[Ip-health] The Observer: Big Pharma self-medicates in a bid to lift ailing returns

[Sarah Rimmington]

http://www.guardian.co.uk/business/2008/jul/27/glaxosmithklinebusiness.phar=
maceuticals

Big Pharma self-medicates in a bid to lift ailing returns
Tough times are forcing firms to diversify, says Richard Wachman
* Richard Wachman
* The Observer,
* Sunday July 27 2008

Big pharmaceutical companies are looking for new sources of profit. Many
blockbuster medicines are coming off patent and prices for prescription
drugs are falling as governments and health insurers demand bigger
discounts. In the US, the public has turned against the drug firms,
which for years could push through huge price increases thanks to their
marketing clout and influence on Capitol Hill.

Revealingly, Tachi Yamada, former boss of research and development at
GlaxoSmithKline, was reported recently as saying that it used to be an
industry in which 'it was almost too easy to be successful'. Now life is
harder for Big Pharma which must also battle with regulators demanding
higher standards in the wake of a number of high-profile health scares.

But the companies are not standing still. Only last week, Swiss giant
Roche bid more than $40bn to take full control of its US biotech partner
Genentech in a move that commentators said was indicative of the
insatiable appetite of the pharmaceuticals for new drugs to offset the
decline in their own product pipelines. They are spending more on
research and development than ever, but productivity has slumped for
reasons that go beyond tighter regulatory scrutiny and oversight.

R&D is more complex and, consequently, more expensive. Drugs
multinationals must also grapple with the harsh truth that 'there are
fewer unmet clinical needs today than 20 years ago', according to Alan
Shepherd of IMS, the healthcare consultancy. 'A lot of the big
breakthroughs have already been made, although important research
continues in fields such as oncology,' he says.

Shepherd's point is illustrated by the massive growth of 'me-too' drugs,
medicines that are only slightly different from market leaders, launched
with the aim of grabbing a share of an already lucrative market. In his
book, The Truth about the Drug Companies, Marcia Angell notes that we
now have six branded medicines to lower cholesterol, 'all variants of
the first'. Angell quotes Dr Sharon Levine of the Kaiser Permanente
Medical Group, who says: 'If I am a manufacturer and I can change one
molecule and get another 20 years of patent rights, why would I be
spending money on... looking for brand new drugs?'

Roche's move on Genentech, however, will give the Swiss control of new
specialist products, as well as scope to make cost savings of more than
$800m, boosting the bottom line and, importantly, bolstering its
pipeline of drugs undergoing clinical trials.

With fewer blockbusters coming to market, Big Pharma must look elsewhere
to lift profits. GlaxoSmithKline, the British group under new chief
executive Andrew Witty, unveiled a plan last week to generate revenue by
selling generic medicines in developing countries, where analysts say
there is enormous untapped potential.

Witty's plan to sell generics via a venture with Aspen of South Africa
not only strengthens its profile in countries such as India, but also
underlines a trend for Big Pharma to reduce its dependence on a handful
of top-selling patented medicines and to diversify into generics.
Experts say global generics are worth $70bn, about an eighth of a world
drugs market of $550bn. But with medicines valued at $150bn coming off
patent by 2015, the generics sector is expected to grow in the years
ahead. Already in Russia generics account for about two thirds of the
value of all drug sales, says Mark Purcell, an analyst with Morgan Stanley.

Simon Friend, head of PricewaterhouseCoopers' pharmaceuticals division,
says: 'Five years ago, Big Pharma saw generics as the enemy; now, the
business is viewed as part and parcel of what they do. Companies are
diversifying to have a foot in both camps.'

Novartis was the first big patented drugs company to make a splash in
generics, paying $8bn to acquire Hexal of Germany in 2005. The sector is
also expanding from within: Israeli group Teva, is bidding for Barr, a
US rival.

For now, though, the drug companies remain highly dependent on
blockbusters: GSK generates 40 per cent of turnover from just two
products, Avandia and asthma drug Advair. Past concern about the safety
of Advair has hit both sales and GSK's stock price.

So desperate is Big Pharma to secure future profits that some groups,
such as Roche, are diversifying into diagnostic equipment to become more
broadly defined 'healthcare' groups.

Elsewhere, cold winds are blowing from the US, where Barack Obama is
threatening to hole Big Pharma below the waterline. Obama wants Medicare
to bulk-buy drugs for the elderly and sick to drive down prices that on
average are twice as expensive as in Britain. As things stand, doctors
order drugs on a case-by-case basis from individual companies that
'charge the earth', says one analyst.

Predictably, Big Pharma is squealing, but with polls showing
credit-crunched Americans are more concerned about healthcare costs than
Iraq, they should, perhaps, expect the worst.

This article appeared in the Observer on Sunday July 27 2008 on p8 of
the Business news & features section. It was last updated at 00:03 on
July 27 2008.

      * guardian.co.uk =A9 Guardian News and Media Limited 2008

--
Sarah Rimmington
Attorney
Essential Action, Access to Medicines Project
Washington, DC
Tel: (202) 387-8030
Cell: (202) 422-2687
www.essentialaction.org/access/