WHAT WILL HAPPEN WHEN BIOTECH DRUGS GO GENERIC?

by Matthew Herper

In a few years, the first blockbusters of the biotech age will begin to face generic competition. Big drugs like Amgen's (AMGN +0.32%) Epogen and Neulasta, Roche and Biogen Idec's (BIIB -0.55%) Rituxan, and Erbitux, from Eli Lilly and Bristol-Myers Squibb (BMY -0.8%), could eventually face cheaper competitors. But they won’t be exact substitutions, because these drugs will be so much harder to make. Most will not be true generics but biosimilars — products with a similar profile that are still seen as slightly different from the original.

So how quickly will sales erode? It will depend on the disease being treated and whether decisions are being made by physicians and patients or by hospital administrators, according to a new analysis by ZS Associates, a global consultancy.

One of the first cases of a biosimilar being launched was when Omnitrope, a form of human growth hormone made by Novartis' generics business, Sandoz, was introduced to challenge Pfizer's PFE +0.15% Genotropin in 2007. Initially, there was little use of Omnitrope, even though Sandoz had priced it at 40% less than branded Genotropin. In the U.S., traditional generics get automatically substituted by the pharmacists unless a physician suggests otherwise. With growth hormone, physicians and patients initially had no reason to switch. What helped Omnitrope gain market share was a series of efforts one would expect in a war between two brands.  Patient assistance programs helped people afford the medicine, rebates to health plans made it cheaper to insurers, and new clinical trials made doctors more comfortable prescribing it. Even with that 40% discount, Omnitrope still has less market share than Genotropin.

In some cases, doctors and patients may not be willing to switch to an alternative. That’s was the case when Shire launched Vpriv in the midst of a shortage of Genzyme’s Cerezyme, for Gaucher’s disease, a rare disorder of the bones and connective tissue.  Doctors and patients switched initially because of the supply problems, but then they switched back — even though Vpriv was 15% cheaper. They were loyal to the original product, and no one forced them to switch on the basis of price, which was handled by insurers and patient assistance charities funded by drug makers. In cases like these, copycat drugs may have trouble making a dent, lowering drug costs for the system as a whole, or hurting established players.

But there’s another case: the launch of the biosimilar version of Sanofi’s blood thinner Lovenox by Novartis and partner Momenta Pharmaceuticals. The biosimilar, enoxaparin, rapidly took most of the branded drug’s market share thanks to its 14% discount to the original brand. That’s because patients don’t choose which blood thinner they get in the hospital. The decision of which to buy was largely made by hospital administrators who saw no difference between the products except for price.

Ganesh Vedarajan, a managing principal at ZS Associates, says that what happens when a generic launches will depend which of these cases the situation most resembles. In oncology, where decisions are made at the hospital level, he expects erosion similar to what happened with Lovenox. Amgen’s drugs, Epogen and Neupogen, could be hit particularly hard. But other medicines, like those for rheumatoid arthritis, may be able to hold on to market share. The most important conclusion may be that the players introducing biosimilars successfully are less likely to be traditional generic companies, who are used to competing on price, but large biotech players like Amgen itself, who know how to manufacture and market new drugs.

Fuente: Forbes

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GOOD RETURNS MOTIVATE PHARMA TO DEVELOP NEW DRUGS

 (Part 2 out of 2) 

by Stephen D. Simpson, CFA

There's a sizable difference between mean and median costs, as certain kinds of drugs (particularly cardiovascular, metabolic, and autoimmune/inflammatory) require much larger and more expensive trials. All things considered, independent biotechs tend to focus on developing drugs with more modest Phase 3 requirements, while the largest trials are often only run by the big drug companies.

Arena's (Nasdaq: ARNA) Phase 3 BLOOM study (which was just one of three Phase 3 studies for the obesity drug lorcaserin) enrolled almost 3,200 patients and likely cost upwards of $200 million. By comparison, Medivation's (Nasdaq: MDVN) Phase 3 AFFIRM study for prostate cancer drug Xtandi enrolled 1,200 patients, while a single Phase 3 study of Eliquis, an oral Factor Xa inhibitor marketed by Pfizer (NYSE: PFE) and Bristol-Myers (NYSE: BMY), enrolled more than 18,000 patients and the total Phase 3 development program enrolled more than 60,000 patients across multiple studies. Even if Pfizer and Bristol-Myers somehow managed to do those trials at about only half the cost of a normal Phase 3 study, that's still upwards of $1.5 billion in Phase 3 development costs.

