E-DRUG: FT review of drug industry 2001
--------------------------------------------
[2001 has been an interesting year. The E-drug moderators
wish all E-druggers a happy festive season and 2002!
Below the 2001 review of the Financial Times.
Copied as fair use; thanks to Andy for spotting it. NN]
Patent disputes and litigation take shine off 2001
By David Firn
Published: December 17 2001 15:35
The year 2001 saw the pharmaceuticals sector lose some of its glitter.
After years of uninterrupted double-digit earnings growth that lent a
gilt
edged feel to pharmaceutical shares, some of the largest companies
have
faltered. Top selling drugs lost patent protection, exposing companies
to
cheaper generic competition. At the same time research and development
to productivity failed to keep pace with companies' aspirational
growth
targets. Meanwhile the sector's image as a saviour of lives was
seriously
diminished by high profile disputes over the cost of Aids medicines in
developing countries. But there was good news too. Few large mergers
deliver the expected benefits, but that seems not to be true in
pharmaceuticals, where three of the fastest growing companies have
been
created in recent mergers. GlaxoSmithKline, the Anglo-American
company,
and Aventis the Franco-German company, proved show size matters in
marketing, with both reporting strong sales growth. The effect was
even
more noticeable on mid-sized Sanofi-Synthelabo, the French group,
which
has become Europe's fastest growing pharmaceuticals group after taking
a
bigger role in the US marketing of its products. The trend is set to
continue
as it will regain the exclusive rights to market its sleeping pill
Ambien in the
US. But a number of companies were forced to revise forecasts down. In
October Eli Lilly was forced to cut its earnings forecasts after a
sharp fall in
sales of Prozac - the second biggest selling drug ever to go off
patent.
Sales of the drug fell 34 per cent in the third quarter, the steepest
decline
ever for a branded medicine. In December Merck surprised investors by
saying earnings would be flat next year and Bristol-Myers Squibb said
growth next year could fall 7 per cent. Analysts had forecast 8 per
cent
growth in EPS for Merck. Merck expects to be hit by the expiry next
year
of the US patent on Prilosec, the worlds biggest selling prescription
medicine. Merck earns royalties from AstraZeneca, maker of the $6bn-a-
year ulcer treatment. AstraZeneca remains bullish, pinning its hopes
on
four new products, including Nexium, a safer version of Losec, and
Crestor,
a cholesterol treatment, to take up the slack. But few major companies
have such a full development pipeline as AstraZeneca. That has been
good
news for biotechnology companies. After years of struggling to extract
profitable terms from co-marketing and licensing deals, biotech
companies
have broken all the records as pharma companies fought over the most
promising products. Celltech broke the European record when it
licensed
CDP-870, a potential arthritis treatment, to Pharmacia in a deal
valued at
about $500m. But ImClone struck the largest ever biotech-pharma deal
with
a $2bn agreement to license its cancer drug IMC-C225 to Bristol-Myers
Squibb. Other biotechs found themselves acquisition targets as Johnson
&
Johnson paid $12.1bn to acquire Alza, Merck paid $620m for Rosetta and
Abbott paid $355m for Vysis. Because of the cultural differences
pharmaceutical companies generally prefer to license products or
technology rather than buy a whole biotech company, but with biotech
valuations well down on last year, the temptation to buy is stronger
than
ever. Smaller pharmaceutical companies, such of Altana of Germany also
found their larger competitors keen to offer lucrative co-marketing
deals for
mass market medicines. But the single issue that overshadowed the
industry in 2001 was patents. A high profile court case over the cost
of Aids
drugs in South Africa painted the industry as greedy and uncaring,
despite
a last minute climb-down. In a landmark case in Pretoria 39 of the
world's
largest pharmaceutical companies accused the South African government
of violating their patents by seeking to import cheap generic copies
of the
life saving medicines. The charge was eventually dropped after the
government reassured companies it would follow international laws that
allow patents to be over-ruled in emergencies, but not before a lot of
damage had been done to the image of the companies. The perception
that
drugs companies care little for the third world was reinforced when
Pfizer
was accused of using Nigerian children as guinea pigs for a new
antibiotic.
But the industry's moral stance on patent protection received its
harshest
blow in America when Canadian and US governments threatened to
overturn the patent on Bayer antibiotic CiproBay after about 10 people
died
from anthrax. The move, just weeks before the World Trade round in
Doha,
seriously weakened the industry's bargaining position and opened the
way
for an agreement.On the other hand drugs companies' newly-discovered
role as defenders against bio-attacks, thanks notably to Bayer's Cipro
and
Acambis' smallpox vaccine, tempered the US public perception of the
industry as profit obsessed. Despite this the drugs industry's
largest, and
most profitable, market is increasingly litigious and juries show
little sign of
losing their zeal for awarding hefty damages. In November American
Home
Products' results were marred by a $950m addition to its $12.25bn
litigation
reserve for payments over two diet drugs linked to heart valve
problems.
