‘The Bottom Line’ for the pharmaceutical industry - Health Policy Today, 23rd October 2008
The chief executive of Astra Zeneca, David Brennan was a guest on BBC Radio 4’s The Bottom Line this week. The questions he was asked and the answers he gave drew a clear picture of the position the pharmaceutical industry is in today. Breakthroughs from the 1990s have been exhausted, with licenses coming to an end, and despite increased spending on R&D, fewer products are coming to the market, driving a cash-rich industry to buy up biotech firms and sources of new products. The industry is a critical point and this issue of Health Policy Today looks at some of the critical factors that are affecting its development.
THE END OF THE GOLD RUSH
On The Bottom Line (a programme dedicated to business and economics), the chief executive of Astra Zeneca talked about the economic climate from the pharmaceutical industry perspective. (You can listen to the show again by clicking here . He said it was difficult to keep new products coming to the market, and that despite an increasing spend, R&D is producing less returns. He was candid in revealing that the breakthroughs of the 1990s have been exhausted.
As Julia Kollewe explained in The Guardian, back in August, ‘the cost of R&D has risen as companies chase fewer molecules’. Alan Sheppard, an analyst, believes that the chances of discovering a blockbuster have risen from 10-1 to 20-1. In response to the problems, ‘companies are targeting niche drugs for cancers and neurological diseases – expensive treatments for relatively small numbers of patients’.
Many of the big money-spinning drugs are coming off license, meaning that revenue streams are likely to dry up. Profits are also under pressure, and the FT yesterday reported that Schering Plough has announced a fall in profits, blaming decline in demand for two of its cholesterol drugs. Today’s FT reports that Merck is to cut its global staffing by 10% as profits fall, and they are also to cut senior management by 25%.
‘The job cuts mark one of the most significant moves yet in a recent round of restructuring across the sector, as pharmaceutical companies struggle to adapt to generic competition, patent expiries and increasing pressure on pricing from health insurers.’.
The FT quotes Richard Clark, Merck’s chief executive, as saying, “If we don’t change the business models, we’re not going to survive as an industry,”
Back in August, a Guardian analysis of big pharma by Julia Kollewe quoted GlaxoSmithKline's chief executive, Andrew Witty, likening the discovery of a blockbuster - with annual revenues of at least $1bn - to “finding a needle in a haystack”. The article notes that ‘many of the big-selling medicines launched in the 1990s are about to come off patent, allowing generic drugmakers to make cheaper versions. Only four of the 10 major companies have enough products in their pipeline to plug the looming revenue shortfall.’
UNDUE INFLUENCE ON OPINION LEADERS?
The pharma industry is often cast as a dark force using money and gifts to influence the opinion of senior doctors in order to ensure that their products are used. There has been growing concern about the relationship between doctors and pharma, an issue that the Royal College of Physicians has set up a working group to consider, under the chairmanship of Lancet editor, Dr Richard Horton, which is due to report this year on ways to achieve greater transparency.
As the FT says, ‘Critics continue to question payments to individual doctors as speakers and advisers to companies, as well as the drug industry’s heavy sponsorship of continuing professional medical education’.
In Holland, ‘the Dutch health inspectorate is investigating concerns about payments from GSK to academics who sit on the Health Council, an advisory body that recommended the use of Cervarix, the company’s recently launched drug to protect against cervical cancer. GSK said it had received “no allegations of misconduct”.
In the United States, Senator Charles Grassley proposes ‘to introduce “sunshine” legislation designed to require publication of fees paid to doctors’. It is significant that this idea is backed by today’s announcement from GlaxoSmithKline that it will publish the level of advisory fees that it offers to doctors and medical academics, capping payments at £88,000 per individual.
Big pharma is under greater pressure to be more open, amid moves to generate more information on drug company activities.
