Big Pharma's R&D Engine Continues to Sputter

08 December 2003 00:00  [Source: ICB Americas]

As 2003 nears a close, the pharmaceutical industry is facing yet another year of low output. Of the 20 new molecular entities (NMEs) approved by the Food and Drug Administration as of late No-vember, only 10 drugs came from big pharma, and several of these were the result of licensing deals with biotech companies or other pharmaceutical companies. Faced with an innovation drought, big pharma continues to seek ways to recharge its R&D engine as it looks for recovery.

"Pharmaceutical productivity in R&D is a function of the quality and quantity of products emerging from the pipeline relative to the time and money invested in their development," says Nick Bennett, analyst with Datamonitor PLC, a London-based research analysis firm. "Industry-wide, performance is sub-optimal."

Big pharma accounted for only 50 percent of the NMEs approved in 2003 and for 14 percent, or one, of the seven new therapeutic biologics approvals in 2003. GlaxoSmithKline was the most productive with three NMEs in 2003 and one new biologic therapy. GlaxoSmith-Kline received approval for its antibiotic Factive (gemifloxacin), developed with LG Life Sciences; the anti-cancer therapy Bexxar (tositumomab and iodine I-131 tositumomab), developed with Corixa Corp.; and the impotence drug Levitra (vardenafil), which it co-developed with Bayer. GlaxoSmithKline will also promote the recently approved protease inhibitor Lexiva (fosamprenavir), which was developed by Vertex Pharmaceuti-cals. AstraZeneca and Roche each had two NMEs in 2003. AstraZeneca received approval for its anti-cholesterol drug Crestor (rosuvastatin) and its anti-cancer therapy Iressa (gefitinib). Roche received approved for its osteoporosis drug Boniva (ibandronate) and HIV therapy Fuzeon (enfuvirtide).

Among big pharma, there were seven companies with one NME or new biologic therapy in 2003. These included: Abbott Laboratories' Humira (adalimumab), an anti-arthritis therapy; Bayer's Levitra, used to treat erectile dysfunction; Bristol-Myers Squibb's Reyataz (atazanavir), an HIV therapy; Eli Lilly's Cialis (tadalafil), used to treat erectile dysfunction; Merck's Emend (aprepitant), used to prevent nausea and vomiting associated with chemotherapy; Pfizer's Somavert (pegvisomant), used to treat acromegaly; and Sanofi-Synthelabo's Uroxatral (alfuzosin), used to treat benign prostatic hyperlasia.

Six companies-Aventis, Johnson & Johnson, Novartis, Schering-Plough, Takeda and Wyeth-did not have an NME or biologic therapy approved in 2003, although Schering-Plough acquired rights in certain geographic markets for Helsinn Healthcare's Aloxi (palonosetron), an antiemetic and antinauseant agent, which was approved in 2003.

For big pharma, the cream of this year's crop are Crestor and Iressa, Humira, Levitra, Cialis and Reyataz. Analysts project US sales for AstraZeneca's Crestor at $450 million in 2004 and growing to $1.3 billion by 2007. AstraZeneca's Iressa, an anti-cancer therapy for treating locally advanced or metastatic non-small lunch cancer, is also a potential blockbuster, with peak sales estimates ranging from $500 million to $1 billion.

Although Abbott's Humira joins a competitive arthritis market with COX-II inhibitors Pfizer's Celebrex (celecoxib), Pfizer's Bextra (valdecoxib) and Merck's Vioxx (rofecoxib) and biological therapies such as Amgen's Enbrel (etanercept), analysts project potential blockbuster status for the drug, with 2006 forecasted sales of $1 billion.

Bayer's Levitra and Eli Lilly's Cialis become the second and third drugs in the niche therapeutic category of oral drugs to treat erectile dysfunction. They join the leading drug in that class, Pfizer's Viagra (sildenafil), which posted sales of $1.74 billion in 2002. Cialis is touted as another blockbuster drug in this class, with projected sales of $978 million by 2008, according to Datamonitor. Bayer and GlaxoSmithKline's Levitra is touted as a strong drug, with projected 2008 sales of $750 million, according to Datamonitor.

Peak sales estimates for Bristol-Myers's Squibb's Reyataz, a protease inhibitor range from $600 million to $800 million. Analysts are less enthusiastic about Roche's Fuzeon, with peak sales estimates at $450 million.