Bayer, Pfizer, Johnson & Johnson, Baxter and Sulzer Medica are among
other drugs and healthcare companies dealing with US lawsuits. Bayer
faces class actions over LipoBay, also sold as Baycol, the cholesterol
drug
linked to over 50 deaths. But the loss of the $1bn-plus treatment
means
Bayer faces two years of negative growth in its pharmaceutical
division,
highlighting the risks of medium-sized companies becoming over-reliant
on
big just one or two products for their growth. After reforms to speed
the
approval of drugs in the 1990s, the US Food and Drug Administration
has
been forced onto the defensive after a string of high profile product
withdrawals. The result has been a slowing of approvals and surprise
rejections of new medicines adding to the woes of pharmaceutical
companies. The FDA has been without a commissioner since the US
Presidential election, and there is no sign that an appointment is
imminent.
Biotech companies faced problems too, but of a financial nature. After
funding more than 100 biotech IPOs in 2000, the public capital market
lost
its appetite for the sector. Although private equity continued to flow
into the
sector at a higher level than 1999 and successful public companies
were
able to tap the market to the tune of $3.9bn in follow-on offerings.
M&A,
long talked about in biotech, but rarely seen, also gathered pace in
2001 as
investors asked uncomfortable questions about the development
pipelines
of the profitable companies. Despite developing a string of
blockbuster
medicines few companies have sustainable futures on their own R&D
efforts. In mid December it emerged Amgen, the world's largest
biotechnology, was in talks to acquire Immunex, in a deal that would
create
a company worth $85bn. The deal, if completed would cap a year of big
biotech transactions. Millennium Pharmaceuticals agreed to pay about
$2bn for Cor Therapeutics, an impressive 77 per cent premium.
Medimmune's acquired flu vaccine company Aviron for $1.5bn. And
Cephalon bought Group Lafon for $450m. Consolidation looks set to
continue with companies such as Biogen and Celltech thought to be
looking at possible partners. War in Afghanistan put healthcare costs
at the
bottom of Washington's political agenda by the end of the year, but
with US
prescription costs rising at over 10 per cent a year it will not go
away
forever. Pharmaceuticals may be immune to the economic cycle, but
unless the industry can radically improve its productivity, and find
ways to
make drugs more affordable it may start to lose its status as a safe
haven
for investors.
...
January: Biotech companies on both sides of the Atlantic welcome new
US
rules on patenting genes. Last year, President Bill Clinton and Tony
Blair,
the UK prime minister, wiped $109bn - or 22 per cent - off the value
of the
biotechnology industry in a week after they said that raw
gene-sequence
information should be made freely available to scientists everywhere.
In the
UK the government announces tougher laws against intimidation after
animal rights protesters step up a sometimes violent campaign against
Huntingdon Life Sciences and its backers. Eli Lilly reports a slight
fall in
fourth-quarter earnings as Prozac, the lifestyle drug of the 90s
generation,
loses its overseas patent protection. The dip is the beginning of a
$5bn gap
in expected earnings after the US patent office cut three years of
monopoly.
It highlights the worrying reliance pharmaceutical companies have on
just a
handful of blockbuster medicines.
February: The US Food and Drug Administration approves AstraZeneca's
Nexium. The so called purple pill is the follow on to the company's
$6bn-a-
year ulcer treatment Prilosec, the world's biggest selling drug which
is
facing a loss of patent protection. Nycomed Amersham announces the
flotation of 10 per cent stake in its Amersham Pharmacia Biotech joint
venture. Analysts value the unit at between $3bn-$4.5bn, but the IPO
is
subsequently put on ice as the equity markets' love affair with
technology
wanes.
March: Merck and Bristol-Myers Squibb offer to sell Aids drugs at a
steep
discount in Africa in an effort to stave off compulsory licensing of
its
patents. CAT shares plunge 25 per cent in a single day as market
sentiment turns against biotechnology. Companies furthest from profit
were
hardest hit as investors liquidated portfolios to cover losses in it.
April: South Africa claims a moral victory after the world's largest
drugs
companies are forced into an embarrassing climb down over cheap Aids
drugs. The companies portray the decision to drop charges of patent
infringement is a victory, but they merely win an agreement that the
government will follow international laws that allow patents to be
over-ruled
in emergencies. Roche says profit margins will fall as it tries to
boost
flagging pharmaceutical sales in the wake of a string of product
failures. But
despite the victory South Africa says treating TB and Malaria is a
higher
priority than Aids.
