Boom and Bust for Blockbuster Drugs

29 September 2003 00:00  [Source: ICB Americas]

Pharmaceutical chief executives heading into 2004 face a difficult task in meeting investor expectations. The market is changing. While blockbuster drugs-that is, drugs achieving sales of $1 billion or more-are still a focus for the top companies, the industry's reliance on blockbusters to drive growth is under pressure. Facing an erosion in blockbuster sales resulting from increased generic competition over the next several years, combined with weak pipelines for some companies, the pharmaceutical leaders are being pushed to strengthen and diversify product portfolios.

"Although the last five years have been good for major drug companies, with earnings up by an average of 14 percent annually, the outlook for the next five years is less certain," says a recent analysis by Pricewaterhouse-Coopers. "Recent growth trends mask profit pressures on industry leaders, who generally face a fairly thin new product pipeline and the expiration of patents on several blockbuster drugs that generated over $40 billion in sales last year. Therapeutic substitution of generics for branded drugs, coupled with price pressures from managed care groups, government and the burgeoning population of seniors, may limit annual revenue growth to between 8 and 10 percent and earnings growth to 12 percent, even with stringent expense controls and the capture of merger-related synergies."

A critical strategic consideration for the major pharmaceutical companies will be growth from blockbuster drugs, which is slowing. Although overall industry sales of blockbuster drugs are projected to increase from $116 billion in 2002 to $158 billion in 2008, representing year-on-year growth of 5.2 percent, a five-fold reduction in blockbuster growth is forecasted between 2005 and 2008, according to a recent report by Datamonitor PLC, a London-based market analysis firm. "Reliance on blockbuster revenues continues to increase, but current pipelines appear weak," says Andrew Jones, health care strategy analyst at Datamonitor. "Unless strategies are adopted to successfully address blockbuster deficits or reduce blockbuster dependence, the long-term performance of companies is at risk."

During 2005-2008, total blockbuster sales are projected to increase at a compound average growth rate (CAGR) of only 1.6 percent, compared to 9.0 percent forecast for the 2002-2005 period, a more than five-fold slowdown in growth, according to Datamonitor. While currently marketed products are expected to fuel growth in the short-term, sales from current blockbusters are expected to decline after 2005 as products lose patent protection, leaving revenues exposed to erosion from generic competition. More than 30 of the current crop of 57 blockbusters are expected to lose patent protection between 2003 and 2008 with total 2002 sales for these products exceeding $60 billion.

"The ramifications of a blockbuster deficit to the pharmaceutical industry are compounded by the dependence many companies place on blockbuster revenue," explains Mr. Jones. On average, companies' reliance on blockbuster drugs as a percentage of total ethical drug sales has increased from 40 percent in 2000 to 45.6 percent in 2002, according to Datamonitor. Aventis, GlaxoSmithKline, Johnson & Johnson, Pfizer, Novartis and Wyeth have each increased their reliance on blockbuster revenue by at least 10 percent over this time frame.

However, with blockbuster drug growth expected to slow, these companies and other top-tier companies will face increased pressure to bring new powerhouse products to market, a scenario that is made difficult for certain companies. "Pfizer is still only forecast to achieve blockbuster sales growth in line with the overall blockbuster market and is thus short of the double-digit growth that has historically attracted investors to the pharmaceutical sector," says Data-monitor's Mr. Jones. "GlaxoSmith-Kline, Merck, Johnson & Johnson and Wyeth are all forecast to underperform total blockbuster market growth between 2002 and 2008," he points out. "While a number of companies, including Astra-Zeneca, Aventis, Eli Lilly, Novartis and Roche, are expected to outperform the blockbuster market, their performance over the next five years is heavily tied to currently marketed products. In the absence of improvements in blockbuster pipelines, the majority of top-tier companies are likely to face poor blockbuster sales growth toward the end of the decade."

Pfizer

Pfizer, which leads the pharmaceutical industry in both ethical drug sales and in blockbuster drugs, is expected only to maintain blockbuster growth in line with the overall blockbuster market, says Datamonitor's Mr. Jones. In 2002, Pfizer's eight blockbusters generated sales of $22.3 billion, providing the company with a 19 percent share of total industry blockbuster sales. The company is expected to maintain this share through 2008, as Datamonitor projects that Pfizer's blockbuster sales will increase to $29.7 million by 2008, representing a CAGR of 5 percent. This comes after the company's reliance on blockbuster drug sales increased from 69 percent in 2000 to 79 percent in 2002.

