Big Pharma Pipelines Failing to Meet Expectations

The ability of big pharma to deliver on pipeline development and meet market expectations over the last five years appears to be woefully inadequate, with sales from pipeline products missing consensus estimates to the tune of $14.6bn in 2007.

An analysis of archived consensus forecasts from EvaluatePharma, displayed in the table below, shows Pfizer at the top of the 'miss list', failing to deliver $4.38bn of expected revenues from its pipeline products. This could help explain its 27% fall in share price during the period, making it the worst performer within the peer group, despite at the same time having spent a whopping $35bn on R&D.

Genentech (DNA), Merck & Co (MRK) and Roche (RHHBY.PK) are the only companies to have significantly exceeded expectations, mainly due to the successful launches of Avastin and Gardasil.

click to enlarge image

* includes Aventis
** includes 50% of TAP Pharmaceutical
*** includes 50% of Merck/Schering-Plough JV (SGP)

The above analysis compares consensus forecast sales for 2007 from pipeline products, as of January 2003, against the actual or current consensus sales recorded in 2007. Sales in 2007 from products that were not yet assigned a forecast in January 2003 have been added back, so significant surprise launches are included to balance the analysis.

Pfizer’s woes

Pfizer’s (PFE) inability to deliver on expectations is not surprising given a number of high profile failures in recent years, notably inhaled insulin product Exubera and cholesterol-lowering agent Torcetrapib.

Indeed, the top three misses in the last five years are all Pfizer’s products, but they have been offset to some extent by the successful development and launch of smoking cessation drug Chantix/Champix.
 

It therefore remains to be seen whether Pfizer’s recently announced strategy to acquire multiple small biotechs, as opposed to the mega-mergers of its past, will help improve this poor track record.

This less than stellar performance could be a reason why the pharma giant’s market expectations for its pipeline over the next five years are significantly lower than they were. Sales in 2012 from its pipeline products currently total $1.44bn, compared with the $8.54bn that analysts were hoping for five years ago.

Star performers – Avastin / Gardasil

The phenomenally successful launch of Avastin in 2004 for colorectal cancer and its subsequent widespread use in multiple solid tumour types, far exceeding market expectations, is the primary reason for Genentech and Roche’s 305% and 103% respective share price rises over the last five years. Sales of the antibody are forecast to reach $10.8bn by 2012, comfortably the industry’s biggest drug following patent expiry on Pfizer’s Lipitor in 2010.

In a similar vein, the incredible global acceptance of cervical cancer vaccine Gardasil, coupled with delays to launch for its expected competitor Cervarix, have helped to ensure Merck & Co’s pipeline exceeded consensus estimates.

However, the overriding picture is one of missed opportunities, with the majority of big pharma companies failing to deliver on their pipelines, with little to suggest this trend will be reversed over the next five years. Considering the combined pharma R&D spend for these companies over the past five years was a staggering $263.7bn, the old adage that R&D spend is sacred clearly needs a rethink.

Disclosure: none

Comments

[BioInvestor]

I’ll add a comment here. It’s an area that would be very, very easy for analysts to investigate: contact manufacturers, specifically companies that produce material for clinical trials, phases I and II. It takes very little investigation to discover that pilot plants—the plants that produce such material—are full. In fact, pilot plants in contract manufacturers haven’t been as full for over ten years. More significantly, perhaps, is that following a surge of investment in the late 90s, there is much more capacity in the industry today than there was ten or more years ago—by a factor of three or more. While a lot of this capacity in the outsourcing industry appears to be dedicated to emerging pharma, it’s significant in that many of these drugs find there way into the pipelines of major pharmaceutical companies. While the short term pipeline of major pharma looks bad, in the longer term, five plus years, I’d be a lot more sanguine about the recovery of the industry.