May: Novartis stuns the industry by buying 20 per cent of the voting
shares
in Roche, its Swiss rival, for $2bn-$2.8bn. But Novartis plays down
talk of a
merger, which is opposed by the Hoffmann and Oeri-Hoffmann families.
Sulzer Medica, Europe's biggest orthopaedics company, says its
insurance
will not cover the cost of replacing faulty artificial hip joints.
Nicox, the
French drug development company, raises E55m in one of the year's few
successful follow on offerings. SSL, the UK healthcare products
company,
calls in external investigators after its new finance director finds
irregularities in the accounts.
June: Roche axes the British development centre behind some of the
most
significant advances in Aids treatment as part of a global effort to
cut 3,000
jobs, the biggest redundancy programme in the pharmaceutical industry
for
years. GlaxoSmithKline follows with plans to cut 1,800 jobs as part of
a
plan to reduce costs by �1bn. The European Commission unveils
proposals
to speed drug approval. Europe wants to halve the approval time at a
point
when the FDA, of the US, is facing criticism for holding up the launch
of
new medicines. Europe also wants to loosen restrictions on promoting
some drugs on the internet.
July: GlaxoSmithKline shows size does matter in pharmaceuticals. The
recently-merged group reports a 14 per cent increase in pre-tax
profits for
the second quarter as a result of increased marketing power. But
AstraZeneca says it will market Crestor, its new cholesterol lowering
treatment alone. The company had been considering collaboration to
boost
the marketing effort. But AstraZeneca says the benefits of all the
market for
itself outweigh extra marketing costs, Crestor is one of the company's
"big
four" products expected to compensate for the loss of $6bn-a-year
ulcer
treatment Prilosec.
August: Aventis, the Franco German pharmaceuticals group formed by the
merger of Hoechst of Germany with Rhone-Poulenc of France, raises
forecasts as it reports strong growth. The company is finding the
extra
marketing muscle it now has in the US is paying off in the form of
higher
sales in its most profitable market.Bayer issues its third profit
warning of
the year after its cholesterol lowering treatment Baycol is withdrawn
after
being linked to linked to 31 deaths. It delays its planned US listing
as its
shares tumble. Meanwhile competitors fight to win Bayer's lost
customers
as US regulators say other cholesterol lowering drugs are safe, but
the
Europeans launch a review of safety of the entire class treatments.
September: Christaan Barnard, the heart transplant pioneer, dies while
on
holiday in Cyprus. His first patient, in 1967 lived only 18 days. The
operation is now routine. Pfizer, the world's largest drugs group,
faces class
action in the US over the way it conducted clinical trials of a new
antibiotic
in Nigeria. Baxter is forced to withdraw some of its blood filters
after
patients die in Spain. The problem is later traced to a factory in
Sweden,
which is closed. The company now faces litigation.
October: GlaxoSmithKline offers to hand over the rights to Aids drugs
to
local South African producers in an attempt to make cheap HIV
treatment
more widely available. Eli Lilly cuts its forecast after a steep fall
in sales of
Prozac. Later in the month Pharmacia warns its growth will slow when
it
hands back rights to Ambien, the big-selling sleeping pill to Sanofi-
Synthelabo. HLS says it is moving to the US to escape animal rights
activists. But within weeks the company finds itself without market
makers
as the activists target its US brokers.
November: Henry McKinnell, chairman of Pfizer attacks European drug
pricing systems, saying cost control was stifling innovations and
forcing
companies to move their activities to the US.
December: A week after being told to pay a record E460m for fixing the
price of vitamins Roche takes control of Chugai, the Japanese drug
maker
in a move that boosts its position in the world's second largest
medicines
market and restores its place among the top 10 pharmaceuticals
companies. Pfizer threatens to withhold new treatments from France
unless
the government allows it to charge higher prices. France is not the
only
offender, but it is the worst, says Pfizer. It can take up to three
years after
drugs are approved as safe to negotiate prices in France.Millennium
Pharmaceuticals agrees to pay $2bn to acquire Cor Therapeutics and
Amgen, the world's largest biotechnology company, acquires Immunex in
a
$16bn cash and stock deal, creating a company worth $85bn.
-end-
--
To send a message to E-Drug, write to: e-drug@usa.healthnet.org
To subscribe or unsubscribe, write to: majordomo@usa.healthnet.org
in the body of the message type: subscribe e-drug OR unsubscribe e-drug
To contact a person, send a message to: owner-e-drug@usa.healthnet.org
Information and archives: http://www.healthnet.org/programs/edrug.html