Reviving the R&D Engine

With drug productivity down and research and development costs rising, big pharma is under increasing pressure to improve R&D output. Analysts point to several key factors that have contributed to the innovation drought. "The cost of R&D is rising rapidly, driven by larger and more complex clinical studies and expensive new enabling technologies," says Datamonitor's Mr. Bennett. "Moreover, there is an oversupply of 'me-too' launches and a lack of genuinely innovative drugs to replace revenues lost through patent expiry. Also, the pipeline output is low and declining, and protracted clinical trials and administrative procedures eat into the marketed shelf life of patented products."

The decline in drug output comes as R&D expenditures are escalating. In 2002, the pharmaceutical industry as a whole spent $32.1 billion on R&D, based on estimates from member surveys from the Pharmaceutical Research and Manufacturers of America (PhRMA), a Washington. D.C.-based trade association representing research-based pharmaceutical companies. This was a 7.7 percent increase over 2001 and more than tripled the amount spent in 1990. Datamonitor estimates that global pharmaceutical R&D expenditure has increased from $1.9 billion in 1980 to $26.3 billion in 2000, representing a compound average growth rate (CAGR) of 13.8 percent. Over the same period, ethical pharmaceutical sales grew at a CAGR of 10.8 percent, shifting the ratio of R&D spend to sales from 11.9 percent to 20.3 percent. "If pharmaceutical companies peg R&D investment to product sales, the productivity per R&D dollar is clearly declining," says Datamonitor's Mr. Bennett.

Big Pharma Turns to Biotech

Faced with the need to improve its drug output, big pharma continues to look to biotech companies and smaller pharmaceutical companies to build their drug pipelines. Through the first nine months of 2003, the value of partnering deals between pharma and US biotech companies tallied $6.0 billion, up from $5.1 billion in the year-ago period, according to Burrill and Company, a San Francisco-based private merchant bank specializing in the life sciences. In 2002, the value of pharma-biotech partnering deals was nearly $7.5 billion. These partnering figures are based on the total deal value of disclosed transactions and include deals for both development and marketing rights.

In terms of drug development, one of the largest deals this year was the $510 million pact between Aventis and Regeneron Pharmaceuticals for developing and commercializing Regeneron's lead anti-angiogenesis compound, Vascular Endothelial Growth Factor (VEGF) Trap, which is currently in Phase I trials. Regeneron will receive an $80 million upfront payment, $45 million from newly issued Regeneron stock and an additional $25 million tied to early clinical milestones. Aventis will also make milestone payments to Regeneron of up to $360 million based upon marketing approvals for up to eight indications in Europe and the US.

The companies will jointly develop VEGF Trap in oncology, ophthalmology and possibly in other indications. Regeneron will continue to manufacture the VEGF Trap at its plant in Rensselaer, N.Y., and Aventis will be responsible for providing commercial-scale manufacturing capacity.

"We believe VEGF Trap is one of the most promising investigational oncology compounds currently under study," says Frank Douglas, executive vice president of drug innovation and approval and member of the board of management at Aventis. "This is a highly significant partnership for Aventis as blockage of VEGF is at the leading edge of innovative, targeted cancer therapy."

The Regeneron deal was the second oncology pact for Aventis in the third quarter. In July, the company signed a $111 million deal with ImmunoGen for developing cancer antibodies using targets from both companies. Last year, Aventis signed a $480 million deal with Genta Inc. for developing and commercializing Genasense, a compound in late-stage development, which works by inhibiting production of Bcl-2, a protein made by cancer cells that is thought to block chemotherapy-induced cell death.

Earlier this year, Aventis also partnered with Zealand Pharma A/S in a $110 million deal for ZP 110, a modified GLP-1 (glucagon-like peptide) agonist, which is in Phase 1/II testing to treat Type II diabetes. ZP10 is part of a new class of drugs that aim to mimic the glucose-dependent stimulation of insulin release by GLP-1, a naturally occurring hormone found in reduced concentration in people with Type 2 diabetes. To meet a strategic goal of building a position for drugs to treat Alzheimer's disease, Aventis also formed a development and commercial licensing agreement with Dainippon Pharmaceutical for Dainippon's antidementia agent AC-3933, currently under development in Europe by Dainippon. AC-3933 acts as a partial inverse agonist at the GABA-benzodiazepine receptor complex, enhancing cholinergic function.

Eli Lilly took a large step in enhancing its ability to develop biotech-based drugs when it late last month signed a $400 million merger agreement with Applied Molecular Evolution Inc. (AME), a technology provider that uses directed molecular evolution for developing biotherapeutics. Eli Lilly had formed a third collaboration with AME in June to improve two protein therapeutics, a growth factor and an antibody. Lilly had formed two earlier agreements in December 2001 and February 2002.

