[Ip-health] Economist: Drugs firms are rethinking their business model

[James ARKINSTALL]

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http://www.economist.com/business/displaystory.cfm?story_id=3D9409230=0D
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Beyond the blockbuster=0D
Drugs firms are rethinking their business model=0D
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LIPITOR is a drugs company's dream. The cholesterol pill made by Pfizer, an=
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American pharmaceuticals giant, is the world's best-selling drug. Last year=
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it earned over $13 billion in revenues. Other hugely successful drugs=0D
include GlaxoSmithKline's Advair, an asthma remedy, and Plavix, a blood=0D
thinner, which is sold by Bristol-Myers Squibb and Sanofi-Aventis. Both=0D
enjoy billions of dollars in annual sales. Despite such rewards, however,=
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pharmaceutical companies are reconsidering their pursuit of blockbuster=0D
drugs, as new technology permits the creation of niche remedies that target=
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rare ailments or sub-populations of people suffering from common diseases.=
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That explains the $3 billion hostile takeover bid announced this week by=0D
Roche, a Swiss pharmaceutical firm, for Ventana Medical Systems, an=0D
American diagnostics firm. This year, Roche has gobbled up several=0D
diagnostics and genetic-testing firms making technologies that enhance the=
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value of its targeted cancer therapies. The firm recently completed a $155m=
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takeover of 454 Life Sciences, which makes gene-sequencing technology and=
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last week spent some $273m on NimbleGen, which makes technologies used in=
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identifying the genetic causes of disease.=0D
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Roche is being drawn away from conventional one-size-fits-all drugs partly=
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by the allure of the lucrative new markets being created by the development=
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of =E2=80=9Cpersonalised medicine=E2=80=9D. But drugs giants are also victi=
ms of their own=0D
success. Blockbusters like Lipitor are already so effective, argues Tom=0D
Nagle of Monitor, a management consultancy, that it is difficult to come up=
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with alternatives that are good enough to command a higher price.=0D
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Worse, many blockbusters are going off patent soon and pharmaceutical=0D
giants are finding it increasingly difficult to come up with new drugs to=
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replace them=E2=80=94despite throwing pots of money at the problem (see cha=
rt).=0D
Makers of generic drugs are also growing more assertive in attacking=0D
patents. As a result of all this, reckons IMS, an industry consultancy, the=
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industry saw a record $18 billion in branded sales collapse in 2006.=0D
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There are signs that long-term investors are growing concerned. A coalition=
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of institutional investors representing over $1.1 trillion in assets,=0D
issued a report this month demanding a =E2=80=9Crethink of core business=0D
assumptions=E2=80=9D. Martin Eijgenhuijsen of ABP, a Dutch pension fund tha=
t is=0D
part of the coalition, says, =E2=80=9CWe have serious doubts that the curre=
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business model can deliver targeted drugs. This requires radical change.=E2=
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So is the industry ready to follow Roche's lead toward specialty products,=
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targeted therapies and the like? The answer seems to be yes. Ray Hill of=0D
IMS calculates that although the vast mainstream market for chronic=0D
diseases like high blood pressure or diabetes is still important, specialty=
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drugs accounted for nearly two thirds of total revenue growth last year, up=
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from just a third in 2000. And only a quarter of drugs launched last year=
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tackled chronic diseases, suggesting the pipeline is shifting toward=0D
targeted therapies.=0D
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For that trend, thank both technology and regulation. Anthony Farino of the=
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consultancy arm of PricewaterhouseCoopers argues that such technologies as=
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high-throughput sequencing, genomics and personal phenotyping, which were=
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not available five years ago, are now transforming how drugs are discovered=
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and tested. Ron Krall, GSK's chief medical officer, thinks the trick is=0D
identifying which patients will benefit most from new treatments=E2=80=94or=
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equally usefully, which ones will have adverse reactions. To determine=0D
that, his firm has just opened a new facility in London run jointly with=0D
Imperial College and Hammersmith Hospital, where experimental drugs are=0D
tested. The =E2=80=9Cmicro-doses=E2=80=9D they administer to patients are a=
nalysed in real=0D
time by molecular scanners.=0D
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Regulators could play a decisive role in the large drugs companies'=0D
shifting strategies. The risk-averse stance they have taken since safety=0D
problems led Merck to recall its painkiller, Vioxx, may help propel the=0D
industry more rapidly away from blockbusters. Viren Mehta, an industry=0D
expert, speculates that although new drugs will always carry unknown risks,=
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the regulatory burden might prove lighter for those aimed at specific,=0D
acute conditions (as opposed to ongoing maladies like diabetes). After all,=
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he says, =E2=80=9CFewer people are at risk for a shorter time.=E2=80=9D=0D
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Another regulatory boost may come from cost-benefit analysis that considers=
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the long-term benefits, and not just the high price tags, of innovative new=
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drugs. Britain's National Institute for Health and Clinical Excellence=0D
(NICE) has approved Herceptin, a targeted cancer drug, despite an annual=0D
cost per patient of nearly $50,000 because, in the words of Sir Michael=0D
Rawlins, NICE's chairman, =E2=80=9Cit provides long-term value=E2=80=9D. NI=
CE has also=0D
agreed to buy a cancer treatment made by Johnson & Johnson that has little=
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effect on a third of patients, on the condition that it pay only when the=
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drug works. And with an expensive Alzheimer's drug, the agency ruled that=
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it would not pay for patients with the mildest form of dementia to take=0D
it=E2=80=94a ruling that was challenged in a London court this week.=0D
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Such lawsuits are a sign that the transition to a new way of doing business=
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carries risks. But as Graham Higson, head of regulatory affairs at=0D
AstraZeneca, a British drugs firm, notes: =E2=80=9CThere's no such thing as=
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risk. The industry simply cannot continue developing drugs exactly the same=
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way it has for 40 years.=E2=80=9D