Pfizer was the Peer Group Benchmark Leader
According to Publisher’s proprietary benchmarking analysis, Pfizer was the Global Pharmaceutical Market Benchmark Leader in 2013 with an overall score of 6.22. Pfizer’s leadership status was the result of cost-cutting largely the headcount reductions from the divesture of its Animal Health business. This along with other rationalization measures, contributed to the company’s income growth, and helped to drive Pfizer’s net margin performance in 2013.
Pharmaceutical Market Beginning to Show Signs of Stability
According to Publisher’s Global Pharmaceutical Market Benchmark Report, the combined peer group revenue and average operating margin remained stable in 2013 when compared with 2012. Revenue from this peer group came in slightly lower by -0.2% to $718.7 billion. The average operating margin of the peer group was steady at 21.5%; however this was down by 90 basis points when compared to 2011. On the clinical side, R&D spending grew by $800 million to $111.9 billion in 2013, an increase of 0.7%.
J&J was the growth leader in absolute dollars, increasing by $4.1 billion in 2013 driven by the company’s immunology and oncology portfolios. Biogen Idec was the peer group revenue growth leader in 2013. Biogen’s sales increased to $5.5 billion in 2013, a 25.7% rise from the $4.2 billion the company reported in 2012. Revenues soared as a result of Tysabri (natalizumab), the company’s injectable monotherapy for treating relapsing forms of multiple sclerosis (MS), and the new oral MS drug Tecfidera (dimethyl fumarate). Sales of Tysabri grew 36.4% year-to-year from $1.1 billion in 2012 to $1.5 billion in 2013. The company also benefited from recognizing $876.1 million in new revenues from sales of Tecfidera despite having only been approved in March of 2013.
Peer Group R&D Spending
The growth in peer group R&D spending was largely the result of the industry’s top spenders, Roche, Novartis and J&J. Roche was the R&D spending leader in 2013, outlaying almost $10 billion in the clinic, representing 19.8% of the company’s total sales. Roche’s R&D spending was bolstered by continued investments in oncology and neuroscience therapeutic areas such as the company’s investigational anti-PD-L1 antibody targeting lung cancer, and the advancement of its programs for Alzheimer’s disease. Meanwhile, Novartis, and J&J each added about $500 million to their respective clinics. Novartis’ R&D spending grew by 5.6% to $9.9 billion and J&J spent $8.2 billion, which was up 6.8% when compared to the same period in 2012.
In efforts to improve margins, cost-cutting remained a strategic necessity for some companies. Pfizer shaved over $1.2 billion in R&D spend and Merck cut over $600 million in its clinical operations. In addition, the companies’ reduced their workforces to help stabilize profits in the aftermath of their patent losses.
FDA Approvals Drive Much Needed Value in the Sector
While the 27 NME approvals by the FDA in 2013 were below the 39 seen in 2012 — the highest number of NME approvals since 1997 — at least 15 of the 2013 arrivals are expected to achieve blockbuster status by 2019. This is four more than the 11 drugs the FDA approved in 2012 expected to attain blockbuster sales. Consequently, the value added by the new therapies that gained FDA approval in 2013 far exceeds that of 2012’s approvals, despite there being 12 fewer NMEs approved.
The year 2013 will go down as one of the most prolific in the industry, not necessarily in terms of the number of new drug approvals, but almost certainly in terms of the underlying value added by this new wave of therapies. Of the 27 NMEs approved by the FDA in 2013, more than half are expected each to achieve worldwide blockbuster status, with the total revenues for this group of assets estimated to reach more than $55 billion by 2019. What is particularly astonishing is that the revenue this group of assets is expected to achieve is almost entirely attributable to three new therapies: Gilead’s Sovaldi, Biogen’s Tecfidera, and J&J’s Olysio.
Patent Cliff to Erode $65B in Sales by 2019
Publisher estimates the patent cliff will erase approximately $65 billion in sales through 2019 as some of the top-selling drugs lose patent exclusivity. The drug makers that will be hardest hit will include Otsuka, GSK, Eli Lilly, and AstraZeneca. Otsuka’s anti-psychotic drug Abilify (aripiprazole) which it co-markets with BMS will lose $6.2 billion by 2019 as the result of generic competition. Similarly, GSK’s Advair will see its sales plummet by $4.8 billion in the same time frame.
Deal Values Soar Due to Shire Acquisition
The total number of deals (M&A and licensing) in the pharmaceutical market fell slightly from 1,494 in 2012 to 1,483 in 2013. While both years were down by about 300 deals from 2011 (1,800), the total deal value across M&A and licensing has remained very stable at about $85 billion over the past three years. Moving ahead through the rest of CY2014, the total deal value jumps significantly to around $135 billion through the end of July, which takes into account AbbVie’s $54 billion megamerger with Shire. While the total deal value has already eclipsed those of previous four years, Publisher expects the number of deals in 2014 will fall short of historical averages.
In total dollar terms, AbbVie’s acquisition of Shire is valued at approximately $53 billion, making it the sixth largest merger in the history of the pharmaceutical industry. AbbVie’s rationale for this deal consists of a mix of portfolio diversification, cost synergies, tax savings, and the lowering of the company’s dependency on Humira (adalimumab) for generating sales. Clearly, AbbVie is targeting Shire’s marketed drug portfolio which includes therapies in CNS, rare diseases and gastrointestinal disorders. The graph below shows Publisher’s Net Present Value (NPV) analysis of Shire’s leading assets.
