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The founding members of Chimera Research Group have over 50 years of combined experience in the biotech and pharmaceutical sector. Their experience includes work at Investment Banks, Hedge Funds, Pharmaceutical Companies, top-tier Universities, and the U.S. Food and Drug Administration (FDA).... More
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  • Pharma Emulating Biotech to Boost R&D Productivity
    Faced with multiple challenges of patent expirations, generic competition, increased government regulation, and most of all- low R&D productivity, many large pharmaceutical companies have decided a solution to their problem is to reorganize their research organizations to more resemble that of smaller biotech companies.
    The idea is to cultivate a spirit of entrepreneurship and sense of urgency by forming small research groups with reduced bureaucracy, each held accountable for their projects. Research, it seems, just doesn’t work very well in large organizations.
    This reasoning seems rather odd: Big Pharma has been “Big Pharma” for some time now- loss in productivity did no sneak up on them. From 1995 to 2005, the industry increased spending 2.5X to maintain the same number of FDA approvals. Pfizer did not suddenly grow too big and become unproductive.
    In fact, size may be an advantage when it comes to R&D productivity. HBS professor Gary Pisano found in his research that biotech R&D was no more efficient than Big Pharma. Another study by Iain M. Cockburn and Rebecca M. Henderson in the Journal of Health Economics found larger firms had superior performance in drug discovery due to economies of scope.
    To the cynical eye, it would appear these efforts to reinvigorate R&D are little more than vehicles for Pharma’s recent cost-cutting efforts.
    Another idea for improving R&D productivity comes from Eli Lilly’s then head of research, Dr. Steven M. Paul, in an article titled “How to improve R&D productivity: the pharmaceutical industry’s grand challenge“ in Nature Drug Discovery. Simply stated: improve the Phase II and Phase III attrition rates. According to the article, improving the current attrition rate in Phase II from 66% to 50% and in Phase III from 30% to 20% will yield 2-3 times more NME approvals for the same amount invested.
    Dr. Paul suggests target selection may be one of the biggest factors in determining a molecule’s attrition rate. This can be addressed by selecting more validated and druggable targets. A second step is initiating POC studies and using biomarker analysis earlier in the clinical trial process. With POC achieved in Phase I, molecules will have a higher likelihood of success in Phases II and III. Finally, prevent elevation of candidates to Phase III status before establishing solid safety and efficacy data.
    These sounds fairly straightforward and are not radical ideas- though this is the first time I’ve seen hard numbers placed on the benefits of their implementation. It is ironic the article comes from Eli Lilly considering its current pipeline woes. Given time, perhaps success down the road will vindicate Lilly’s current strategy.  

    Disclosure: No Positions
    Nov 19 1:28 PM | Link | Comment!
  • Are Generics Killing Drug Innovation?
    The pharmaceutical industry has created highly innovative medicines, and in years past, was one of the most profitable industries in the world. It has lost that status as the costs of developing a drug have grown, with the FDA demanding ever-higher standards for approval. Fewer than one in ten compounds entering the clinic are approved by the FDA- even then only one in three marketed drugs generate enough revenue to recoup the cost of their development.
    Much of this is due to the increased competition from generics companies. Passage of the Hatch-Waxman Act in 1984 helped create a robust generics industry in the US by allowing companies to introduce low-cost versions of drugs once their patents expire by submitting data to the FDA showing their drugs are bioequivalent to the originals; no clinical trials were necessary. A second portion of the Act allowed generics companies to conduct court challenges of the legitimacy of drug patents before their expiration. Successful litigation provides 180 days of exclusivity to the challenger.
    So successful have has this strategy been that the president of generics company Watson Pharmaceuticals, Paul Bisaro, warned their industry was locked in a “death spiral” which would potentially cut off future income as pharmaceutical companies forgo research into the development of novel small molecule drugs. Yet he has also lead Watson to become increasingly aggressive, arguing that if Watson didn’t do this, someone else will.