In 2002, Pfizer's revenue growth was led by a group of 10 products that generated sales of $1 billion or more. These were the anti-cholesterol drug Lipitor (atorvastatin); the hypertensive drug Norvasc (amlodipine); the antidepressant Zoloft (sertraline); Neurontin (gabapentin), which is used to treat postherpetic neuralgia and partial seizures; Viagra (sildenafil) for treating erectile dysfunction; the antibiotic Zithromax (azithromycin); the COX-2 inhibitor and anti-arthritis drug Celebrex (celecoxib); the anti-allergy drug Zyrtec (cetirizine); Aricept (donepezil), for treating Alzheimer's disease; and Diflucan (fluconazole), for treating vaginal yeast infections. Eight of these products were from Pfizer's portfolio alone, with only Aricept and Celebrex part of alliance revenue. Aricept is manufactured and marketed by Eisai Ltd. and is also marketed and distributed by Pfizer. Celebrex was co-marketed with Pharmacia Corp., which Pfizer acquired in April of this year.

Although the roughly $60 billion acquisition of Pharmacia puts Pfizer into the number one position in the pharmaceutical industry, it netted Pfizer only one current blockbuster-complete ownership of the COX-2 inhibitor and anti-arthritis drug Celebrex.

Synergies from the Pharmacia acquisition are important for Pfizer to drive revenue growth. "We cannot simply add Pharmacia to Pfizer," says Hank McKinnell, chairman and CEO of Pfizer. "Changes will come in the basic drivers of our business growth: biomedical research, sales and marketing, global manufacturing and supply. We must respond to the realities of global business by making investments where we have the best climate for growth and opportunities for success."

Four of Pfizer's current marketed products are expected to achieve blockbuster status by 2008: its second-generation COX-2 inhibitor and rheumatoid arthritis drug Bextra (valdecoxib), its glaucoma product Xalatan (latanoprost), its incontinence drug Detrol (tolterodine) and the respiratory drug Spiriva (tiotropium), according to Datamonitor. These four products are forecast to generate combined sales of $6.43 billion in 2008, accounting for 22 percent of Pfizer's blockbuster revenues.

Among the top pharmaceutical companies, Pfizer has the strongest late-stage pipeline, as three of its five late-stage pipeline products are projected to achieve blockbuster status by 2008. These drugs are the central nervous system drug pregabalin and two cardiovascular products-Inspra (eplerenone) and Caduet (atorvastatin/amlodipine). Combined sales of the products are forecast to reach nearly $4.72 billion in 2008, according to Datamonitor.

Trouble Ahead for GSK,Merck, Wyeth and J&J

Of the top pharmaceutical companies, GlaxoSmithKline, Merck & Co, Wyeth and Johnson & Johnson are all expected to see a significant decline in their shares of the blockbuster market, according to Datamonitor. "The ethical revenues of GlaxoSmithKline, Johnson & Johnson and Merck are all heavily reliant upon blockbuster revenue," observes Mr. Jones. "Behind Pfizer, Merck has the second greatest reliance on blockbuster revenue of all the top-tier companies, at around 65 percent of ethical revenues, and this is not expected to change in the period 2002-2008. Although less heavily reliant than Merck, both GlaxoSmith-Kline and Johnson & Johnson significantly increased their reliance on blockbusters between 2000 and 2002," he says. As a percentage of ethical revenue, GlaxoSmithKline's reliance on blockbuster products rose from 29.7 percent of ethical revenues in 2000 to 49.2 percent in 2002, and Johnson & Johnson's reliance increased from 42.7 percent to 58 percent, according to Datamonitor.

Merck's blockbuster position is supported by its currently marketed drugs: the COX-2 inhibitor and antiarthritis drug Vioxx (rofecoxib), the anti-cholesterol drug Zocor (simvastatin), the hypertension drug Cozaar (losartan), the osteoporosis product Fosamax (alendronate) and the asthma drug Singulair (montelukast). Although sales of these products are expected to increase in the near-term from $16.1 billion in 2002 to $18.47 billion in 2004, by 2008, aggregate sales for these products are expected to decline back to $16.2 billion in 2008.

Merck, which spun off its pharmacy benefits management subsidiary Medco Health Solutions Inc. in August, can use proceeds from the spin-off to help with its drug portfolio. Merck gained $2 billion from the spin-off of Medco Health, which had 2002 sales of $33 billion. "With the spin-off, the market now has the ability to value each entity as 'pure plays' in their respective industries," says Merck chairman, president and CEO Raymond V. Gilmartin. "We believe that by establishing Merck and Medco Health as two separate companies, we will enhance the potential for success of both businesses and, as a result, increase shareholder value."

Harder hit by the erosion of blockbuster drug sales is GlaxoSmithKline, which is projected to see a 15 percent drop in blockbuster sales by 2008. GlaxoSmithKline's share of total blockbuster sales is set to fall from 11 percent in 2002 to 7 percent in 2008, and the company is expected to lose its place as the third largest blockbuster company to the biotechnology company Amgen Inc., according to Datamonitor.