AstraZeneca Rejects Pfizer’s Takeover Offer
As the May 26 deadline passed to begin negotiations, AstraZeneca rejected Pfizer’s third takeover bid for the UK drugmaker. AZ’s board turned down Pfizer’s final offer of roughly $120 billion, or $92.48 per share, with a 45% cash component citing that Pfizer’s proposal significantly undervalued the company and its prospects. In addition to believing that Pfizer’s offer was too low, AstraZeneca had grave concerns about Pfizer’s post-acquisition track record, and its inversion strategy. Pfizer stated that if it had purchased AZ, it would change its domicile to the relatively tax-friendly UK – which would inevitably mean cuts to AZ’s business in the US. AstraZeneca only had to look at Pfizer’s recent past as an example. When Pfizer bought Wyeth in 2009, it slashed over $4 billion in costs and cut payroll by almost 20,000 – the majority of which fell on legacy Wyeth operations. AstraZeneca had little reason to expect anything different this time around.
CNS Franchise: A Fragmented Market Exposed to Generics
The CNS market remains fragmented. Some pockets within the CNS franchise have been met with clinical development and investment into specific neurological conditions such as multiple sclerosis, and schizophrenia. However, others areas such as Parkinson’s and Alzheimer’s diseases have seen a lack of new market competition and novel treatment approaches. Many drug makers have abandoned their research efforts into these disorders in search of areas with greater return-on-investment, and more commercial viability. Publisher estimates that the peer group CNS market remained relatively flat in 2013, rising by only 2.2% to approximately $69 billion.
Pfizer is the leader in the CNS franchise, commanding about 12% of the CNS market. Pfizer’s strong position is largely the result of its anticonvulsant drug Lyrica (pregabalin) which posted $4.8 billion in sales in 2013 and is one of the top-selling drugs in the franchise.
Conversely, companies such as Eli Lilly and AstraZeneca have lost share of the CNS market since 2010. Eli Lilly’s share fell mainly from the decrease in sales of Zyprexa (olanzapine) Lilly’s dopamine antagonist used to treat schizophrenia, and bipolar disorder. Back in 2010, sales from Zyprexa were over $5 billion. However, in 2013, Zyprexa sales have plummeted to $1.2 billion as a result of the drug losing its US patent exclusivity in 2011. Meanwhile, AZ has given up the greatest share of the CNS market over the past three years. AZ’s CNS segment has been bleeding sales as a result of the company losing its patent on Seroquel (quetiapine fumarate), another treatment for bipolar disorder. This has led to the entry of cheaper generic alternatives from Teva, and Sandoz.
Regeneron’s Eylea Will Be the Top-Selling Eye Drug by 2016
In November of 2011, Regeneron shook-up the ophthalmology market when the FDA approved Eylea (afilibercept) for treating wet-AMD. Since then, Eylea has been beating analyst estimates and has gone on to reach blockbuster status representing one of the most successful drug launches by a biotechnology company. In 2013, sales of Eylea surged to over $1.4 billion, a 68.1% year-to-year increase from $838 million in 2012. Regeneron has been driving the market penetration for Eylea by expanding the drug’s territory coverage to include Japan, Australia, Colombia, Brazil and the UK, and its treatment label to comprise other disease of the eye, such as diabetic macular edema, and branch/central retinal vein occlusion.
One of the key drivers behind the success of Eylea is patients switching to the drug from Lucentis (ranbizumab), and off-label Avastin. Results from Regeneron’s two Phase III trials, VIEW 1, and VIEW 2 demonstrated that Eylea was non-inferior to ranbizumab at maintaining visual acuity, and there was no drop-off associated with less frequent dosing. Publisher expects the less frequent dosing schedule has led to a decrease in office visits, and therefore fewer IVT injections which has driven patients’ switching behavior, therefore, and helped to fuel Eylea sales.
Pipeline Highlight: Amgen Delivers First-Ever Ph. III Data on New Class of PCSK9 Drugs
Amgen announced data from its Phase III TESLA trial evaluating evolocumab (formerly, AMG-145) met its primary endpoint of percent reduction from baseline in LDL-C. Evolocumab is an investigational fully human monoclonal antibody that inhibits PCSK9, a protein that reduces the liver’s ability to remove LDL-C, or “bad cholesterol” from the blood. TESLA was a two-part Phase II/III trial evaluating evolocumab in patients with homozygous familial hypercholesterolemia (HoFH), a rare and serious genetic disorder characterized by severely elevated LDL-C at an early age. HoFH occurs in approximately one in a million individuals, who have two altered copies of a cholesterol-regulating gene that result in absent or defective LDL receptor function. HoFH can cause a four-fold increase in LDL-C levels.
If successful, Amgen will be first to market in this new category of cardio medicines with a regulatory filing expected by the end of this year. However, Amgen is not alone in the PCSK9 class. Regeneron and Sanofi are moving forward with their drug alirocumab, while Pfizer’s bococizumab remains a respectable third runner. In the aggregate, these three drugs will create at least a $10 billion market opportunity with each drug fixed to hit $3.5 billion in peak sales. Being first-to-market might not be beneficial to Amgen as payers and pharmacy benefit managers are concerned about the cost of treatment running as high as $1,500 per prescription. Many patients with hard-to-control cholesterol are taking cheap generic statins; the majority of them could be moved to the biologic therapy resulting in staggering cost to the healthcare system given that there are some 70 million patients with high cholesterol.
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