Generic drugs defusing blockbuster profits

Drug giants cut costs, seek new ventures to prop sales


The Viagras and Zolofts, the Lipitors and Nexiums, are in trouble.

Such blockbuster drugs have earned billions for their creators, but patents are soon to expire on some of the most popular products, opening their formulas to generic copycats and threatening future profits for drug companies desperate to produce the next generation of stars for the medicine cabinet.

That situation underlies this week's announcement by Merck & Co. Inc. that it will lay off 7,000 employees, a 10th of its work force, and shutter five of 31 manufacturing sites to save $4 billion through 2010. The company said it would also look to acquire another company to build its product pipeline. Other pharmaceutical companies, including Pfizer Inc. and Wyeth, have also cut jobs and closed plants during the past year to head off expected declines in profits.

"They've had this productivity problem now since the late 1990s," said Christopher-Paul Milne, assistant director of the Tufts Center for the Study of Drug Development in Boston.

"I think they were hoping it would just go away if they kept doing things the way they had been doing them," Milne said. "But for better or for worse, [they're realizing that] the blockbuster model really is not going to be sustainable."

For one, it's a lot easier said than done to produce such drugs. It takes a dozen years to develop a new drug after securing approval from regulators. And there's no telling which will be hits.

Branching out

That uncertainty, coupled with other industry issues, has caused some pharmaceutical giants to begin branching out.

Over the past few years, many of the big pharmaceutical companies have set up partnerships with biotechnology businesses that make niche drugs, theorizing that money can be made by offering many small products rather than a few major ones.

Others have looked to new scientific methods that could be used to resurrect failed products. Pfizer Inc., for example, is working with a Gaithersburg company, Gene Logic Inc., that says it might be able to find new uses for some of Pfizer's stalled drugs.

The impetus for Merck's announcement Monday appeared to be the 2006 patent expiration of Zocor, a cholesterol medication that was the second-biggest seller in the world last year with $5.9 billion in sales, and problems with the painkiller Vioxx. Merck had looked to that drug as its next potential gold mine, but instead had to pull it from shelves last year amid accusations Vioxx increased the risk of heart attacks and strokes.

Thousands of lawsuits have since been filed against the company.

"The actions we are announcing today are an important first step in positioning Merck to meet the challenges the company faces now and in the future," Richard T. Clark, chief executive officer and president of Merck & Co. Inc., said in a prepared statement.

A generic version of Zocor could cause a dip in sales not only for Merck, but for its cholesterol competitors such as Lipitor, a Pfizer drug that had worldwide sales of about $12 billion in 2004. That category of drugs was the biggest seller worldwide last year, combining for about $30 billion of the industry's more than $500 billion in annual sales.

Other blockbusters, according to industry consultants NDCHealth of Atlanta, include AstraZeneca PLC's Nexium, the heartburn medication dubbed the "purple pill" that recorded $3.6 billion in U.S. sales last year, and Pfizer's depression medication Zoloft, with sales of $3 billion.

Sales off 11%

Sales of Viagra have been declining because of "competition," Pfizer said. The drug garnered $1.68 billion last year, down 11 percent from 2003 sales.

"The industry itself is under a lot of pressure; there will be some changes," said Frank Palumbo, director of the University of Maryland's Center on Drugs and Public Policy. "I still think the salvation of a large company is with their blockbuster drugs and they will continue to look for those. Big pharma cannot sustain itself without being able to sell high-profit drugs at high volume."

But industry analysts expect that sales of blockbuster drugs will continue to decline as patents expire.

More than $80 billion worth of such drugs face patent expiration by 2008, according to a report by industry researcher Cutting Edge Info, based in North Carolina. The report says brand-name drugs typically lose up to 30 percent of their market share as soon as the first generic version arrives.

Once multiple generics are on the market, the brand-name drugs lose up to 90 percent of market share.

Without backup blockbusters, the pharmaceutical industry will likely lose revenue unless it makes some changes, experts said.

"I think that message is beginning to resonate," Tufts' Milne said.

"The paradigm is changing in that they are reaching out to partnerships with more players. ... They should be doing that, and some of them are moving in that direction, but again, the question is: Is it going to be fast enough," he said.

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