"We are confident that the synergies this merger creates will accelerate our ability to discover and optimize biotherapeutic drugs for cancer, inflammatory diseases, and critical care, as well as diabetes and obesity-areas where proteins, such as monoclonal antibodies, are of great therapeutic benefit," says Steven Paul, executive vice president, science and technology for Eli Lilly.

AME is on track for producing clinical grade AME-527, its humanized monoclonal antibody for treating rheumatoid arthritis. AME filed an investigational new drug application (IND) for the drug last month and recently completed the construction of a new bioprocessing and manufacturing facility in San Diego, Calif., to handle developmental quantities up to Phase II. This was the second IND filed by AME, which has filed an IND for Numax, an optimized version of MedImmune's antibody Synagis, used to treat respiratory syncytial virus. Synagis posted first-half sales of $447 million.

MedImmune is one of AME's eight commercial collaborations. The Med-Immune pact is a four antibody strategic collaboration, which includes in addition to the optimization of Synagis, the licensing of AME's antibody Vitaxin to MedImmne and two additional antibodies. Other pacts are with Chiron, Aventis, Seattle Genetics and Bristol-Myers Squibb (BMS). AME is optimizing BMS's BR96 anti-solid tumor antibody, is developing a tumor antigen discovery program, and is optimizing BMS's CD40 antibody for organ transplant rejection therapy.

Pfizer is also actively pursuing partnerships in drug development, with its most recent being a $370 million development and commercialization agreement with Organon, the human pharmaceutical business unit of Akzo Nobel. The companies will collaborate on the clinical development and manufacturing of Organon's asenapine, a 5HT2/D2 antagonist. A potential new psychotropic medication, it is in Phase III trials for treating schizophrenia and bipolar disorder. The companies will also co-promote the product in the US, European Union, Japan. Pfizer is making an initial payment of $100 million and up to $270 million in milestone payments contingent upon regulatory approvals and launch of asenapine. Pfizer also signed a $92 million pact with Guilford Pharmaceuticals for a class of inhibitors to treat neurodegenerative disease.

Last year, Pfizer completed five in-licensing deals for Serono's Rebif (interferon beta 1-a), which was approved last year; Neurocrine Biosciences's indiplon, for treating insomnia; Eyetech's Mac-ugen, which is in late-stage development for treating age-related macular degeneration and diabetic macular edema; Del-tanoid Pharmaceuticals' 2MD, a vitamin D analogue in early clinical development for treating osteoporosis; and Daiichi Pharmaceuticals' DK-507k, a extended spectrum quinolone antibiotic in early clinical development.

GlaxoSmithKline, the second largest pharmaceutical company behind Pfizer, also signed a number of deals this year. The largest was a $550 million alliance with Theravance Inc. for developing and commercializing medicines containing Beta2 agonists (LABA) for treating respiratory diseases such as asthma and chronic obstructive pulmonary disease. The deal includes a $50 million upfront equity investment by GlaxoSmithKline in Theravance and milestone payments up to $495 million, of which $150 million is attributable to compounds reaching certain sales thresholds. In October, Glaxo-SmithKline and Ranbaxy Laboratories also formed a drug discovery and development pact, which will focus on a wide range of therapeutic areas.

In May, GlaxoSmithKline and Medivir AB signed an  86 million ($103 million) licensing agreement for MIV-210, a nucleoside analogue reverse transcriptase inhibitor (NRTI), which is in Phase I clinical development for treating HIV. Medivir also formed a $200 million pact with Boehringer Ingelheim (BI) in the third quarter under which BI gains rights to MV-310, another NRTI, now in Phase II development.

In June, GlaxoSmithKline and Pozen Inc. signed an $80 million development and commercialization pact for proprietary combinations of a triptan (5-HT1B/1D agonist) and a long-acting non-steroidal anti-inflammatory drug. GlaxoSmithKline will pay $25 million up front with potential milestones payments over several years of $55 million.

In a smaller deal for drug delivery, GlaxoSmithKline and Flamel Tech-nologies SA signed a $47 million licensing agreement for Flamel's controlled-release Micropump technology. Flamel and Bristol-Myers Squibb had formed a $165 million pact earlier in the year under which Bristol-Myers receives exclusive worldwide rights to develop and market Flamel's Basulin controlled-release recombinant human insulin to treat diabetes.