Earning Back Those Costs

Not only do approved drugs have to pay for themselves, but they also have to subsidize the company's failures and still leave something for shareholders. While multi-billion dollar blockbusters like Pfizer's Lipitor, AbbVie's (Nasdaq: ABBV) Humira, and Sanofi (NYSE: SNY)/Bristol-Myers' Plavix certainly have more than paid their way, they really are the exception.

The average approved drug generates about $300 million per year in revenue over its lifetime. Excluding R&D costs, the average Big Pharma drug will generate a margin of approximately 50% and will have a productive revenue-generating life of about 15 years. Looking again at the averages (and excluding taxes or the cost of capital), those two-of-10 approved drugs will earn back their cost of development in about three years and pay for their failed siblings in another two and a half years.

That means roughly one-third of the productive life of an average drug goes to paying back the cost of drug development. It also explains why drug companies are so willing to spend on marketing and follow-on label extension studies and so fierce in protecting their patents – each extra year of branded drug sales has a significant impact on the net present value of the drug in question.

Using the prior inputs, that portfolio of 10 drug candidates could be expected to produce an IRR of about 13.25%. Just one extra year of exclusivity on the back-end for both drugs would improve the overall IRR by about a quarter-point, and the development of blockbuster drugs like Lipitor can lead to huge IRRs. By the same token, though, companies that hit dry spells in their clinical development and/or have major disappointments and late-stage trial failures can see their portfolio IRRs quickly plunge.

The Bottom Line

At the end of the day, any analysis of the cost of drug pricing comes down to a question of fairness. While some advocates and commentators choose to focus on what's fair for patients and payers, I think it's also worth considering what is fair the drug companies as well.

I will admit that the mix of medians, averages, and estimates makes the conclusions here only rough at best, but is a 13% internal rate of return excessive when the odds of success are pretty poor and large sums of money have to be invested with no expectation of any returns for five to 10 years? Looking at it differently and using an NPV approach, a 10% discount rate on those cash flows would lead to a net present value of about $270 million for that fictional 10-drug portfolio. While it's certainly true that the occasional blockbuster drug can lead to substantially higher returns for pharmaceutical companies, it's likewise true that a dry spell in the clinic and/or expensive late-stage failures can lead to periods of very poor returns.

Again, “fair” is a very subjective concept. I see nothing wrong with pharmaceutical companies earning a good return given the large amounts of capital and high risks that go with drug development. Perhaps just as much to the point, if the public continues to demand new drugs that allow them to live longer and/or better and that are proven to be relatively safe, they need to realize that they're going to have to pay for them to keep the companies motivated to take on the development risks.

Fuente: SmartBrief - INVESTOPEDIA

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GOOD RETURNS MOTIVATE PHARMA TO DEVELOP NEW DRUGS

 (Part 1 out of 2) 

by Stephen D. Simpson, CFA

The cost of prescription drugs is a perennial subject of heated debate, as advocates on one side argue that drug companies make windfall profits and overcharge health care systems and advocates on the other side argue that higher drug prices simply reflect a higher cost of doing business and a need for companies to make a return commensurate with the risks they take on. Although I have no delusions that I'll change the minds of those who believe drugs are too expensive and that drug companies are abusing patients and insurance companies, the impact of rising costs of drug development can't be ignored.

Costs Keep Climbing

According to a study done by Tufts University, roughly 40 years ago (1975) it only cost $100 million in 2005 dollars to develop one drug from the lab to FDA approval. By 1987, that figure had tripled and by 2000 the cost was up to $800 million. In 2005, the per-drug cost of a successful approved drug had reached a whopping $1.3 billion. 

