Big pharmaceuticals head for lower profits as chemists bump limit

Pfizer dumps $300 million five year upgrade as it closes facility; profits of 90% to 95% will expire along with patents

Dr. Sliskovic makes $13 billion a year for Pfizer, but gets laid off

Will Mother Nature make a comeback?

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As Christmas approaches, please spare a thought for the sad plight of the drug companies. As the WSJ explains in a fine series of illuminating pieces, they are having a tough time coming up with new drugs just as the patents are expiring on their blockbusters. The prize example at Pfizer is Lipitor, the world’s most lucrative drug:

Pfizer Inc. will be particularly hard-hit when the patent expires as early as 2010 on Lipitor, the cholesterol-lowering blockbuster that ranks as the most successful drug ever. Pharmacists and managed-care companies will aggressively fill prescriptions with generics, reducing annual Lipitor sales to a fraction of last year’s $13 billion.By 2012, Merck & Co. will face generic competition to its three top-selling drugs: the osteoporosis treatment Fosamax, Singulair for asthma and the blood-pressure drug Cozaar. Those three represent 44% of the company’s current revenue. Following the loss last year of patent protection for Merck’s cholesterol-lowering Zocor, sales this year are expected to fall 82% from $4.38 billion in 2005. A Merck spokeswoman said the company has several products in the pipeline that will offset its patent losses.

The rise of generics wouldn’t matter so much if research labs were creating a stream of new hits. But that isn’t happening. During the five years from 2002 through 2006, the industry brought to market 43% fewer new chemical-based drugs than in the last five years of the 1990s, despite more than doubling research-and-development spending.

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Nowadays coming up with a successful new drug is harder than you may think, it seems: the chances of a new one making it into the market is less than 1/10,000, the drug companies claim:

It has never been easy to take a drug from the lab, through animal testing and into human trials. The industry estimates only one out of every 5,000 to 10,000 candidates makes it to human trials. And many drugs that work beautifully in animals fail miserably in people.But those odds seem to have worsened in recent years, prompting debate about whether the cause is government regulation, corporate structure or an excessive scientific reliance on chemicals rather than biology.

Many drug-company executives blame the FDA for pulling back on approvals. “Very few products are being approved today,” said Bernard Poussot, incoming chief executive of Wyeth. The heightened scrutiny contributed to delays of two Wyeth products this past summer, the company has said.

Evidently the MacDonald’s executive who took over the helm at Pfizer is convinced that chemists can’t come up with hugely profitable breakthroughs any more by fiddling with the Periodic Table.

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In one measure of the greed ethic rampant in the industry, even the inventor of Lipitor, the extraordinarily successful cholesterol curber, has been laid off, and the huge research facility where he toiled is shuttered. How much extra pay did he get from a grateful Pfizer for a drug that earned the company billions of dollars, and which still pulls in $13 billion annually? Not one red cent.

In August, Dr. Sliskovic’s team stopped doing research and began transferring projects to other Pfizer sites. The labs are now being cleaned, inspected and sealed off. The 177-acre campus is a ghost town of empty rooms and boxed-up equipment.

Dr. Sliskovic didn’t seek an internal transfer. He felt that moving would be too hard on his family.

As acting head of chemistry at the Ann Arbor labs, Dr. Sliskovic earned far above the $112,000 a year paid to the average chemist of his experience level. Dr. Sliskovic says he will receive severance pay for between 18 months and two years. With two children in college and another in high school, he says, two years is the longest he could afford to forgo a paycheck.

Dr. Sliskovic has already repainted the family kitchen and living room. Now he is festooning the house and yard with holiday lights. Worried about their financial future, his wife, Cindy, took a second part-time job at the barn where they keep their horses. The irony that the drug her husband helped discover will bring in nearly $13 billion for Pfizer this year hasn’t been lost on her. As a staff scientist, Dr. Sliskovic earned no bonus or royalties for his work on Lipitor.

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What will the industry do now to escape the new squeeze? The move is into biotechnology, where products are created not by chemists in test tubes but in live cells, where they don’t yet face competition from generics. Companies are currently charging over $50,000 annually for a cancer drug, and $200,000 a year for one which fights another disease, because competition from generics hasn’t arrived, and it won’t come until Congress creates a way to regulate them.

“For all our amazing advances in the last 50 years, we are still working with the tools of the first pharmaceutical revolution…using advanced chemistry to treat disease symptoms,” Mr. Taurel of Lilly said in a 2003 speech.

The future, many believe, lies in biotechnology. Unlike traditional, chemistry-based drug development, biotechnology uses biological tools to create entire proteins, often similar to those that occur in the human body. This approach has yielded successful drugs to treat diseases such as anemia, cancer and rheumatoid arthritis.