    In a bid to confront the threat of a successful patent challenge, pharmaceutical companies have increasingly turned to authorized generics. When a patent has been overturned and a drug goes generic, the challenger has 180 days of exclusivity from other generics makers, but the original manufacturer remains free to continue selling the drug. Under the authorized generics scheme, brand name drug makers sell a generic version of their drug during that same 180 day period of exclusivity, leading to substantially lower prices and profits for the generics company.
    With this leverage, a generics company may be willing to defer the launch of it copycat drug in return for a promise that the brand name manufacturer does not launch an authorized generic. According to the FTC, from 2004 to 2008, 25% of patent settlements resulted in brands agreeing to withhold authorized generic competition, leading to an average of 34.7 months of additional market exclusivity beyond the settlement date.
    But patent litigation is not the only challenge to drug innovation. Another major problem is government policies in the US and abroad. Drug price controls in Europe are now starving the continent of innovative R&D. In the 1960s and 1970s, 65% of innovative drugs came from Europe; today, that number is below 40%. The US is now seen as the clear innovator in pharmaceuticals. R&D efforts are focused on the US and drugs are approved here on average one year before in the EU.
    Price controls have indeed reduced the costs of brand name medicines in the EU, but at what cost? The region is losing its R&D competitiveness and access to cutting edge medicines is delayed. Moreover, price controls may not even be a money-saver. While branded drug prices in the EU are lower than in the US, those for generics are significantly higher with comparatively lower utilization rates. The US
    Department of Commerce, International Trade Administration has estimated that increased generics utilization in the EU can lead to savings that can potentially offset an increase in EU drug prices to US levels.
    Not withstanding studies showing the detrimental effects of drug price controls, the US government is contemplating price controls of its own. The idea has been tossed around for some time but has yet to be implemented. Any type of price controls should be carefully considered. If the US is no longer seen as the best place for innovation, it will flow elsewhere.

    Disclosure: No position
    Nov 02 5:22 PM | Link | Comment!
  • The Rx to OTC Switch: Growth Opportunities for Brand Name Drugs
    In the US, patent holders are granted a 20-year term of exclusivity on their inventions. In the pharmaceutical industry, long drug development timelines combined with the Hatch-Waxman act have whittled the effective patent life of new drugs to less than 12 years on average. When this period ends, generic drugs enter the market almost immediately, leading to drastic market share and sales losses by brand name drugs. Switching a drug from prescription-only to over-the-counter (OTC) status can help retain some of these sales long after a patent has expired.
    Worldwide OTC sales were worth $95 billion in 2009, but the market varies widely by country. OTC medicines make up 8% of total US drug sales, compared to 30% in developing nations. Sales in this category are also estimated to grow at a double-digit rate in the fast growing BRIC (Brazil, Russia, India, China) economies in 2010, in contrast to considerably slower growth in the US, Europe, and Japan.
    Some of the most commonly purchased OTC drugs are antacids, analgesics, allergy, and cough/cold medications. Top selling brand name OTC medicines include Prilosec, Claritin and Zyrtec, Even after its patent loss, Prilosec remains the top-selling antacid in the US, and the launch of Claritin has been so successful that eight years after its patent expiration, it still maintains sales of about $400 million in the US alone. Other stalwarts of the branded OTC market include Johnson & Johnson’s Tylenol, and Bayer’s Aspirin, both thriving amid generic competition based on the strength of their brand.
    Several drivers are in place to put the OTC market on a solid growth trajectory. As blockbuster drugs go off patent, many companies attempt to extend their franchises by switching the drugs to OTC status toward the end of the drug’s patent life. The above examples show this can be a highly successful strategy. Pfizer is currently attempting to switch blockbuster Viagra to OTC and is mulling the change for Lipitor. A couple European nations have allowed the switch, but the FDA has been so far hesitant. This may be about to change.
    Patients are becoming increasingly sophisticated consumers of healthcare, especially concerning the medicines they take; they want to have a larger role in their healthcare decisions. For good or bad, large numbers of websites now make medical information widely available to the masses with the click of a mouse. Along with this, a plethora of at-home diagnostic test kits further empower the consumer. OTC products allow consumers the ability to seek moderately priced FDA approved treatments for easily diagnosed ailments without the inconvenience and cost of physician visits. 
    In recent years, rising healthcare costs have led many insurers to formulate tiered drug co-pay systems. In a scheme not too removed from reality, the co-pay for a generic drugs start at $10, branded drugs require co-pays of $20-25, and at the top, branded drugs with generic alternatives will cost patients at least $40 out of pocket. This system is intended to contain the growth in spending on drugs by pushing patients toward the use of generics. As the high cost of drugs and co-pays alike have increased, both insurers and patients have found that money can be saved with OTC drugs. Physicians are increasingly willing to instruct their patients to purchase common OTC drugs rather than write prescriptions for drugs with the same active ingredient.
    To take full advantage of the OTC market in the US, significant changes in consumer purchasing habits along with regulatory changes will be required. As it currently stands, only about 32% of OTC drugs are purchased through drug stores, a whopping 21% comes from warehouse stores, with most of the rest from supermarkets. While drugstores can carry a large variety of medicines, by their nature, supermarkets, and especially warehouses, carry a much smaller assortment. Warehouses and supermarkets, therefore, focus on selling the most popular medicines- ones consumers are most familiar and comfortable with. As the market is currently structured, growth will be incremental due to the maturity and saturation of the popular OTC medicines.
    In deciding which Rx drugs are allowed to switch OTC, the FDA looks at the safety and effectiveness of the product, the benefit-to-risk ratio, and whether the labeling can be written in such a way that consumers can use the products safely without the intervention of a healthcare provider. To grow the market, the FDA must first allow that patients are educated enough to make more complex medical decisions on their own behalf. To an extent, this has been complicated by industry’s overuse of brand extensions- mixing and matching cold, cough, allergy, analgesics- until consumers have no idea what they’re taking. This is leading to fears that patients may use their medicines in an inappropriate manner.
    Aside from improving drug labeling, pharmaceutical companies need to shift their OTC distribution channel toward the drugstores and away from warehouses and supermarkets. In Europe, where OTC drugs enjoy a considerable higher share of overall drug sales, pharmacies have an 88% share of the OTC market. By purchasing at a drug store, consumers will have the opportunity to consult with a pharmacist should any questions arise. The consumer can learn about the active ingredient, dosing information, side effects, drug-drug interactions, and much more. This should provide some relief to the FDA.
    For some of today’s more challenging Rx to OTC switch candidates, the seldom-used Behind-the-Counter (BTC) designation may be appropriate. BTC medicines are prescription-free drugs that must be purchased directly from a pharmacist. The emergency contraceptive Plan B is a BTC drug, as are allergy medicines containing pseudoephedrine. This third status is widely used in Europe, where it has shown much success. Its use should be expanded here in the US.
    Many of the novel drugs now nearing the end of their patent life require a bit more knowledge from users than the general cough drop. They would do well in a BTC category if allowed by the FDA. These include drugs for: erectile dysfunction, osteoporosis prevention, contraceptives, and cholesterol control, among others. Most patients can self-diagnose themselves for these treatments; what they need is a small amount of guidance from a healthcare professional, guidance that can be provided by a pharmacist.
    It will require a combined effort on the part of the FDA, pharmaceutical companies, and even pharmacies to grow the OTC market through increased Rx switching. Done right, this is a win-win situation as consumers save and pharmaceutical companies extend the life of their drugs. I expect this will take a long time to play out due in large part to the extremely conservative environment inside the FDA.
    In summary, the OTC/BTC market provides considerable opportunities for the pharmaceutical industry. A patent has a finite life. A brand, if properly managed, is forever.

    Disclosure: No Position
    Oct 19 1:50 PM | Link | Comment!
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