Business World

Monday 18 December 2017

The clock is ticking for drug firms as money-spinning patents expire

In the race to develop new treatments, companies here see an opportunity

John Mulligan

John Mulligan

THIS week, Pfizer's president of pharmaceutical research, Martin Mackay, claimed that the company had entered a "golden age" of drug discovery. No doubt he has his fingers crossed that he's right.

The maker of Viagra and the cholesterol-reduction treatment Lipitor, Pfizer, along with other major pharmaceutical companies, is facing what the industry calls a 'patent cliff'.

It is battling to develop new products in an attempt to replace billions of dollars in annual revenues that will have all but evaporated once the patents on some of their best-selling drugs expire and cheaper, generic versions inevitably flood the market.

Lipitor, the active ingredient for which is solely manufactured in Cork, accounted for more than 20pc, or $11.4bn (€8.35bn), of Pfizer's sales last year. Filling that gap once the drug's patent expires this year is a tall order.

Mr Mackay believes that Pfizer's pipeline of potential cancer and Alzheimer's treatments will bear fruit, while its acquisition of competitor Wyeth last year in a mega $67bn deal was also part of a strategy to secure access to promising drug-development programmes and additional revenue streams.

Top-selling products

Last year, Swiss drug maker Roche paid nearly $47bn to buy Genentech, which in turn has provided Roche with its three top-selling products.

Big mergers aren't new to the industry. Pfizer had already paid $90bn in 2000 for Warner Lambert and Merck bought Schering Plough for $41bn last year.

In the past decade, global pharmaceutical mergers and acquisitions valued at more than $700bn took place.

According to Ian Hunter, an analyst with Goodbody Stockbrokers, the dilemma facing companies such as Pfizer is that big-sellers, such as Lipitor, are very difficult to come by.

"Drug companies are looking for two or three drugs to replace previous mega blockbusters," he said. "One of the ways they're doing that is by trying to buy other companies to gain access to both their development pipeline and existing drugs."

It also includes investment, as witnessed last year, when Johnson & Johnson acquired a stake of more than 18pc in Irish drug firm Elan for nearly $900m, giving the US company access to Elan's promising Alzheimer's drug-treatment pipeline.

On a wider scale, the stakes are massive. The US pharmaceutical market was worth more than $288bn (€211bn) last year, according to the Connecticut-headquartered research group IMS Health, while Japan's was worth more than $71bn and the UK's almost $22bn.

Annual sales

Meanwhile, drugs with an estimated $90bn in annual sales are coming off-patent over the next three years, including major products made by companies such as Sanofi-Aventis, Eli Lilly, Johnson & Johnson and Novartis.

For Ireland, the importance of successful drug-development programmes by global firms is vital. Eight of the world's top 10 pharma firms have a presence here and the sector paid an estimated €1bn in corporation tax in 2008.

Nine of the world's top 15 revenue-generating drugs are manufactured in Ireland, including Eli Lilly's Zyprexa and Bristol-Myers Squibb's Plavix, both of which are going off-patent.

Continuing drug development with successful outcomes is clearly important for the industry here -- and the roughly 25,000 people that are directly employed by it.

But finding the types of mega-blockbuster drugs of the future isn't easy.

Despite Mr Mackay's comments this week, last month Pfizer pulled the plug on new studies into its already commercialised Sutent cancer drug. The company said the product, which is currently used to treat two types of cancer, didn't halt the progression of advanced breast tumours during trials in two fresh studies.

The drug already accounts for almost $1bn in annual sales for Pfizer and had the studies been successful, sales could have been propelled significantly higher.

But even persuading governments to agree to pay for expensive new drugs for their citizens is generally more problematic, making new drug development even more of a gamble.

Ian Hunter points out that of the world's top 30 best-selling drugs, each of which has annual sales of more than $3bn, just nine have come to the market since 2001. The others have been around since the Nineties, meaning their patents (which usually last 20-25 years) are quickly approaching the sunset years of their lives.

One of the biggest drugs to come off patent in the past decade was the anti-inflammatory treatment Augmentin, developed by GlaxoSmithKline. It was the company's single biggest-selling product, generating sales of about $2bn a year in 2001.

Its patent expired in 2002 and Ranbaxy was one of the competitors that began selling a generic version.

Mr Hunter says that patent expiration was a wake-up call for the drug industry.

"When a blockbuster drug (typically defined as one with more than $1bn in annual sales) goes off-patent, its sales slump by about 80pc within a couple of months."

That's an obvious problem for some companies and aside from M&A activity, they are seeking other avenues, including collaborations and investment via substantial company-owned venture capital funds in niche start-ups, in the hope of stumbling upon drugs with significant potential.

One small Dublin drug-development company spun out from Trinity College, Ospona Therapeutics, has secured €21m in financial backing from outfits including venture funds owned by Novartis and Roche. It focuses on developing products to treat immunology-related ailments, including rheumatoid arthritis. One of its founders, Mark Heffernan, thinks the so-called 'patent cliff' will be good news for firms such as Opsona.

"From our perspective, the patent fall-off is an opportunity. The mentality of drug companies is now shifting and they're looking more for niche products."

A plethora of small Irish pharma firms are betting on just that, attempting to develop highly targeted drugs that could one day deliver respectable profits.

Mr Heffernan adds that Opsona regularly receives requests from bigger firms to share data, while its OPN-305 anti-inflammatory compound under development has attracted "quite a bit of attention".

Brian Murphy, director of commercial affairs at the Irish Pharmaceutical Healthcare Association, which represents the industry here, thinks that research among the bigger players is also becoming more focused than before.

"The R&D process is becoming more complex and the focus is more on treatments that will be more effective, but for smaller patient populations," he explains, adding that the companies are also making forays into areas in which they may not previously have been active, such as vaccine development.

Crucial to this new era of R&D is the Government's attitude to fostering Ireland's reputation as a centre of excellence -- a role Mr Murphy believes has so far been well executed.

"The corporate tax rate, a strong regulatory environment for the industry and interaction with third-level colleges are all important," he says.

Mr Murphy also thinks that Ireland needs to develop its attractiveness as a location for clinical trials, a view echoed by PharmaChemical Ireland, an industry body that's part of the Irish Business Employers' Confederation (IBEC).

Such high-end activity would provide additional stimulus for the wider industry within Ireland, it is claimed.

But international competition for such activity, as well as continuing investments by drug companies, remains stiff.

"While things are generally good here, there are no grounds for complacency," warns Mr Murphy.

"As the patent cliff approaches, drug companies are carefully examining their costs, so we have to make sure we have a competitive cost base in everything from wages to electricity and water costs."

Irish Independent

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