If you think it's high time big U.S. drug makers showed a clear vision of their industry's future, you'll probably be disappointed in 2008.
The forecast calls for the same old, same old, says Michael Shulman, editor of ChangeWave Biotech Investor, an advisory newsletter on life science stocks.
"These guys don't have a clue how to develop new drugs," he said. "There's nothing interesting coming out of Big Pharma for as far as the eye can see."
This year will look like the one past in terms of drug approvals, says Jon LeCroy, a medical doctor and senior U.S. pharmaceutical analyst for Natixis Bleichroeder.
That's partly because the Food and Drug Administration has been more cautious since Merck (NYSE:MRK) MRK recalled its Vioxx pain medication in 2004.
"The FDA has been glacially slow," LeCroy said. "In the majority of filings the most common outcome has been delay, with some applications dragging on for years."
Labor Pains
There's more to the FDA's go-slow approach than an abundance of post-Vioxx caution. The agency had not been hiring people because Congress didn't pass legislation spelling out funding for the agency until September. The law was signed by President Bush on Sept. 27 -- days before the FDA would have started layoffs.
For 2008, drug companies will pay the FDA $393 million to cover the agency's costs of evaluating drug applications. That should let the FDA hire more people.
"The FDA will now try to catch up," said Albert Wertheimer, director of Temple University's Center for Pharmaceutical Health Services Research.
Even though the FDA should be able to do more work, LeCroy expects to see few applications from Big Pharma this year. "It will not be a big launch year," he said.
The biggest drug coming out in 2008 likely will be Merck's Cordaptive. LeCroy figures it has the potential for $1.2 billion in annual sales.
Cordaptive uses the vitamin niacin to raise good cholesterol. It adds ingredients to counter niacin's common side effects of flushing and hot flashes.
While a potential blockbuster, Cordaptive doesn't compensate for Merck's loss in 2008 of the patent for osteoporosis drug Fosamax, a $3 billion product.
Blockbusters A Bust?
Big Pharma would do itself a lot of favors by moving away from its blockbuster mentality, experts say. That's not always easy when part of your job is to please Wall Street.
"Large drug companies need large drugs to move the needle on their stock," Shulman said.
Problem is, other than cancer treatments, the market is pretty well saturated with products that do a lot of what people need.
"Most of the drug categories have multiple players," LeCroy said. "Those drugs that could be used (for various conditions) have already been produced."
Cholesterol fighters are a prime example. There's not much new being done, and Merck might get the last kick at the can.
Harmful side effects led Pfizer (NYSE:PFE) PFE to cancel torcetrapib, its great hope to replace blockbuster Lipitor when the Lipitor patent expires in 2010. Generic Zocor, once a Merck mainstay, is already eating into Lipitor's sales.
Shulman likens the many pharmaceutical patent expirations ahead to the subprime mortgage debacle.
"The impact of patent expirations has not been felt yet," he said. "It's like watching the housing market crumble."
Pharma's lack of ideas is another concern -- so much so that most big drug makers are partnering with smaller biotechs to help fatten up their pipelines.
Just last week Merck announced plans to partner with Swiss biopharmaceutical firm Addex Pharmaceuticals on a drug candidate for schizophrenia. As part of the deal, Merck will pay Addex up to $702 million in cash plus royalties.
It was the latest in a string of partnerships designed to bring more products to big drug firms and more marketing clout to biotechs. In some cases Big Pharma simply buys the technology outright.
Should the biotech sector face problems this year, you could see a lot more of those kinds of deals.
"If capital markets start to weaken, it will be harder for (biotechs) to raise money," said Les Funtleyder, health care strategist for Miller Tabak & Co. "There could be fire sales to Big Pharma if capital markets turn that unfavorable."
Breaking Up Is Hard To Do
Buying technology is one way big drug firms can help themselves. Another way is cutting costs -- a particular focus at Pfizer and GlaxoSmithKline (NYSE:GSK) GSK , each of which has announced plans to lay off thousands of employees.
There's a third way Pfizer, the world's biggest drug firm, can improve its fortunes, Shulman says.
"Pfizer should break up the company," he said. "It's too big to maximize shareholder value and can't unlock market potential with its size and bureaucracy."
For now, analysts see most Big Pharma firms continuing to grind out the kind of sluggish growth that tends to turn investors away.
|
