Sylvia Findlay is Pharmaceuticals and Biotechnology Industry Analyst at Frost & Sullivan.

Sylvia M. Findlay

There is widespread concern that the pharmaceutical industry is not producing as many innovative drugs as it used to. Although the costs associated with R&D, clinical trials and marketing have contributed to the decline in new drug discovery, there are other factors that have inhibited the introduction of new therapeutics. 

More patent litigations and an increasing demand for lower drug prices have led to a reluctance to spin- out new molecules. The ever-increasing costs of producing a new drug and the spiralling attrition rates have also contributed. Additionally, patient noncompliance is a serious issue — losing the industry around $32 billion each year. This obviously impacts public health and increases healthcare expenditures. 

Enormous pressure is also being exerted by generics. The impact of generic competition is well illustrated by the recent case of Bristol Myers Squibb's (BMS's) blockbuster Plavix. More patent litigations are on the horizon and the pharmaceutical industry is fighting to preserve its revenues. By 2011, $50 billion worth of branded drugs will face patent challenges and pharmaceutical companies are struggling to avoid the legal potholes. Therefore, they are resorting to settlement strategies by paying off the generic manufacturers to 'stay away'. Such measures are gaining popularity; for example, Cephalon has agreed to pay $136 million to generic manufacturers of Provigil to delay production until 2011.  

Pharmaceutical productivity has been extremely good in the last couple of decades owing to the influx of blockbusters. Almost all major pharmaceutical companies produced a blockbuster. Upgrading technology and efficiently using these novel drug discovery technologies has enabled drug companies to produce top-selling drugs. However, these technologies are tapering off and the most wanted novel drug discovery technological platforms are still in the nascent stage, forcing pharmaceutical companies' pipelines to be somewhat lacking.  

To overcome these issues, the pharmaceutical industry is looking to the biotech sector, which has undergone tremendous growth in recent years. Globally, 2005 witnessed an explosive growth of 18% with revenues reaching an all time high of $60 billion. These companies boast a deep, rich and lustrous pipeline of very promising drug candidates spread over a wide spectrum of diseases. This is something the pharmaceutical industry finds extremely attractive and, therefore, has involved itself in a whole series of mergers, acquisitions and alliances (M&A) to relieve shrivelled pipelines.  

So, the question arises: "Why do the biotech ventures mange to have such promising drug candidates while pharmaceutical R&D is facing a drug deficit?" 

Analysing the scenario reveals that the biotech start-ups are headed by university professors and students who have excelled in research and can develop innovative technologies. These people are siphoned off from the universities by the biotech start-ups; by becoming involved in M&A activity, pharma companies are tapping into these intellects.  

The critical judgement in these aggressive M&A movements is the accurate identification of the potential biotech companies. The funding available to enhance the formation of small- and medium-sized enterprises (SMEs) has increased over the years to enhance the knowledge-based economy. Though there are numerous biotech start-ups, not all are successful; most hit a blank wall and fold.  

As the trend in M&A gathers momentum, it has become critical to forge an alliance before a competitor surges forward. The trick lies in identifying the budding biotech start-ups that house potential blockbusters before the drug enters clinical development. Highly sophisticated and careful analysis of the market is essential to perform successful M&A activities.  

The accelerating expenditure for conducting clinical trials is spurring pharmaceutical companies to look towards Asian markets. Outsourcing to India, China, even Africa and Eastern Europe, is regarded as one of the best options in reducing spiralling R&D costs. This model offers great benefits if the trials adhere to FDA regulations and are well monitored. India and China are emerging markets and are fertile grounds for pharmaceutical players to open up their manufacturing facilities as well.  

The positive trend in outsourcing is expected to boost the global pharmaceutical industry and provide the much needed respite from augmenting cost pressures.  

The trend to pursue a blockbuster has been the norm in the pharmaceutical industry, with companies tending to introduce drugs in a therapeutic area already flooded with numerous therapeutic options. However, the aim is now to improve current therapies in terms of efficacy, dosing or compliance. A better understanding of disease mechanisms and a history of successful drug candidates drive pharmaceutical companies to continue this strategy. 

Such a scenario limits the motivation to introduce novel drug candidates targeting niche therapeutic areas. The bigger pharmaceutical players are used to the concept of blockbusters targeting the major therapeutic categories such as cardiovascular and diabetes.  

