Last week, Pfizer (NYSE:PFE) agreed to acquire a privately held company called FoldRx Pharmaceuticals, whose leading drug candidate is a therapy for a genetic neurodegenerative disease for which the only current therapy is a liver transplant.
Large drug makers will likely continue to make acquisitions and sign pricey partnership deals after struggling to develop new "hit drugs" of their own. Unfortunately, even as President Obama used the Labor Day event to unveil a new six-year, $50 billion plan to create jobs, the pharmaceutical industry has been busy doing the opposite. By playing the "licensing and acquisition game" instead of developing their own pipelines more aggressively, they were able to cut billions of dollars by laying off their own workers and consolidating functions.
Biotech investors, especially those who invest in promising up-and-coming biotech and pharmaceutical companies, have seen nice returns as a steady stream of M&A cash keeps feeding that part of the sector. Each time Big Pharma inks a licensing and development deal with smaller players in hopes of bolstering those pipelines, chances are the small-cap investor wins.
Analysts and industry executives note that drug makers and other life sciences companies will likely continue their flurry of big-dollar deals, just as they have over the past few years, in an effort to expand their product lines, acquire cutting-edge technologies, and move into new markets. That trend does not show any signs of letting up and it's one of the reasons we love covering this sector in as much detail and focus as we can.
In fact, according to the Wall Street Journal, the industry is facing a challenge over the next several years as many blockbuster drugs that have fueled pharma's golden age lose patent protection and efforts to find replacements in markets such as cardiology and psychiatry have come up short.
Big Pharma, it seems, has been taking it on the chin from all sides and there is more coming as government legislators and consumer groups have made it clear that they want more generic drugs for medical patient dollars - especially if those patients use government aid.
"The pharmaceutical industry is a market for lemons," said an analysis which was presented at the 105th Annual Meeting of the American Sociological Association last month. Big Pharma knows much more than the buyer about the product and can profit from selling products less effective and less safe than consumers are led to believe.
"Sometimes drug companies hide or downplay information about serious side effects of new drugs and overstate the drugs' benefits," said Donald Light, the sociologist who authored the study and a professor of comparative health policy at the University of Medicine and Dentistry of New Jersey. "Then, they spend two to three times more on marketing than on research to persuade doctors to prescribe these new drugs. Doctors may get misleading information and then misinform patients about the risks of a new drug. It's really a two-tier market for lemons."
According to Light, the three reasons why the pharmaceutical market produces "lemons" are: Having companies in charge of testing new drugs, providing firewalls of legal protection behind which information about harms or effectiveness can be hidden, and the relatively low bar set for drug efficacy in order for a new drug to be approved.
Independent reviewers found that about 85 percent of new drugs offer few if any new benefits. Yet, toxic side effects or misuse of prescription drugs now make prescription drugs a significant cause of death in the United States.
Light's paper, "Pharmaceuticals: A Two-Tier Market for Producing 'Lemons' and Serious Harm," is an institutional analysis of the pharmaceutical industry and how it works based on a range of independent sources and studies, including the Canadian Patented Medicine Prices Review Board, the Food and Drug Administration, and Prescrire International.
Light has a forthcoming book, titled 'The Risk of Prescription Drugs', scheduled for publication this fall by Columbia University Press. He recently told Drug Week that despite the extensive requirements for testing the efficacy and safety of each new drug, companies "swamp the regulator" with large numbers of incomplete, partial, and substandard clinical trials. For example, in one study of 111 final applications for approval, 42% lacked adequately randomized trials, 40% had flawed testing of dosages, 39% lacked evidence of clinical efficacy, and 49% raised concerns about serious adverse side effects.
"Just recently, major reports have come out about biased, poor trials for Avandia and Avastin," Light said, who noted that orphan drugs are tested even less well.
"The result is that drugs get approved without anyone being able to know how effective they really are or how much serious harm they will cause," Light said. The companies control the making of scientific knowledge and then control which findings will go to the FDA or be published.
As if that weren't enough, we're now hearing that the FDA is predicting a sharp drop-off in fee-paying drug and biologic applications in the current fiscal year.
According to a report from Elsevier Business Intelligence, in a Federal Register notice announcing the fiscal 2011 PDUFA fee rates for applications, establishments and products, the agency estimates it will receive 117.5 fee-paying full application equivalents in fiscal 2010. This figure represents a 16.3 percent drop from the 2009 level. If the actual number of full application equivalents received holds close to the estimate, 2010 would mark the lowest number of applications submitted since 1995, when approximately 112 full application equivalents were received by the agency. 1994 was the next lowest year, with approximately 115.
This also seems to be shaping up to be a difficult year for product approvals, since there are one-third fewer novel product applications on the FDA's user fee calendar for the second half of 2010 compared to the docket at the same point in 2009. It doesn't help that PDUFA drug and biologic application fees will rise by nearly ten percent in fiscal 2011.
As investors, it goes without saying that tracking the progress of those applications and investing using market data and catalyst dates found in our FDA Calendar will become even more important. In addition, we are not discouraged by the fact that too often, many aspects of partnership agreements and development deals are kept secret. We love hunting for information about the terms of the agreements (usually found inside 10-Ks and other filings) and talking to industry insiders about developments.