Over the past several decades, big pharma and their investors have enjoyed an amazing run of success. Blockbuster drugs that carry with them very long patents have generated years of multi-billion dollar profits, rising share prices and increasing dividends. It's been a wonderful era for pharma but now the environment has changed. The dreaded patent cliff that has been haunting the pharmaceutical industry for years is finally here and an estimated $255 billion in sales are at risk between now and 2015.
The following is an example of expired or about to expire patents impacting $40 billion worth of blockbuster drug sales through 2012:
Drug . Company . Estimated Annual Sales
Lipitor . Pfizer (NYSE:PFE) . $5.3 billion
Enbrel . Amgen (NASDAQ:AMGN) . $3.3 billion
Seroquel . AstraZeneca (NYSE:AZN) . $3.7 billion
Singulair . Merck (NYSE:MRK) . $3.2 billion
Actos . Takeda (OTCPK:TKPYY) . $3.3 billion
Zyprexa . Eli Lilly (NYSE:LLY) . $2.5 billion
Levaquin . Johnson & Johnson (JNJ . $1.3 billion
Lexapro . Forest Labs (NYSE:FRX) . $2.8 billion
Valtrex . GlaxoSmithKline (NYSE:GSK) . $1.5 billion
Diovan . Novartis (NYSE:NVS) . $6.0 billion
Tricor . Abbott Labs (NYSE:ABT) . $1.0 billion
Making a Big Problem Even Bigger
Adding to the patent cliff dilemma is a number of other powerful forces that are building and eating away at sales and profits. The cost to develop a new blockbuster drug to replace the expiring drugs is running over $4 billion. The time to develop a new drug is over ten years. The risk to develop a new drug is running at over an 80% failure rate. On top of all that, demand for prescription drugs is weakening as a result of anemic consumer purchasing power and governments' waning ability to fund purchases of these drugs through huge social programs like medicare.
As overwhelming and dark as these problems appear, there is nonetheless a brilliant silver, or even better said, gold lining to this dark cloud.
Pharma's Untapped Gold Mine Requires New Model
Pharma is sitting on 6,337 drugs that have already been approved by the FDA. They have already passed rigorous testing for safety. And the costly testing has already been paid for. What if new uses for these drugs were discovered? Cost, time and risk would all be dramatically reduced and a full patent life could be restored. There are a few successful examples such as Viagra, but this new model has not yet even begun to be taken seriously yet.
With this new model in place, these older, previously approved drugs hold riches beyond imagination.
Ampio Pharmaceuticals Proves New Model
Big pharma will have to make significant changes to their R&D structure to adopt this model, but they will be getting a late start because there is currently a small (so far) maverick now leading the way. Ampio Pharmaceuticals (NYSEMKT:AMPE) is showing that it is indeed very possible to greatly reduce the high costs, the unreasonable time and the unacceptable risk by developing only "repurposed drugs" and "biologics".
An enormous advantage of drug repositioning over traditional drug development is that since the repurposed drug has already passed a significant number of toxicity and other tests, its safety is already known and the risk of failure for reasons of adverse toxicology are almost eliminated. Efficacy is important, but safety is the top priority for the FDA, as it should be, and this is the area where most drugs fail.
Biologics are another path of least resistance for drug development. The FDA views them differently than a new chemical compound because biologics are natural and are already present in the body.
I was so impressed by Ampio's business model and achievements, I wrote a series of articles and posted them on Seeking Alpha to share what I learned. Their pipeline is not only extremely impressive, but the company's cost and overhead is roughly an order of magnitude less than typical pharmaceutical companies. And clearly their risk of failure is relatively minute.
Intrigued and wanting to personally check out this unique business model, I recently flew to Denver to meet with Mike Macaluso, the CEO and Chairman of Ampio, Dr. David Bar-Or, the Chief Scientific Officer and Dr. Vaughan Clift, Chief Regulatory Affairs Officer. I spent an entire day speaking with management and touring their impressive research facilities. I was very surprised to learn that I was the first and only person to ever visit them to research their claims, products and team. Even representatives of Wall Street had not yet taken the time to learn more about this ultra-fast growing publicly traded company. It is not surprising that Ampio's stock is Wall Streets best kept secret of a soon to be household name.
Foreseeing the enormous positive impact Ampio is going to have on not only the pharmaceutical industry, but on the lives of so many, it has become my personal mission to share this knowledge with the world to help realize and accelerate a dream that I would love to be a part of.
I found Mr. Macaluso to be very personable, but at the same time, hard driving, focused and completely dedicated. He keeps everything on track and is not distracted from his mission for one second. Mr. Macaluso explained, "Today's conventional drug development model is a formula for failure! The risks and costs are so staggering we had to find a different path. By focusing on repurposed drugs and biologics we can take our drugs through the approval process in record time, at record low costs, and with very little risk."
Over the years I worked with several scientists, but none more impressive than Dr. David Bar-Or. He is a 30-year practicing physician with a specialty in Emergency Medicine and is the Director of two of the three Level One Trauma Centers in Colorado. Not only does he have access to valuable patient data but he also has long and trusted relationships with over 400 physician specialists that serve as an extension of his clinical eyes and ears.
Dr. Vaughan Clift was trained in Endocrinology and specialized in children's diabetes. He was the Chief Scientist for Lockheed Martin's NASA astronaut support program and is one of NASA's Top Ten inventors. Dr. Clift has been a tremendous help in working with the FDA and expediting the process with his maverick techniques.
How Ampio Made the Model Work
Ampio did not develop its model overnight. Dr. Bar-Or has been working on this research for over 30 years.
Ampion was the first drug Dr. Bar-Or discussed. He observed that the brain swelling of patients with severe head trauma stopped within 18 to 36 hours. Obviously, the body has a mechanism to shut down inflammation as brain swelling within the skull would induce further trauma. Dr. Bar-Or analyzed the blood and the cerebrospinal fluid of these patients and identified two amino acids that have been shown to naturally inhibit the body's inflammatory processes. The company synthesized the molecule comprised of those two amino acids and called it Ampion.
A non-steroidal, Ampion, naturally occurs in Human Serum Albumin (HSA) and has been safely administered to patients for over 50 years in similar doses as used in the Ampion clinical trials. As a biologic used in these concentrations, there are few conceivable adverse side effects - as confirmed by Ampio's clinical studies. This long record of safety will serve to expedite the approval of Ampion in the very near future.
Ampion recently completed a clinical trial in Australia where osteoarthritis patients with severe knee pain were injected with only one dose of Ampion and the results were beyond expectations. And no adverse side effects were seen!
A stunning example of the efficacy of Ampion can be seen in an amazing short video clip from Channel 9 News of Norm Johnson showing his miraculous recovery from extreme knee pain. He was in so much pain that he was resigned and ready to schedule knee replacement surgery . . . until he joined a clinical trial and received a single injection of Ampion into each knee. Within one hour after receiving the injection he was able to walk pain free. Six months later, he remained pain free showing off his ability to even climb up and down a steep ladder and no longer considers knee replacement surgery.
Norm Johnson is not the only Ampion miracle story. There are many others like the man who loved to ride bikes but could no longer ride because of the pain in his knees. After an injection of Ampion, his pain was gone and the very next day he rode 150 kilometers.
With recent FDA guidance, Ampio expects to complete its three-month, 1,500 patient trial this year and be ready for submission to the FDA for final approval. That's incredibly fast and the cost to inject 1,500 patients over three months will be incredibly small.
An example of drug repositioning is Optina that is a reformulation of a drug called danazol that has been used for the treatment of endometriosis in women for nearly 40 years. As such, the safety/side effects profile of the drug is well known and documented at typical dosages of 400 to 800 milligrams.
Dr. Bar-Or made another remarkable discovery recognizing that danazol inhibited fluid leakage from the blood vessels into the tissues - of a severe complication of diabetes . . . but only at very low dosages of approximately 20 milligrams, or 1/20th to 1/40th of the dosages typically prescribed for danazol. This highly counterintuitive finding (increased effectiveness at decreased dose) served to give Ampio a very strong patent position just confirmed in their April 27th press release to remain in force until the year 2030. This very low dose of a previously approved higher dose also predicts low risk and high speed for FDA approval.
In diabetes any tissues susceptible to fluid buildup from leaky vessels (like eyes and kidneys) are likely to incur damage. In the eyes of diabetics, the fluid that builds up behind the retina can cause detachment leading to blindness - a malady that affects millions of people annually.
Ampio announced in a March 19th press release that it was terminating its clinical trial in Toronto, Canada, at St. Michael's Hospital, due to favorable results in order to present the data to the FDA. June 11, 2012, Ampio announced the actual positive results from this successful trial. It appears then that the FDA will soon see favorable data on a drug that is ultra safe, likely to be inexpensive, and effective for a disease that is responsible for millions of cases of blindness each year - a disease that currently has no real recognized and cost effective treatment.
Consistent with Ampio's model for repositioned drugs, Zertane is repurposed Tramadol. The market for premature ejaculation (NYSE:PE) is exceptionally large being four times bigger than the market for erectile dysfunction (ED). Ampio's Zertane demonstrated in their Phase III clinical trial results studying over 600 patients an average increase in male staying power of four times with no significant adverse events. This remarkable outcome was published in the peer reviewed prestigious European Journal of Urology.
Ampio will soon be seeking guidance from the FDA on the suggested path for approval for their patented compound of Zertane plus the compounds for ED (vaso dilating compounds called PDE-5 inhibitors like Viagra - which reportedly goes off patent in 2014). This combination compound would in essence be a "super Zertane" offering the benefits of ED and PE enhancement. Since the safety profile is well known, particularly in the patients suffering from PE who will be using limited doses, Zertane is expected to pass FDA approval quickly.
Oxygen Reduction Potential (ORP) is a revolutionary diagnostic device that measures the balance of pro-oxidants and anti-oxidants in the body. Medical diagnostics for initial screening are not good at determining if a patient is critically ill. Measurements of standard vital signs are inadequate to predict the disease state of a patient and ORP is a major breakthrough in diagnosing and assessing patients before they are admitted to a hospital or discharged.
An example is a patient entering an emergency treatment center with chest pains. $10,000 to $20,000 later most of them are sent home because it was only indigestion. An ORP measurement would tell immediately if the condition was serious or not. It would save lives, and save money.
Ampio's ORP handheld diagnostic device is expected to be approved through a 510k submission and is expected to quickly become a standard diagnostic device used by healthcare practitioners and hospitals, and is likely to be found in every household.
While Ampio's model clearly reduces a great deal of risk, there is still a degree of risk that one or more of their drugs may encounter difficulty in the FDA trials. Even though the company believes it is adequately funded to finance its trials, it may require additional funding and there is no assurance that such funding will be available.
Big pharma can benefit by examining and adopting the business model of Ampio Pharmaceuticals to the greatest extent possible, and investors can benefit by having a better understanding of the problems and solutions facing big pharma, therefore helping them make wiser investment decisions.
Ampio Pharmaceuticals appears to have successfully tapped into big pharma's massive gold mine.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.