The Bells Toll Less for the Biotechs

The next few years don’t necessarily look good for several large drug companies, just because of the patents that will be expiring. King of them all is Lipitor [made by Pfizer (PFE)], of course, the world’s biggest selling drug which will then become the drug industry’s single largest lost revenue stream. But if you dig back through the newspaper archives, you’ll find the “Big Patent Expirations Looming” story showing up year after year. It’s basically true every time.

And that illustrates a point that a lot of people from outside the drug industry forget when discussing our rapacious business models, obscene profits, and so on: more than almost any other industry, we’re built on a pile of wasting assets. And not just any old nonspecific wasting assets – our valuable drugs are ticking away with a specific timetable, at which time they turn generic and most of the revenue stream goes flooosh. There might as well be a big LED clock strapped to the things, counting backwards – but unlike a bad movie, there’s no sweating hero trying to figure out whether to cut the red wire or not. Put down those needlenose pliers, Buck or Jock or whatever your heroic name is, because nothing will help.

Nothing, that is, except having some other drugs coming down the chute to replace the ones that are blowing up. Oh, I know, I know, patent evergreening and so on. I agree that it’s a problem, but that stuff doesn’t work most of the time. And when it does, you can maybe wring a year or two out of the system. But the bells toll for all our drugs in the end, and we have to deal with that fact by cranking out new stuff as fast as we can.

In recent years, that hasn’t been fast enough. I worked for a company back in the early 1990s that had a big-selling drug which was headed for the patent cliff. Everyone knew it, everyone knew when it would happen, and everyone knew what we had to do about it: get more stuff into the pipeline to replace it. The company expanded its research department and built a whole new drug discovery building complex to put us all in. To no avail. The day came, and nothing significant had been found in the intervening years. The company’s earnings hopped into a handy handbasket and went to the usual destination, the stock fell off a cliff, and all sorts of people who’d been loading up on the shares during the glory years felt all kinds of pain.

This story has been repeated several times around the industry. We all know about the declining productivity story – it was one of the first things I blogged about back in 2002. But the back side of that story is the frantic activities to try to make it go away. Some of them aren’t too glorious – cherry-flavored line extensions, patent gimmickry – but a lot of the work is serious stuff. We know that our discovery and clinical success rates are too low, and we’re pouring all kinds of money into trying to fix them. So far, the successes haven’t been anything to jump around about, but the efforts continue.

There’s an exception: the biotechs. The FDA has been trying to get its regulatory head around the issue of biogeneric equivalency, but it isn’t easy (more on this in a separate post some time). What this means is that the likes of Amgen (AMGN), Biogen (BIIB), Genentech (DNA), Genzyme (GENZ) et al. have had far fewer worries about some of their products expiring on them. If the FDA can’t certify that a generic version of a protein drug is the same as the original, and can’t agree on how to even do that in the first place, then no generic will appear.

There are several companies that would like to do it, but they’ve been moving more slowly than they’d like, since the regulatory environment is so unclear. Things are moving a bit more quickly in Europe, but the pace is still glacial compared to the situation over here in the traditional small-molecule world.

And that’s not doing the biotech industry any good. I realize that this sounds perverse, especially to the people at the companies involved. What do I mean, that it’s a bad thing that their drugs rake in billions year after year? What’s not to like? Well, what’s not to like is that this kind of thing slows down the need to come up with new products and new approaches. I know that the big biotechs are spending lots of money on research, but we’ll never know what things would have been like if the dogs had been at their heels more. Organizations get lazy in all kinds of almost imperceptible ways when there’s no reason to move quickly.

Having those incentives doesn’t mean that things will work out for you, of course – see that story a couple of paragraphs above. But I think it works out better for everyone if research organizations are kept on their toes, competing with each other, and competing with those big red digital countdowns. It’s no fun, but it’s the best way.