GlaxoSmithKline faces a dual problem: sales erosion of its current marketed products and a weak pipeline. Four of its current key revenue drivers are expected to lose blockbuster status by 2008, notes the Datamonitor report. These are the anti-migraine drug Imitrex/Imigran (sumatriptan), the antibiotic Augmentin (amoxicillin and potassium clavulanate), the anti-cancer drug Zofran (ondansetron) and the asthma drug Flovent/Flixotide (fluticasone propionate). On the plus side, four current blockbuster products-the antidepressant Wellbutrin (bupropion), the diabetes drug Avandia (rosiglitazone) and the respiratory drug Advair (fluticasone/salmeterol) are expected to show continued growth.

On the downside for GlaxoSmithKline, however, is the likelihood that only one currently marketed product-epilepsy drug Lamictal (lamotrigine)-will be a blockbuster, with Datamonitor projecting peak sales of $1.1 billion by 2005.

Also hit with the blockbuster blues is Johnson & Johnson. Although the company's blockbuster sales are expected to increase from $9.95 billion in 2002 to a peak of $11.67 billion in 2005, its blockbuster sales are projected to decline to $9.15 billion in 2008, according to Datamonitor. Only one of Johnson & Johnson's currently marketed products, the gastrointestinal drug Aciphex (rabeprazole) is expected to reach block-buster status with sales of $1.15 billion in 2008, according to Datamonitor. None of its pipeline products are expected to achieve blockbuster status between 2003 and 2008.

Meanwhile, Wyeth, which now holds a 4 percent share of industry blockbuster sales, is expected to see that share fall to 3 percent by 2008. The company has three blockbuster drugs currently on the market: Premarin (conjugated estrogen), Protonix (pantoprazole) and Effexor (venlafaxine). The antidepressant Effexor posted 2002 sales of $2.07 billion, and Datamonitor projects peak sales of $3.43 billion in 2006, declining to $2.42 billion in 2008. Hurt by the controversy surrounding hormone replacement therapy, Premarin has already seen sales decline from $2.07 billion in 2001 to $1.87 billion last year; projections for 2008 are $1.14 billion. Although the proton pump inhibitor Protonix gained blockbuster status in 2002 with sales of $1.07 billion, sales are expected to peak at $1.56 billion in 2004 and fall to $485 million in 2004, reflecting increased competition from both branded and generic products in that therapeutic area.

Blockbuster Gains By Amgen, Eli Lilly and AstraZeneca

While certain companies face blockbuster declines, other companies, such as Amgen, Eli Lilly and Astra-Zeneca, are poised for an upswing. The biotech leader Amgen, which is projected to overtake GlaxoSmith-Kline for the third largest share of total blockbuster revenues by 2008, will benefit from its current blockbusters-Epogen (epoetin alfa) and Neupogen (filgrastim), which tallied combined sales of $3.64 billion in 2002, giving Amgen a 3 percent share of total blockbuster sales. "Although Neupogen is forecast to lose blockbuster status in 2004 and Epogen is forecast to show minimal growth over the 2002-2008 period, Amgen is positioned to see three of its currently marketed products achieve blockbuster status," says Mr. Jones. Amgen's anemia product Aranesp (darbepoetin alpha), its neutropenia product Neulasta (pegfilgrastim) and its arthritis drug Enbrel (etanercept) are projected to generate combined sales of $11.53 billion in 2008.

Amgen is already reaping the financial rewards of those future blockbusters. "We continue to deliver strong financial performance, and for the first time in Amgen's history recorded quarterly revenue of $2 billion," says Kevin Sharer, chairman and CEO of Amgen. "We are pleased with our sales performance across all our products, in particular, Aranesp, which continues to gain global market share in a growing anemia market." In the second quarter, global Aranesp sales were $348 million and global sales of Epogen were $611 million. Because of increased Aranesp strength in the US and Europe, Amgen raised its combined 2003 global sales guidance for Epogen and Aranesp to between $3.7 billion and $3.9 billion from earlier guidance of between $3.4 billion and $3.6 billion. Enbrel, which posted second quarter sales of $304 million, is expected to reach full-year 2003 sales of between $1.2 billion and $1.4 billion. Neulasta, the second-generation product to Neupogen, posted second quarter sales of $304 million. Neupogen posted a 9 percent decline in second quarter sales to $331 million, reflecting US conversion to Neulasta. Amgen expects full-year 2003 combined sales of Neupogen and Neulasta of $2.4 billion and $2.6 billion, respectively, up from earlier guidance of $2.3 billion and $2.5 billion.

