of oncology drugs rose 20.5% in 2006 to $35.6 billion.
The vaccine market also is expanding. The FDA approved four vaccines in 2006, including Merck cervical cancer vaccine Gardasil, which reached blockbuster status this year with about $1.5 billion in sales.
Wyeth ( WYE ) pneumococcal vaccine Prevnar is expected to take in more than $3 billion by 2009. GlaxoSmithKline 's ( GSK ) growing vaccine business includes six vaccines in late-stage development. Others in the vaccine business include Sanofi Aventis , ( SNY ) Novartis ( NVS ) and AstraZeneca . ( AZN )
3. Climate
The FDA is getting stricter about drug safety, including post-market safety assessments. Yet critics say a lack of funds and resources bogs down evaluations and approval times.
Meanwhile, insurers are pressing for lower drug prices. And cheaper imports from Canada and elsewhere remain a hot button.
Drug firms aren't sure how public health policy will change with a new president in the White House. Democratic candidates favor reducing payments to Medicare's private Advantage plans and allowing Medicare to negotiate directly with drug firms to lower prices.
Lawsuits continue to keep legal departments busy. But payouts aren't likely to bring the house down.
Merck recently settled headline- making Vioxx lawsuits for a relatively low $4.85 billion — just a bit more than the firm earned in the first nine months of this year.
4. Technology
Technology and innovation are key to drug industry growth.
In addition to advances in medicine, spurred in recent years by biotechnology research, the ongoing computerization of health records makes drug delivery systems more efficient.
Computer programs also are increasingly being used to better track the drug-approval process, including side effects of drugs.
A few years ago, Eli Lilly ( LLY ) started a trend when it started posting clinical trial results on the Internet.
The federal government, meanwhile, has called for the creation of a database and computer model that would better forecast patient outcomes.
5. Outlook
IMS projects that worldwide drug sales in 2008 will grow 5% to 6%. U.S. and top European markets are estimated to grow 4% to 5%. Profits are expected to grow faster than sales.
Bear Stearns estimates that the half-dozen major pharmas it covers will grow earnings 15% on average in 2008.
"We expect robust pricing for products in monopoly/duopoly therapeutic classes," wrote Bear Stearns analyst John Boris.
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