The Blockbuster goes bust?

In its heydays, Lipitor could perhaps be crowned the king of blockbusters, given that the drug was worth nearly $13 billion annually worldwide then. This, when, by its definition, a blockbuster drug is one which garners annual revenues of one billion dollar or more for a pharmaceutical company. These drugs have long accounted for more than half of the revenue of major pharma companies and above one-third of the total pharma revenues. For long the blockbuster model was a hit with pharma companies, but an increased focus on reducing healthcare costs, focus on utilisation of generics, patent expirations and other dynamic changes within the industry have led to a looming question mark on its feasibility. Its time to wake up and smell the coffee.

Narrowing it down

Analysts are of the opinion that the blockbuster era was characterised by pharma companies picking the ‘low hanging fruit’- compounds that were easiest to discover and turn into drugs and addressed large patient populations. Most of these were hugely oversold to consumers and over prescribed by their doctors thus racking up massive revenues in sales. Lipitor, for instance was originally developed for patients with heart disease, specifically, people who had already had a heart attack or stroke and were at high risk of another. For this patient group, reducing cholesterol with a statin cut their chances (by a little) of suffering a second heart attack, stroke and death. However, this group wasn’t huge, rather the drug was marketed in a way that persuaded doctors and the public that anybody with a beating heart and even mildly elevated cholesterol needed to be on a statin.

“Drug developers are now addressing much harder targets like cancer, where treatment is becoming more and more personalised. This is leading to smaller patient populations and therefore lower revenues for companies over the lifetime of a drug, even if it does eventually reach blockbuster status.” Lisa Urquhart Editor, EP Vantage

Chips in Lisa Urquhart, Editor, EPVantage, “We are unlikely to see blockbusters like Lipitor, which has sold more than $60 billion over its lifetime, because drugs like statins and hypertension treatments addressed very large patient populations suffering from long-term chronic conditions, allowing them to rack up massive sales.” The verdict is clearly in favour of niche drugs. “Drug developers are now addressing much harder targets like cancer, where treatment is becoming more and more personalised. This is leading to smaller patient populations and therefore lower revenues for companies over the lifetime of a drug, even if it does eventually reach blockbuster status. The regulatory and reimbursement spaces are also getting tougher,” she adds.

Oncology blockbusters clearly seem to be on manufacturers’ radar if we go by numbers, says Graeme Green, Principle Analyst, Pharmaview, Decision Resources Group. From a count of 20 in 2009, they are projected to rise to 28 by 2020. Drugs for cardiovascular(CV) and Central Nervous System (CNS) therapy areas will see a strong fall (from 18 to 12) while drugs on metabolism and musculoskeletal pain would gallop ahead showing a growth of 50 per cent since 2009. “The blockbuster count for CV and CNS falls strongly taking their rank from joint second to sixth and fifth respectively. Meanwhile, the oncology blockbuster count is expected to continue climbing, as too are the blockbuster counts for metabolism and musculoskeletal pain,” he analyses.

The world’s aging population is also a trigger behind the spurt in oncology drugs. In the US alone, the number of cancer cases is expected to grow to 22.2 million in 2030, from 12.8 million in 2008, Bloomberg reports. So, while cancer death rates have been declining over the past two decades and the number of cancer survivors growing, those gains could be undermined, according to the American Association of Cancer Research (AACR). “Given the aging population, the therapy areas that will dominate will be oncology and treatments for dementia, including Alzheimers. However, we have seen little progress with finding disease modifying treatments for both dementia and alzheimers. There have been some promising break throughs in cancer, including, some of the newer treatments for prostate cancer such as Zytiga and Xtandi. While Roche continues to make good progress in breast cancer with Perjeta,” Urquhart notes.

Orphan drugs

When the Orphan Drug Act (ODA) was signed by President Reagan in 1983 there was only one orphan drug approval. Since then, the number of market-approved orphan drugs has increased to about 400, while the number of approved non-orphan drugs has peaked. The compound annual growth rate of the rare orphan drug market stood at 5.7 per cent, a market estimated to be close to $100 billion with 43 brand name drugs having global annual sales of greater than $1 billion (for example Gleevec, Epogen, Herceptin, Neupogen and Cerezyme) as of 2012. Of these blockbusters, 18 were approved solely as orphan drugs in the US of which 11 reached the blockbuster status within the seven year orphan drug market exclusivity period. Orphan drugs, then seem to be strong contenders for blockbusters.

John Cole, Director of Solutions and Business Practice, Thomson Reuters, enumerates succinctly the reasons for the statistics above. “We are seeing a shift towards niche and orphan diseases – the ‘nichebuster’. This is driven by a number of factors, including unmet need in these segments, favourable regulatory regimes, reduced R&D costs and the potential of premium pricing,” he says.