As Amgen's blockbuster fortunes improve, so do those of Eli Lilly and Company, which is expected to see its position in the blockbuster market increase to sixth place by 2008, ahead of Johnson & Johnson. In 2002, Eli Lilly had two blockbuster products-the schizophrenia drug Zyprexa (olanzapine) and the insulin product Humulin. "While Humulin is forecasted to lose blockbuster status in 2004, Zyprexa is expected to perform well," says Mr. Jones. "In addition to Zyprexa, blockbuster growth will also be driven by the emergence of three new blockbusters: the currently marketed diabetes drug Humalog (insulin lispro), the oncology product Gemzar (gemcitabine) and the osteoporosis drug Evista (raloxifene), are all expected to achieve and maintain blockbuster status between 2003-2008," he adds. Combined sales of these drugs are forecast to total $4.45 billion in 2008. However, the only pipeline product forecast to be a potential blockbuster is the antidepressant Cymbalta (duloxetine), which Datamonitor projects will generate sales of $987 million in 2008.

Cymbalta for treating depression is currently under review by the Food and Drug Administration (FDA). Lilly received an approvable letter from the FDA for Cymbalta in September 2002. The drug's approval date may be on hold pending resolution of other FDA concerns for a separate indication. Earlier this month Eli Lilly received an FDA approvable letter for duloxetine for treating stress urinary incontinence (SUI). Final FDA approval is contingent upon successful completion of additional acute pre-clinical and clinical pharmacology studies; satisfactory resolution of manufacturing issues at Lilly's Indianapolis, Ind., manufacturing facilities, including the satisfactory completion of a pre-approval site inspection; and completion of label negotiations.

Lilly says it will conduct discussions with the FDA concerning the company's plans to provide the information the FDA has requested. Pending more detail from these discussions, Lilly anticipates a US approval of duloxetine for SUI in late 2004 or the first half of 2005. For the depression indication, Lilly expects to have more clarity on the timing of the approval of Cymbalta by the action date prior to the end of this year.

"We are committed to bringing our innovative late stage products as quickly as possible to the patients who need them," says Sidney Taurel, chairman, president and CEO, Eli Lilly and Company. "To that end, we will work rapidly to provide the additional data requested by the agency and to resolve our outstanding manufacturing issues."

Despite eroding sales of its number one-selling drug Prilosec/Losec (omeprazole) from rising generic competition, AstraZeneca PLC is fairly well positioned to maintain its share in the blockbuster market. The anti-ulcerant Prilosec/Losec posted first half 2003 sales of $1.43 billion, down 42 percent from $2.31 billion in the year-ago period. This reflects a 56 percent drop in sales in the US and a 20 percent decline outside the US. Following the entry of generic products, AstraZeneca now estimates its share of total omeprazole prescription products in the US at only at 35 percent.

However, on the upside for Astra-Zeneca has been its ability to increase sales revenues for its second-generation anti-ulcerant, Nexium (esomeprazole). The drug posted first half 2003 sales of $1.46 billion, up from $811 million in the year-ago period, a 74 percent increase in the US market and an 83 percent increase in markets outside the US. Along with its schizophrenia drug Seroquel (quetipaine), Astra-Zeneca is expected to post combined Seroquel and Nexium sales of $5.22 billion by 2008. Three cardiovascular products-Seloken/Toprol-XL (metoprolol) and Atacand (candesartan), both anti-hypertensive drugs, and the recently approved anti-cholesterol drug Crestor (rosuvastatin)-are projected to reach combined sales of $5.49 billion by 2008, according to Datamonitor estimates.

AstraZeneca's Crestor gained US marketing approval last month, in a 10 mg once-daily dose with an available dose range of 5 to 40 mg. AstraZeneca had hoped to win US approval for Crestor last year, but had to conduct additional safety tests, especially at the highest, 40 mg dose. Crestor is an HMG-CoA reductase inhibitor, or statin. AstraZeneca says its clinical development program for Crestor was the largest pre-approval program for a new statin. Safety concerns over the class had been raised with the withdrawal of Bayer's cholesterol drug Baycol (cerivastatin) in 2001.

Although projected to be a solid performer for AstraZeneca, analysts say Crestor is unlikely to take the leadership position away from Lipitor, the best-selling statin with 2002 sales of $7.97 billion. Analysts project US sales for Crestor at $450 million in 2004, growing to $1.3 billion by 2007. The drug posted first half sales of only $12 million, mostly from three key markets-Canada, the UK and the Netherlands. Crestor was recently approved in Sweden, and AstraZeneca plans another six launches before the end of 2003, including the US. Approval in Japan is expected in the first half of 2004.

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly