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The notable marks

People may think they know how to recognise the signs of a blockbuster, but is $1bn in sales a realistic guise for future niche champions?

It is a word that is bandied about in common industry parlance with almost wanton abandon. CEOs, addressing meetings packed full of concerned shareholders, will proclaim proudly that their company has just found a new one, and the analysts, in turn, will write research notes giving clues as to the veracity of the statement. At the mere sound of this word, investors and traders have been known to whip themselves into a frenzy and pour their funds into a pharma or biotech company that they believe will deliver impressive returns on the back of it.

If you haven't already guessed, the word is 'blockbuster' and it has been the keystone to global pharmaceutical sector growth rates over the last 20-30 years. Blockbuster drugs have defined the industry in recent years; top-selling mass-market products that have grabbed the headlines of the financial pages and spurred double-digit growth patterns to ever more impressive peaks. While it would be simplistic to say that, in the past, companies lived and died by the blockbusters that their research labs created, the link between these cash cows and perceived success is obvious.

On the face of it, it seems the blockbuster is here to stay, at least in the short term. According to IMS Health figures, the number of blockbuster products reached 94 in 2005, compared with 36 in 2000, and included 17 new members of the billion-dollar club. While several blockbusters are expected to lose their patents in the coming years, analysts are optimistic that the launch of new products, as well as continued steady growth of those already on the market, will actually result in an increasing number of blockbusters over the next five years.

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End of an era?
The end of blockbusters is not upon us, despite what some analysts are saying, observes Murray Aitken, senior vice-president, corporate strategy, at IMS Health. In fact, we expect that blockbusters will continue to be an important part of pharmaceutical market growth over the next five years, due to new uses for existing therapies, the emergence of niche/specialty products and the ongoing demand for chronic disease treatments.

The well-accepted definition of a blockbuster is a product that manages at some stage of its life cycle to amass at least $1bn annually in sales, a feat which demands respect in any industry. However, factors such as inflation, the rising cost of developing a drug and, inevitably, the amount of money to be spent marketing it successfully are gradually shifting perceptions of what constitutes a blockbuster drug in today's changing and challenging market.

Companies can no longer depend wholly on the blockbuster drugs of yesteryear to ensure they hit the double-digit growth that shareholders see as their right to demand. Various market pressures are currently weighing on the industry. Therapy areas have become crowded as big-selling medicines come off-patent and doctors are wooed by the cheaper efficacy of generic versions. Regulatory authorities, concerned by the Vioxx episode, have raised the safety bar accordingly for new drug applications. It is a telling fact that in 2005 Pfizer saw sales of its osteoporosis treatment, Celebrex, fall 47 per cent over safety concerns in the light of the Vioxx withdrawal.

Pouring money into risk
The pharmaceutical industry has made no secret of the fact that there has also been a massive increase in the cost of R&D. According to a Bain & Company study in 2003, when the costs of failed prospective drugs are factored in, the actual cost for discovering, developing and launching a single new drug has risen to nearly $1.7bn, representing a 55 per cent increase over the average commercialisation cost for the five years from 1995 to 2000.

The laws of sound economics dictate that if firms are going to have to pump that level of cash into the risk-addled world of drug development, then they are going to require significant revenue returns.

Not least, the environment in which firms are compelled to make R&D investment has become more hazardous. In a nutshell, science has become a lot harder and the general consensus is that the `low-hanging fruit' of potential drug targets have already been picked. Launching a new product in traditional blockbuster therapy areas, such as arthritis, diabetes, depression and asthma, no longer represents a guaranteed healthy return on investment despite their large patient populations.

Denise Anderson, pharmaceutical analyst at Kepler Equities, says that all of the above problems are symptomatic of the dark side of the blockbuster. She believes that lines have to be redrawn when labelling products as blockbusters, particularly as the term was coined decades ago when $1bn was a great deal more money than it is today.

Whenever you try to slice and dice the market, it's easy to end up oversimplifying and missing key points about a drug's profile, she says. It's not only a question of differentiating a so-called `blockbuster' drug in the context of the current market, but also of appreciating that there are $900m-a-year drugs out there that need much less marketing than some of the big primary care products.

She points out that Actelion's pulmonary hypertension drug, Tracleer, is well on the way to clearing over SWFr1bn ($812m) in sales this year, despite only having about 100 sales people in the US: I'd call that a very successful drug, wouldn't you?

So, if $1bn in annual sales has become a somewhat oversimplified barometer of success, how do we assess the true pharmaceutical product champions of the 21st century?

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According to business intelligence firm Datamonitor, the answer lies in a marked move towards niche therapy markets with a high unmet need. Increased use of diagnostics has been central to the development of personalised therapies, and much of pharma's recent drug development activity has been focused on securing viable targets. In its recent report, From Blockbuster to Nichebuster, the company concludes that targeted niche therapies will not only drive future drugs growth, but will also transform the market to being more R&D-focused rather than centred on sales and marketing.

Report author, Dr Mark Belsey, says that while the blockbuster growth model has played a significant role in driving overall growth, dependence on blockbuster-generated revenue is set to fall from 2004-2010 as the industry seeks to adapt to a new pharma landscape.

There's a concept out in the industry that utilising a blockbuster growth model can stifle innovation because you're switching the balance of overall spend much more towards sales and marketing spend, rather than R&D, he says, arguing that firms have set off on a gold rush to find the revenue-providers of the future, and niche therapy areas are very much on their radars.

Companies are increasingly looking towards bringing in expertise or drug candidates from external sources, so they're much more focused on securing licensing deals, entering into R&D collaborations and making much smaller M&A deals, such as acquiring a small biotech, rather than the mega-mergers we've seen recently.

Success in the niche channel
The potential of niche therapies should not be underestimated. It was the arrival of Roche and Genentech's breast cancer drug, Herceptin, which perhaps first countered the traditional view that blockbusters could only be found in the large primary care chronic disease areas. In 2001, Novartis' Glivec (Gleevec in the US) was approved for chronic myeloid leukaemia (CML), a disease with an annual incidence of less than 5,000 in its biggest market, the US. The drug was launched as the first treatment that targeted the molecular basis of CML and enjoyed rapid market uptake. By 2005, it had become the Swiss firm's second highest revenue generator, amassing $2.2bn in global sales.

Glivec was initially approved to treat CML but has since been approved for other indications as well, such as positive unresectable and/or metastatic gastrointestinal stromal tumours (GIST), says Dr Belsey at Datamonitor. It's a great example of a successful niche product.

Of course, with traditional blockbusters proving to be the fulcrum of pharma growth throughout recent decades, it has not been a straightforward case of switching seamlessly to a new drug development model. Pharma has, by and large, gone through a lot of pain to get where it is today in drug research. Genomics and proteomics technology, once regarded as the great white hope of pharmaceutical R&D, has so far failed to deliver the innovative new targets that large pharma firms had initially been banking on. Pharma has largely denied accusations that its predilection for launching so-called `me-too' drugs has harmed its search for innovative drug targets, although even the most hardened advocate of the industry will admit there is at least a grain of truth in them.

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However, the signs are that big pharma has adjusted to the realities of stringent risk management and learnt to hedge its bets in the quest for the blockbusters of tomorrow, whether they make the magic $1bn mark or not. The focus on targeted medicines is bound to have an effect on sales and marketing. Dr Belsey says that for companies to capitalise on the nichebuster model successfully, they will have to focus on characterising the target market, and using targeted marketing spend to access specialist physicians to drive approval and successful uptake. The days of huge salesforces flooding the markets could well be numbered.

There is already evidence that companies are reducing their salesforces, but I think that's more a byproduct of targeting niche markets, says Dr Belsey. With Lipitor, Pfizer created a $12bn drug, even though it was fourth to the US market, as a result of its incredibly strong promotional spend on targeting primary care physicians. If you're targeting a niche indication, then you need to be much more selective in terms of who you target and, in any case, there will be a much smaller physician population.

The hunt for future winners
With analysts predicting that patent expiries over the next four years could wipe off as much as 40 per cent of the total value of the market, the race to find the product champions of the future has taken on an even greater intensity.

We could well see a return to the glory days for the biotechs, says Anderson. Some are receiving huge upfront payments and achieving a 50 per cent cut of profits when drugs go to market.

She believes the next two years will be especially difficult for big pharma, due mainly to the fact that the last blockbuster 'group', the statins, is set to face generic competition. Yet, she is also confident that firms will leave no stone unturned in the hunt to plug pipeline gaps.

The thing about the statins was that before they were discovered, nobody actually knew they even needed such medication, she points out. So firms will be looking at those areas that aren't well served at the moment. I'm also hopeful that discoveries will be made in areas such as Alzheimer's, where we already know something is wrong but we don't yet know how to fix it.

The pharma industry has learnt to adapt to the onset of challenges such as regulatory constraints and dwindling pipelines to the extent that they are no longer new hurdles but rather issues woven into the fabric of everyday life. For these, firms have had to reassess to survive. They have now reached the point where they may have to do the same when it comes to blockbusters.

The author
Gareth Carpenter is assistant editor of Pharmaceutical Marketing magazine

2nd September 2008

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