Biotech drugs are especially appealing because they face no competition from generics: No regulatory pathway yet exists in the U.S. for bringing to market generic biotech drugs. So until Congress creates such a pathway, no generic threat will exist to the $4,400 a month that Genentech Inc. charges for its cancer drug Avastin, or the $200,000 a year that Genzyme Corp. gets for Cerezyme to treat Gaucher disease. And biotechnology products tend to target specialized areas of medicine that don’t require mass advertising or armies of salespeople.

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If you think the vast profits still being made on certain drugs are pure plunder, however, you have to remember that research costs are enormous and the pay off is uncertain. One drug lost $800 million without going anywhere:

Investors, once huge beneficiaries of drug-industry success, have moved to the sidelines. As the Dow Jones World Index rose 75% in the six years ended Nov. 29, the FTSE Global Pharmaceuticals Index fell 19.8%.

While many patients are benefiting from lower-cost generics, others are waiting in vain for relief of their suffering. “In anxiety disorder, the field has imploded in terms of drug development,” said P. Murali Doraiswamy, chief of biological psychiatry at Duke University medical school. “Ten years ago, we had eight or nine different” anxiety-disorder drugs under development, but that has now “come to a halt.”

At last month’s big American Heart Association meeting in Orlando, Fla., there were just two high-profile studies of experimental drugs on the agenda. One, for Eli Lilly’s anti-blood-clotting drug prasugrel, posted results that left some doctors and analysts questioning whether the drug would be a big seller. Lilly, however, says it is “very pleased with the trial’s outcome.”

The other study was a postmortem on Pfizer’s torcetrapib, already known as one of the industry’s most costly failures, with $800 million in budgeted research costs.

Meanwhile the industry is fighting to keep its grasp on America’s pocket book as long as it can:

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The dearth of new products has led the industry to invest heavily in marketing and legal tactics that squeeze as much revenue as possible out of existing products. Companies have raised prices; the average price per pill has risen 63% since 2002, according to Michael Krensavage, Raymond James analyst. Companies raised advertising spending to $5.3 billion in 2006 from $2.5 billion in 2001 and since 1995 have nearly tripled the number of industry sales representatives to 100,000.

The industry spent $155 million on lobbying from January 2005 to June 2006, according to the Center for Public Integrity, on “a variety of issues ranging from protecting lucrative drug patents to keeping lower-priced Canadian drugs from being imported.” The industry also successfully lobbied against allowing the federal government to negotiate Medicare drug prices, the center said. The lobbying has drawn fire from politicians, doctors and payers, and damaged the industry’s public image.

A new era of natural treatment heralded, maybe

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The other side of the coin is how radically medical treatment might benefit if the commercial pressure from drug companies which distorts it is lessened or removed.

As one knowledge activist in the field points out to Science Guardian, “Mother Nature has been outlawed” in the US marketplace for medications ever since the Kefauver-Harris amendment to the Food and Drug Act in 1962. This ordained that drugs could not be licensed by the FDA until their efficacy was proven in trials, as well as their safety. That put in place an obstacle course of trials to prove effectiveness as well as safety that now costs as much as $400 million or more.

Chemical drug companies of enormous size can handle this financial challenge, but small vitamin companies can’t jump through the hoop. The enormous cost is too much to recover in sales without exclusive patents, and all of Mother Nature’s products are by definition in the public domain and beyond patenting.

So a pyramid of patented drugs to fight symptoms and more drugs to deal with side effects accumulates. One drug after another is marketed as an expensive analogue for natural substances already available. Each one is synthetic, and therefore something never before encountered by the human system, so it is likely to open a Pandora’s box of side effects. The result is a pyramid of accumulating toxicity. New drugs are provided to deal with the side effects of the primary drug treatment, more doctor visits and prescriptions are needed, and everyone profits except for the patient.

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“Everybody is happy,” says this critic, “because everyone gets paid. But the patient doesn’t get cured. He or she only gets temporary relief, and a regimen of drugs for life. The system is antagonistic to a cure, because a cure would pull everyone off their ride on the gravy train. This is not necessarily a conscious process, but it is the economic reality.”

If this era is now moving into the past, it will be a happy development for patients, in our view. And despite some exceptions to the trend, including wonder drugs that do a great job and are still highly profitable, this does seem to be the case. Naturally, the pharmas will take over natural products soon enough, but at least they won’t have gigantic costs or patents to allow them to lever prices skyhigh.

“The era that created the modern pharmaceutical industry is in fact over,” said Richard Evans, a former Wall Street analyst and now a pharmaceutical consultant.