The FT reports that financial news provider, Bloomberg, is to team up with a doctors’ online networking service in the US ‘to launch a service allowing investors in pharmaceutical companies to monitor and solicit physicians' opinions on new drugs, medical devices and therapies’
The article explains that Bloomberg ‘has partnered with Sermo, which has assembled a community of 90,000 working doctors in just over two years and is adding 7,000 members a month. The Healthcare Exchange service will be accessible over Bloomberg's terminals, alongside its existing financial information on pharmaceutical companies, clinical trial data and product liability coverage. It will allow Bloomberg customers to access a free feed of data from Sermo members' discussions, or to survey individual physicians, panels of specialists or the entire Sermo community for a fee.’
Daniel Palestrant, chief executive of Sermo, said he expected doctors to welcome the chance to share their opinions with investors. "The community is happiest when its voice is being heard," he said.
Back on the The Bottom Line, a fellow guest asked the Astra Zeneca chief executive whether he felt it was right for pharmaceutical companies to compensate for their own lack of innovation by buying up smaller biotech firms. The question clearly had a moral edge to it, but the Astra Zeneca man said it was right and by implication, a good thing, that pharma supported new ventures,
A consequence of the credit crunch is that the pharmaceutical industry will be in a stronger position to buy smaller firms, who will struggle to access credit or equity firm investment. Many of the large pharma firms have significant stakes in innovation companies, and may now act to increase their share or takeover firms.
GlaxoSmithKline announced yesterday that it would stop buying back shares in order to retain ‘cash for acquisitions’ . Unlike other firms, GSK reported ‘third-quarter earnings per share up 6 per cent to 25.2p a share. The increase is apparently due to ‘favourable exchange rate shifts’.
This position was achieved despite reducing earnings from its products - a result of ‘patent expiries in the US, which have opened a number of GSK's drugs to competition’.
Its chief executive, Andrew Witty, said he would not be looking to buy ‘generic drugs manufacturers in the US and Europe’ but will look for operators in emerging markets. The FT say the chief executive ‘stressed the company's commitment to continued "globalisation" of its over-the-counterhealth products, as well as expansion of the off-patent generic drugs business. "We will see more deals," he said. The pharmaceutical industry wants to play a bigger role in producing and delivering generics to new markets.
COMPLEX RELATIONSHIPS IN THE SCIENCE MARKET
Big pharma is spending heavily on trying to develop biological medicines, which can be used to treat several conditions and are harder to replicate. Back in July, Roche offered more than $40bn for the shares in Genentech that it didn’t already own. AstraZeneca themselves has acquired biotech firms like Cambridge Antibody Technology and MedImmune. According to Julie Kollewe, they hope to derive 25% of new drugs from biologics by 2010.
Large pharma are keen to work with biotechnology companies to bring drugs to market. The FT today report that the shares of one, Vernalis, increased by 10% yesterday. It is because the group regains ownership of a suite of anti-inflammatory drugs, designed for MS but with possible application for lungs.
The story shows the complex ownership structure in this market.
When Merck bought Serono in February 2006 it embarked on a portfolio review of the latter’s drug portfolio, one group of which had been out licensed by Vernalis. The review has now decided not to go ahead with this group, so the ownership reverts to Vernalis.
"We're very happy to get this back," said Tony Weir, chief financial officer. "We don't have to pay anything to get the rights back and there are no milestones payable if we develop it further." Mr Weir said Vernalis would likely seek to a partner to take the drugs into Phase II clinical trials.
MORE OVER-THE-COUNTER SALES
Pharma is increasingly interested in expanding its over-the-counter products. Two days ago GSK announced that they would pay $170m for an oral product that will sell over the counter . According to the FT, ‘Biotene treats the medical condition of “dry mouth” which affects patients with diabetes, rheumatoid arthritis and Parkinson’s disease. Sales increased by 17 percent to $50m last year.
DIRECT TO CONSUMERS
There are concerns that the plans from the European Union unveiled this month will lead to an increased bill for drugs. The plans will allow drugs firms to use the media to give information about prescription-only medicines. Opponents argue that the plans will come close to contravening the ban on companies advertising branded drugs.
If this continues, we could see an increase in drug firms directly relating to consumers.
THE PROMISE OF NEW FINDS
I have noted before on these pages that despite concerns about the cost of drugs and access to them, our papers continue to be dominated by stories that promise an end to pain and suffering.