In October, Bristol-Myers Squibb signed a $250 million pact with Corgentech Inc., a privately held biotechnology company, for joint development and commercialization of Corgentech's E2F Decoy (edifoligide sodium), an E2F Decoy treatment currently in Phase III development for preventing vein graft failure following coronary artery bypass graft and peripheral artery bypass graft surgery. Under terms of the deal, Bristol-Myers Squibb will make a cash and equity payment of $45 million to Corgentech, with the potential for an additional $205 million in clinical and regulatory milestone payments.

For its part, Novartis signed a $255 million pact in March with Idenix, a privately-held biotech company based in Cambridge, Mass., for a majority stake in Idenix in addition to rights to three drugs to treat hepatitis. Two of the drugs (telbivudine and valtorcitabine) are for treating hepatitis B and are in Phases III and I/II of development. The third drug (NM 283) is targeted for hepatitis C and is in a Phase I/II trial. The deal includes $255 million for the majority stake and $357 million in milestone payments.

Novartis also inked a $350 million pact with Regeneron to develop Regeneron's IL-1 Trap, which is in Phase II testing to treat rheumatoid arthritis. The deal includes $48 million up front and $27 million for development costs, with the balance of the deal in milestone payments.

In October, Novartis signed an agreement with Sankyo of Japan to co-develop and commercialize Sankyo's CS-526 acid pump antagonist, which is currently entering Phase I clinical trials. The oral compound was discovered by Sankyo and Ube Industries, Ltd. Novartis and Sankyo will share equally all development costs as well as costs and profits of commercialization in co-promotion countries, while Ube will manufacture the drug substance.

Novartis Pharma AG signed an ag-reement with Sigma-Tau of Rome, Italy, for the rights to develop and commercialize Gimatecan, an oral topoisomerase I inhibitor in Phase II development for the treatment of common solid tumors.

And just last month, Merck signed a $100 million drug discovery pact with GenPath Pharmaceuticals Inc, which uses cancer models to identify targets that could be targets for small molecule cancer drugs. Earlier this year, Merck formed a strategic alliance with Alnylam Holding Company, to develop RNAi-based technology and therapeutics. RNAi technology uses a natural biological mechanism to inhibit the expression of disease-causing genes and viruses. Merck signed a $5 million pact with Amrad Corp for a variety of diseases, which includes up to $112 million in milestone payments.

Investing in R&D Infrastructure

In addition to partnering with biotech companies and other pharmaceutical companies, big pharma has also been actively investing in R&D facilities and reorganizing R&D operations. To better integrate its R&D and commercial activities, in October Pfizer announced a reorganization of its pharmaceuticals operations in October. The company is forming the new Pfizer Human Healthcare, which includes Pfizer Global Research and Development (PGRD), Pfizer Global Pharmaceuticals (PGP) and Pfizer Global Manufacturing (PGM).

"Pfizer's continued success in the pharmaceutical business hinges on the alignment of our research, commercial and manufacturing operations," says Hank McKinnell, Pfizer chairman and CEO, who chairs the new organization's leadership team. "Increasingly, our strategies and tactics span all three of these groups, and to meet our global business objectives, we are moving now to integrate them with closely coordinated planning and action. Our primary goal is end-to-end alignment across the full range of our global pharmaceutical business."

Pfizer has set a specific goal of improving its drug output. "Right now, only one in 25 early candidates survives to become a prescribed medicine," says John L. LaMattina, president, worldwide research and technology alliances, Pfizer. "We think we can improve those odds to one in 10."

Pfizer, which is ranked as the number one global pharmaceuticals company, expects to file 20 new drug applications with regulatory authorities in the five-year period ending in 2006. The company has 210 projects in development consisting of 106 NMEs and 104 product enhancement projects. In addition, the company has over 400 projects in discovery research.

For its part, GlaxoSmithKline plans to start operations at a new center of excellence for drug discovery (CEDD) by the end of the year. The new CEDD, which will concentrate on biopharmaceuticals, is the seventh of the company's CEDDs, which are used to manage the progression of compounds in the middle of the pipeline.

GlaxoSmithKline is also investing more than £70 million ($120 million) in new buildings, with a further £92 million for technology to automate chemical synthesis, compound management and the screening of drug targets against compounds and for the design of the underpinning software. In October, the company opened a new £45 million high-throughput chemistry (HTC) facility at its Harlow, UK, research center. Harlow is the second of three large construction projects in GlaxoSmithKline's program of automating selected steps in drug discovery. A new facility has already opened in Tres Canto, Spain, and another will begin operations in 2004 in Upper Providence, Pa. Expansion of automation capabilities has also been completed at existing facilities in Stevenage, UK, and Research Triangle Park, N.C.

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