It's not hard to see why costs are rising. Above and beyond the “everything's just more expensive now” argument, drug companies have had to significantly expand the size and complexity of their studies. The number of procedures performed as part of drug trial (that is, particular tests, treatments, and other such steps) has increased by 50% to 65% just in the last ten years, and as anyone who has seen a recent bill from a clinic or hospital can attest, every test comes at a cost. At the same time, drug trials have become larger and larger, and drug companies are required to study the effect of drugs in larger and more diverse populations than ever before.

There are at least three notable factors playing a role in these larger, more complex drug trials. First, the FDA has steadily increased its expectations and requirements for approval – over the last decade, for instance, it has become a nearly established requirement that companies looking for approval of new diabetes drugs must include a cardiovascular outcomes study. With a growing burden on establishing the safety of new drugs, then, there are more required tests throughout the clinical trial process.

On a related note, larger drug companies are increasingly looking to larger, more complex studies as a way of de-risking the approval process. In most cases it is cheaper to conduct a larger, more complex Phase 3 study than to face FDA rejection and a requirement to go back and do another study to address a perceived deficiency in the drug's data package. Last and not least, drug companies have seen more pressure from their insurers to conduct more thorough studies – with the cost of legal settlements also rapidly rising, insurance companies are demanding more thorough (and expensive) safety testing as a way of reducing product liability payouts.

Success Is Far From Assured

At its core, drug development is still a high-risk endeavor. Only about 19% to 21% of drugs in Phase 1 trials will ultimately see approval. Phase 1 studies are not particularly demanding, though, and roughly 70% of drugs go on to Phase 2 where the odds of ultimate approval are still quite low (roughly 28%).

Once a drug makes it into Phase 3 testing, the odds significantly improve (58% to 62% make it through to approval), but the costs also go up considerably – Phase 3 studies are about one-third more expensive on a per-patient basis and Phase 3 studies are almost always considerably larger (6x to 30x the number of patients versus Phase 2). Of those drugs that are ultimately approved, as much as 90% of the development spending can occur in Phase 3 (though 65% to 75% is likely a closer estimate for the typical drug).

Only about 32% of drugs put into human studies will it make it to Phase 3, and those failures (nearly seven out of every 10 drugs) will cost around $40 million each on a median basis, but with some pre-Phase 3 programs costing as much as $100 million. Once those drugs make it into Phase 3, trials can cost anywhere from hundreds of millions of dollars on average to more than $2 billion depending upon the disease in question (cardiovascular disease drugs, for instance, tend to require much larger phase 3 studies).

My calculations suggest that, on the basis of past company-reported surveys regarding per-patient trial costs and using data from ClinicalTrials.gov to estimate median trial sizes, for the two approved drugs out of 10, a drug company may spend around $800 million, while the cost of the eight failures will total to almost $750 million. Clearly these numbers are lower that the $1.3 billion/per drug figure cited earlier in the Tufts study, and at least some of this has to do with how to allocate expenses like preclinical development and “basic research”, licensing fees, and so on, and some of it also the difference between median and mean spending.

Fuente: SmartBrief - INVESTOPEDIA

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INTREXON CEO: CONSUMER MARKET IS KEY TO BIOTECH GROWTH

by Margie Manning

Biotechnology firms and business leaders need to think beyond health care if the industry is to grow, according to a leading entrepreneur.

The industry has underperformed since the first successful efforts to splice DNA 41 years ago, said Randal J. Kirk, chairman and CEO of Intrexon Corp., during a keynote speech at the annual gathering of BioFlorida in Tampa.

Biotechnology is a $170 billion industry, but that’s just two-tenths of 1 percent of gross world product, Kirk said.

About $130 billion of that is in therapeutics, about $30 billion is in agricultural biotech, $10 billion is in industrial biotech, while biotech for consumer uses is virtually zero. That’s in inverse proportion to the size of those industrial segments in the global economy, Kirk said.

“Biotech has a reverse footprint on the world. You should think beyond health care because if you want to know where the rapid growth in biotech is going to occur, it’s going to be, in my opinion, highest in consumer, second highest in industrial, third highest in agriculture and then therapeutics,” he said.

Biotech companies to date have generally concentrated on low-hanging fruit, Kirk said.