The biggest health story today is probably the report that a team at Cambridge University have found a drug for multiple sclerosis that in clinical trials ‘halted and reversed the debilitating effects of the disease for the first time’ .
The Guardian says the results will bring hope to thousands of people who are in the early stages of a disease which destroys the central nervous system. The three-year trial of alemtuzumab compared its effectiveness against market-leading beta interferon treatment. (The drug is marketed as Campath, derived from the pathology department at Cambridge University where it was developed).
The trial ‘recruited 334 patients with MS in their 20s and 30s, all of whom had experienced their first symptoms no more than three years ago. ... Patients who were given the new drug were 74% less likely to relapse and had a 71% lower risk of being disabled within three years. But most remarkably, those on the new treatment showed fewer signs of disability at the end of the trial than they began with.’
‘"For the first time we've shown definitely that treating people early on with this aggressive immunosuppression is a good thing and we can say people's disability improves. That's never been seen before and goes counter to everything we thought," said Alasdair Coles, a member of the Cambridge team, whose study appears in the New England Journal of Medicine. "What is unprecedented and fascinating is that patients who take beta interferon have slowly shrinking brains as the disease attacks their brain tissue. We used MRI scans to show that patients who have alemtuzumab have enlarging brains as the lost tissue is restored. Somehow the drug is promoting brain repair," Coles added.’
The Guardian report goes on to explain that ‘the drug is now in a phase three clinical trial, which will be used to work out the best dosages. If the trial is a success, it could be licensed as early as 2010. For the drug to be approved, licensing bodies will have to be convinced that it can be used safely’.
Before we get too excited, ‘two major side-effects have been identified’.
‘When the drug is given, it appears to suppress the immune system by reducing white blood cells called lymphocytes, which are crucial for the body to fight infections. Although the patients in the trial did not suffer from a rise in infections, some did develop new immune disorders. The most common side-effect involved the immune system attacking the thyroid gland, which affected nearly 25% on the new drug. A few patients (2.8%) suffered an immune disorder which affected platelets in their bloodstream. One patient in the trial died of the condition.’
Professor Coles is confident that safety can be improved: "both of these conditions can be monitored and treated providing diagnosis is made quickly enough". And as The Guardian report says, ‘despite the potential for serious side-effects, the trial was lauded as a major step towards treating the disease. In Britain about 100,000 people are affected by multiple sclerosis.’
PHARMA MORE FLEXIBLE ON PRICING
At the same time as perhaps eyeing an opportunity in direct sales, over the counter or through demand from more knowledgeable consumers, pharma has become more flexible on pricing its drugs to the NHS. Johnson & Johnson allowed the NHS to recoup the cost of its Velcade medicine for bone marrow cancer if patients show no or minimal improvement.
The GSK chief executive Andrew Witty had himself proposed a “pricing for value” model. Under this approach, companies would be paid little for new drugs at the outset, but reimbursed fully once their value is proven.
CHANGING RELATIONSHIPS WITH THE NHS
The FT today reports that the deal the Department of Health struck with the pharmaceutical industry is to be delayed after the government decided it needed to consult on the its approach to monitoring prices.
A memo circulated this week ‘says that industry will not now be expected to cut the price of off-patent branded medicines from January 1, as had been previously agreed, since the department decided it needed to hold a public consultation on the issue.’
The FT says the delay of three months is likely to cost millions of pounds because pharma will now not be required to implement the price-cut agreed in January, as was planned. ‘But the delay also creates uncertainty over how to implement the entire PPRS deal, which gives companies flexibility over how much they charge the NHS for individual medicines, provided there is an overall price cut of 5 per cent in the £8bn annual total. Under the agreement reached with the pharmaceutical industry this summer, 3.9 per cent of the annual savings were designed to come from price reductions on patented medicines, and a further 1.1 per cent from the off-patent brands'.
NO CLEAR CONCLUSION
There is no clear conclusion in this complex debate, other than to say that traditional incomes for pharma are falling and they are looking to change their business model. At the same time, there is social demand for new drugs and innovations. As well as pharma needing a new business model, the NHS needs a new relationship with pharma. Could this be the opportune moment?