By Duff Wilson, New York Times, March 6, 2011
At the end of November, Pfizer stands to lose a $10-billion-a-year revenue stream when the patent on its blockbuster cholesterol drug Lipitor expires and cheaper generics begin to cut into the company’s huge sales.
The loss poses a daunting challenge for Pfizer, one shared by nearly every major pharmaceutical company. This year alone, because of patent expirations, the drug industry will lose control over more than 10 megamedicines whose combined annual sales have neared $50 billion.
This is a sobering reversal for an industry that just a few years ago was the world’s most profitable business sector but is now under pressure to reinvent itself and shed its dependence on blockbuster drugs. And it casts a spotlight on the problems drug companies now face: a drought of big drug breakthroughs and research discoveries; pressure from insurers and the government to hold down prices; regulatory vigilance and government investigations; and thousands of layoffs in research and development.
Morgan Stanley recently downgraded the entire group of multinational pharmaceutical companies based in Europe — AstraZeneca, Bayer, GlaxoSmithKline, Novartis, Novo Nordisk and Roche — in a report titled “An Avalanche of Risk? Downgrading to Cautious.” The analysts wrote, “The operating environment for pharma is worsening rapidly.”
The same concerns apply to drug giants in the United States. They are all struggling with research failures as they scramble to replace their cash cows, like Pfizer’s multimillion-dollar gamble on a replacement for the cholesterol-lowering drug Lipitor, which failed miserably in clinical trials. Drug companies cut 53,000 jobs last year and 61,000 in 2009, far more than most other sectors, according to the outplacement company Challenger, Gray & Christmas.
“This is panic time, this is truly panic time for the industry,” said Kenneth I. Kaitin, director of the Center for the Study of Drug Development at Tufts University in Medford, Mass. “I don’t think there’s a company out there that doesn’t realize they don’t have enough products in the pipeline or the portfolio, don’t have enough revenue to sustain their research and development.”
While industrywide research and development spending has nearly doubled to $45 billion a year over the last decade, the Food and Drug Administration has approved fewer and fewer new drugs. Pfizer and Eli Lilly had major setbacks last year in once-promising Alzheimer’s drug experiments. Merck discontinued one of two major clinical trials testing its top acquisition from its merger with Schering Plough, a blood thinner that caused dangerous amounts of bleeding in some patients.
Drug company executives have begun addressing the calls for reinvention.
“We have to fix our innovative core,” Pfizer’s new president, Ian C. Read, said in an interview recently. To do that, the company is refocusing on smaller niches in cancer, inflammation, neuroscience and branded generics — and slashing as much as 30 percent of its own research and development spending in the next two years as its scientists work on only the most potentially profitable prospects.
Consumers should see a financial benefit as lower-cost generics replace the expensive elite drugs, but may suffer in the long term if companies reduce research and do not produce new drugs that meet the public’s needs.
As one of those "patients" whose doctor has ordered cholesterol-reducing meds, I welcomed the Ontario government's refusal to reimburse me for the purchase of Lipitor, when an equally reliable and safe generic does as well.
The drug companies have argued for decades that their prices on their "brand-name" products were high in order to sustain their research departments. However, we all know that their balance sheets have recently shown a dramatic increase in spending on marketing, and not research. Just try to get though an evening news on one of the original networks (NBC, CBS, ABC) without a cluster of ads for some new, or revisited drug, complete with a dizzying list of dangerous side-effects.
Re-inventing the innovative side of their business as one of their CEO's put it, is the least of their worries. The drug companies must restrain their marketing testosterone, in favour of more serious and more lengthy and more conservative research trials, in order to restore confidence in their products. There is a proposal that the National Institutes of Health develop a research arm, as part of a plan to "stock the hopper" of new products that the drug companies could access, in co-operation with the NIH. However, don't look for such a proposal to have a very extensive shelf-life in the current Republican, conservative climate in Washington.