The shift of focus towards manufacturing drugs catering to a niche market is critical in tackling the declining revenue in pharma. Personalized medicines are becoming attractive to drug manufacturers, and are likely to be big hit among the diseased population. These drugs herald the burgeoning of specialty pharmaceuticals. In addition, new categories such as molecular diagnostics and algorithm-based diagnostics are emerging and are likely to steer the growth of personalized medicine. The shift towards noninvasive medicine, which includes telemetry, telemedicine and increased sophistication in patient monitoring is redefining healthcare. However, the trend is pretty slow and is yet to gain momentum. 

The global industry is likely to experience tangible changes in the near future. The basic research in life sciences is evolving as the understanding of human and other genomes have revolutionized the potential of drug development.  

Scientists will need to gain a clear understanding of the underlying disease states, thereby paving the way for better therapeutic drugs. The increased use of systems biology is verging on providing a new dimension to drug discovery efforts. The unprecedented industrial and economic advantages offered by the integration of fundamental genomics, structural genomics, proteomics and systems biology in drug discovery is bound to attract more takers. Furthermore, there are several approaches to integrate technology and biology to translate research into tangible economic and health benefits.  

Moving from novel biochemical methodologies, pharmaceutical companies are intending to use genomics and proteomics to stir up innovative health solutions. The increasing importance of these technologies and the emphasis the R&D sector is putting on using them is likely to catalyse new drug development.  

The increase in life sciences funding for genomics and proteomics, emphasizes the relevance and importance of these technologies to drug discovery. Although integrating these processes may take time, pharma is awaiting a revolution in drug discovery. The next couple of decades are certain to witness the emergence of innovative and efficacious therapeutics to improve public health.  

is an industry analyst, pharmaceutical and biotechnology, healthcare (EMEA) for Frost & Sullivan, Chennai (India). 

Articles

Why do the biotech ventures mange to have such promising drug candidates while pharmaceutical R&D is facing a drug deficit?

New age therapies

It is indisputable that big pharma companies are dependent on blockbuster drugs. Lipitor, the world's top-selling drug made by Pfizer, reaped sales of more than $10 billion last year. Such massive revenue generators are 'golden-egg-laying ducks' for big pharma companies. But is the blockbuster era coming to an end? The pipelines of major pharmaceutical companies are not promising enough and the bottleneck that they now face is being closely scrutinized by analysts worldwide. Speculation regarding the pharma industry's reaction to the declining blockbuster pipeline is mounting. 

On average, it takes approximately $800 million and 11–15 years to bring a new molecule to market. A molecule has a one in 15 chance of getting approved; increased attrition rate is the norm. The guarantee that a molecule will attain blockbuster status is far from certain, so it is not always good business sense to invest 20% of sales to develop new molecules when a biotech company can be bought instead (Table 1).  

Table 1. R&D spends by top 10 pharma companies against their revenues. 			

Major pharmaceutical companies that have blockbuster drugs are facing tough generic competition. Pfizer banks on Lipitor — its cholesterol-lowering drug. Unfortunately for Pfizer, it is going to face generic competition soon despite the fact that Lipitor could be a $20 billion brand by the time it loses its patent.  

Table 2. Top 10 blockbuster drugs in 2004.			

Merck's blockbuster Zocor is coming off patent this year and, Pfizer is conducting studies that compare Lipitor with Zocor. Patients may shift from Lipitor to Zocor because it is cheaper, which would dent sales of Lipitor. Additionally, generic cholesterol-lowering drugs are likely to cost around 70–80% less. 

Paxil and Wellbutrin of GSK will soon fall off the pedestal too. Stiff generic competition is on the rise (Figure 1) and out of the 10 top-selling drugs, six are generic. Most of the listed drugs are on their lag phase of the patent life cycle. The revenue generated by these drugs exceeds $45 billion, but losses as a result of patent expiration are estimated to slice off a big portion of current revenues. Drugs with the calibre to block the expected revenue gaps are lacking. Do the companies in Table 2 have alternative revenue generators?  

Figure 1. Top 10 products - prescription share in millions (2004).			

The dwindling pipelines suggest that a revolution in the pharmaceutical industry is on the horizon. Coalition between the pharmaceutical and the biotech industries will only improve the chances of new molecules entering the market. The number of drugs that come out of this partnership seem to outnumber those that are produced in the pharmaceutical companies' research labs.  