“The shorter regulatory approval times associated with rare disease drugs serve to control development costs, and elongated market exclusivity makes a brand with a more modest annual turnover more financially viable.” Gideon Heap Sr. Analyst, Pharmaview, Decision Resources Group

Analysing the drug approvals over the past few years, Gideon Heap, Senior Analyst, Pharmaview, Decision Resources Group, points out, “2012 and 2013 saw a high number of new approvals in both the US and in Europe. This number was was partly driven by a wave of rare disease therapies that were approved. This has been supported by the introduction of market incentives established to encourage their development over the past few years such as, fast track designation, breakthrough therapy designation etc and not to mention the stiff competition in more mature disease markets, which has encouraged developers to look at more underserved indications.”

A recent Thomson Reuters study indicated that the economics of orphan drugs were favourable to those of non-orphan conditions. However, Heap is quick to add that it is unclear as to how long these favourable conditions will prevail, given that payers and governments increasingly focus on the cost of these drugs.

“In many cases pharmaceutical companies do not anticipate that these rare disease therapies will become blockbusters. The shorter regulatory approval times associated with rare disease drugs serve to control development costs, and elongated market exclusivity makes a brand with a more modest annual turnover more financially viable. In fact, several smaller brands generating more sustainable revenues from niche markets may be more favourable than one traditional blockbuster,” he concludes.

So while the number of orphan drug designations by the FDA has increased , the number of approvals remain small in comparison. However, once approved and marketed, profits can be made and and patients be served despite smaller patient populations. Gross profit margins of upto 80 per cent are reported in the rare diseases industry vis-a-vis 16 per cent in the pharma industry. Profit further increases as the market widens and although some of these drugs might not be used for a record number of other indications, they have found a second or even additional market.

For instance Gleevec, which initially targeted 9,000 patients annually in the US diagnosed with chronic myelogenous leukemia in 2001 has not only been saving their lives but has garnered profits with a proportional increase in the population of these patients. It was later found to be equally efficacious as a therapy for gastrointestinal stromal tumours, expanding the total patient population number using the drug to 120,000. In the 12 years since it was introduced, Gleevec has become a block-buster orphan drug.

Who will cross the finish line?

Gaining blockbuster status is easier said than done. Thomson Reuters released its annual forecast of the leading drugs to watch in 2014, including three potential blockbuster treatments anticipated to attain more than $1 billion in sales through 2019, after entering the marketplace this year. The consensus sales forecasts for the drugs expected to enter the market in 2014 tend to suggest that the blockbuster model is on its way out, with the vast majority of these drugs predicted to make sales of less than $1 billion by 2019.

Only three drugs are bucking the blockbuster trend so far as per the report. Gilead sciences’ Sovaldi (sofosbuvir), GSK/Theravance’s Anoro Ellipta (umeclidinium plus vilanterol) and Gilead’s Idelalisib are projected to have 2019 consensus sales forecasts of $7.518 billion, $3.081 billion and $1.100 billion, respectively. Other drugs to watch out include Eli Lilly’s long acting GLP-1 analog dulaglutide for diabetes and its anti-VERFRG2 Mab Cryramza(ramucirumab) for gastric cancer. The drugs have 2019 sales forecasts of $974.2 million and $904.4 million respectively and had both been filed for the US and European approval last year in October.

It observes that as developing a blockbuster becomes more difficult, the pharma industry must seek to find replacements for these revenue streams, for example by turning to more personalised therapies. the continued decline in the number of blockbusters, combined with patent expiry for several existing blockbuster agents this year, should make 2014 particularly challenging for the industry.

Heap offers a perspective, “Globally, payer systems are acting to maximise value from healthcare expenditure. UK’s NICE and Germany’s IQWiG have gained prominence over the last few years in their role for demanding pharma manufactures demonstrate benefit in comparison to existing therapies. Similarly, US insurers and pharmacy benefit managers are becoming tougher on drugs that do not demonstrate benefit. These pressures are certainly increasing the risks for the developers achieving their desired return on investments.”

It appears that many of the challenges companies face are similar to 10 years ago. However, the requirement to deliver safe and efficacious drugs to patients has not changed. The economic challenges though have only become tougher with greater pressure on demonstrating the value and cost effectiveness of a product. The explosion of data is a significant challenge in this space. The amount of genetic data is increasing and the volumes of information relating to the underlying pathophysiology of disease will continue to grow. Making sense of this big data and delivering true insight will be a major challenge to companies.

“The regulatory landscape also remains challenging and it will be interesting to see how the increase in stringent market access in the major markets will impact the evolution of the emerging markets. It is worth noting that the level of trust pharma companies have historically enjoyed is on the wane due to a number of recent well publicised scandals. Companies have good amount of work to do to regain the patient’s trust. Nevertheless, novel and interesting agents that are able to demonstrate true value to patients are still likely to achieve blockbuster status,” Cole offers the final word.

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