August 12, 2011
By Shelley Jazowski
Over the past twenty years, “blockbuster” drugs have been the consistent drivers of pharmaceutical company sales and profits. Products, such as Lipitor and Plavix, have become synonymous not only with billions in annual global sales, but also have become proven, trusted medications for physicians and patients. In the coming years, many of these “stalwarts” have or will lose patent protection, thus adversely impacting the bottom line of pharmaceutical companies. In response to approaching the “patent cliff,” the pharmaceutical industry has turned to increased mergers and acquisitions (M&A) to guarantee revenue through sales of newly acquired drugs, as well as future profits from a renewed pipeline. Although M&A has been the hallmark of the drug development and manufacturing industry, companies are seeking new methods to replenish pipelines and secure profits, starting with the development of new chemicals entities (NCEs) and pharmaceutical ingredients.
According to the US Food and Drug Administration (FDA), the agency has approved 20 new molecular entities (NMEs) so far this year, which is one behind the total for full year 2010. Janet Woodcock, the head of the FDA’s drug division, stated that so-called first cycle approvals are at a 20 year high. She attributes this turning point in the industry to an increased focus on innovation and collaboration, especially in disease areas that have few, if any, approved treatments. Not only is the industry primed to approve more new drugs this year than the past few, but also it has reformulated its research and development (R&D) strategy to bolster waning pipelines. This reconfiguration in both mindset and approach will create an influx of new medicines into the market, but is it enough to propel drugs to “blockbuster” status?
Newly launched drugs, those products that have been on the market for two years or less, accounted for $11.8 billion in US sales in 2005. These sales were the direct result of targeted marketing and advertising campaigns. On average pharmaceutical companies spend approximately $60 billion on marketing to physicians and consumers. Despite the billions expended on promotion, US sales of newly launched drugs peaked at $4.3 billion in 2010. A chief executive at Target Rx, a market research and consulting firm, stated that it takes longer for new drugs to get sales and the peak is less than it used to be. It appears that FDA approval is only the first step in achieving “blockbuster” status, for pharmaceutical companies must overcome numerous hurdles to reach $1 billion in annual sales for a newly approved drug.
The obstacles on the path to “blockbuster” status are many and range from reimbursement and payment methods to competition and insufficient data. With respect to the latter, physicians are often apprehensive to prescribe a new drug, due to the lack of prolonged studies and data. Physicians’ fears of prescribing medicines with unknown side effects or adverse events are further exacerbated by the practice of improper pharmaceutical marketing. Despite a recent government crackdown, drug reps promote products “off-label,” meaning a medicine is promoted as a treatment for a disease that it is not indicated to treat. Although the pharmaceutical maybe effective in combating the condition, it may carry side effects that are also not included on the label. This clearly points to a safety issue and clinicians do not want to be responsible for another Vioxx.
Although quality and safety are central to prescribing habits, perhaps the primary factor affecting drug sales is cost. Cost pervades medical decisions made by patients, physicians and payers. Although pharmaceutical companies continue to sink costs into convincing insurers and government run health systems alike to cover expensive new drugs, this will be an arduous and endless battle that could spell defeat, especially when a reliable and affordable generic alternative is also on the market. Generics, time and again, have proven to be as safe and effective as their brand-name counterparts. This is reiterated in their increasing share of the drug market. Total branded and unbranded generic market share has risen in each of the past five years and now accounts for 78 percent of all prescriptions dispensed. Over the coming years, this number will continue to grow as branded drugs lose patent protection and as health care providers seek proven methods at cutting health care costs.
Costs related to competition are not the sole deterrent to achieving “blockbuster” status. Reimbursement rates and subsequent difficulties, especially for expensive treatments, often delay the adoption of a medicine. Case in point – Provenge, a pricey prostate cancer drug that received regulatory approval in April 2010. Provenge, like many other immunotherapies, is given over a short period of time and generally requires a larger, upfront cash outlay by physicians. In turn, the reimbursement process is complicated and cumbersome, and often results in delays, as well as preventing small practice clinicians from utilizing the drug. In the case of this prostate drug, one which had a long fight to gain FDA approval, sales have not met expectations and the question remains on whether the drug will hit analyst estimates. Similarly, will other drugs face this same fate?
With all of these hurdles, and the chance of more arising, is it the end of “blockbuster” drugs? Only time will tell.