Biotechs seem to have a better infrastructure, pipeline of drugs that are potential blockbusters and the technology to produce new drugs at a faster pace. This attracts players in the pharmaceutical industry to undertake collaborative ventures or, if they have a fat purse, buy them out. This allows companies to control their R&D investments and so help to increase their profits. 

Infusing informatics into R&D can cushion the impact of rocketing R&D expenditures. Developing new and advanced technologies to shrink the time frame of producing a new molecule can even assist with targeting the right lead molecule.  

Some big pharma companies welcome this change and have embraced new technologies enthusiastically. Pfizer, GSK, Novartis, Lilly and Roche are all in the race to fine tune their R&D — late entrants will be left far behind.  

So is the pharmaceutical industry turning away from the blockbuster mania? Probably. The downfall of Vioxx affected the COX-2 inhibitor market as a whole. Pharmaceutical companies realize it is not a good idea to rely on blockbuster drugs alone. Medical needs are many and to bring in new molecules to target a small audience can help them avoid the problems that Vioxx faced.  

Johnson & Johnson has a number of drugs contributing to its sales and not even one drug in its portfolio contributes to more than 10% of the total sales. This strategy will help it to face tough generic competition and patent expiration.  

Isn't it time for the drug companies to fish out drugs that will treat rare diseases or ailments? Instead of chasing the same goal, perhaps it is wise to try capturing niche markets. Such drugs will be the future hits and saviours of some companies, but this paradigm shift will bring about many changes in the pharmaceutical industry. These cost-cutting measures will be a major upheaval for pharma. This will warrant a major shift in the R&D structure, investments, and most of all the sales and marketing strategies. Are pharmaceutical companies ready for this revolution? Resistance will mount, but change will be the only viable option. 

As most of the current blockbusters will go off patent, it's time for pharmaceutical companies to turn to different avenues, particularly given the state of their unpromising pipeline. If the pharma giants enter the niche markets, R&D expenditures can be reduced and two or three new molecules could be produced for the same cost. This will require collaboration with the biotech industry.  

Experts in the pharmaceutical field say that this revolution is sure to happen, but not just yet. As always, changes are difficult to accept and this industry is no exception. The importance given to blockbuster drugs is high. Some top players in the market believe that the search for blockbusters will continue until orphan drugs are used to treat specific medical needs. 

The decline of Vioxx and Imclone Systems has tarnished the image of pharmaceutical companies. The increasing number of drugs appearing on websites such as 

 has made the public more aware of the side-effects of many treatments, and they are now more suspicious of enticing ad campaigns by pharmaceutical companies. 

Pharmaceutical companies have spent huge sums on advertising their drugs; the industry spent $4.45 billion in 2004. Pfizer spent almost $88 million for Viagra and Merck & Co. $78 million for Vioxx. Are the pharmaceutical firms trying to woo people into buying their drugs, turning them into blockbusters? New drugs are now often viewed with great scepticism by the general public.  

FDA has tightened up the approval of new drugs, ensuring careful scrutiny of clinical data and stringent scanning to analyse the probable side-effects of a new drug. The reduction in the number of new entrants was a direct reflection of the FDA's initiative — after all it doesn't want another Vioxx debacle! 

The pipeline of drugs now awaiting approval is very small. The pharmaceutical industry is sure to see some blockbuster material down the line: Sanofi-Aventis has Rimonobant (Acomplia) up its sleeve — a sure-fire blockbuster; Novartis has some solid pipeline drugs such as Exjade (for chronic iron overload) and Aclasta (for osteoporosis); and Lilly has Cymbalta (for depression) and Byetta (for Type 2 diabetes), which is expected to reach blockbuster status.  

Pfizer has already invested $800 million for Trocetrapib — another cholesterol-lowering drug, but clinical trials for this drug are expected to soak up another $200 million. Merck, Bristol-Meyers and Lilly have also shelled out ample resources to launch new molecules, but it remains to be seen if they will grab the blockbuster limelight.  

is a research analyst at Healthcare, Frost & Sullivan, UK 

FDA has tightened up the approval of new drugs, ensuring careful scrutiny of clinical data and stringent scanning to analyse the probable side-effects of a new drug