“There aren’t that many difficult problems you can solve with a single gene, yet that’s where therapeutics and ag bio have stayed almost exclusively,” he said.

He suggested biotech firms instead work on an industrial scale. “Living organisms do things so much more efficiently than chemical factories do.”

Intrexon (NYSE: XON), headquartered in Germantown, Md., operates in the synthetic biology field. Synthetic biology is an emerging discipline that applies engineering principles to biological systems.

Intrexon raised $160 million in an initial public offering and went public in August, theWashington Business Journal reported.

Fuente: SmartBrief - Tampa Bay Business Journal

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PHARMA DEALS DURING MAY 2014
(Part 3 out of 3)

In May, the deals announced by Big Pharma companies to streamline and rationalise their business operations continued apace with a high level of M&A activity.  The deals mentioned represent the valued deals that were announced during May but there were two major M&A offers that did not materialise in the month. Firstly, the Pfizer bid for AstraZeneca and, secondly, the Valeant bid for Allergan. 

This table lists all the major pharma collaborations, acquisitions and mergers agreed during May 2014

Licensor acquired / licensee acquirer	Deal type	Product / technology	Headline ($m)
Merck & Co OTC Business / Bayer	Asset / product acquisition	Consumer care business incl. Claritin, Afrin and Coppertone brands	14,200
CFR Pharmaceuticals / Abbott	Company acquisition	Chile-based branded generic company with Latin America (2013 sales  $768m)	3,330
Bayer / Merck & Co	Co-development and co-commercialisation	Soluble guanylate cyclase modulators for cardiovascular disease	2,100
Valeant / Nestle	Asset / product acquisition	Injectable cosmetic fillers for facial wrinkles including Dysport	1,400
Ophthotech / Novartis	Commercialisation1and co-development licence	Fovista (start p3) for treatment of wet age-related macular degeneration	1,030
Chelsea / Lundbeck	Company acquisition	US company with treatments for rare neurologic diseases	658
Avalanche / Regeneron	Development and commercialisation licence	Gene therapy products for ophthalmologic disease	653
Merck & Co / Santen	Asset / product acquisition2	Ophthalmology products in Japan, Europe and Asia Pacific with sales of $400m	600+
MacroGenics / Takeda	Option to license end p1a to develop and commercialise	MGD010, a preclinical bispecific antibody for treatment of auto-immune disease	502
VersaPharm / Akorn	Company acquisition	US generic company selling dermatology products with $100m sales	440
Bayer Interventional Device Business / Boston Scientific	Asset / product acquisition	Devices for coronary and peripheral vascular disease (2013 sales $120m)	415
CytomX / BMS	Development and commercialisation licence	Selective monoclonal antibodies (“Probodies”) for up to 4 oncology targets	348
Bedford Labs (Boehringer Ingelheim) / Hikma	Asset / product acquisition	US generic injectable manufacturer and products (2013 sales $19m)	300
GSK product / Pernix	Asset / product acquisition3	Marketed sumatriptan/naproxen combination. 2013 sales $79m	267
Lumena / Shire	Company acquisition	US company with late stage compounds for treatment of rare GI / hepatic diseases	260+
Xenoport / Reckitt Benckiser	Development and commercialisation licence	Arbaclofen placarbil end pIIa for alcohol use disorders	145
Neurotez / GCA Therapeutics	Development and commercialisation licence4	Leptin derivatives for treatment of cognitive disorders	103
Fibrotech / Shire	Company acquisition	Australian company with pIb product for rare fibrotic kidney disease	75+
Ligand / Omthera (AstraZeneca)	Research, development and commercialisation licence	Omthera's prodrug delivery platform for omega-3  fatty acids for dyslipidaemia	45
Viking / Ligand	Licence to develop. Ligand provides $2.5m loan	Five development small molecule programmes. Lead product pIIb type 2 diabetes	N/D
AntiOp / Reckitt Benckiser	Supply and marketing agreement	Intranasal naloxone for opioid abuse in late clinical development	N/D

All deals are worldwide unless otherwise noted.

¹ - Ex-US

² - Japan and key markets in Europe and Asia Pacific

³ - US

⁴ - China 

Fuente: PMLive

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