No More Blockbuster Drug Development From Large Pharma
November 17, 2009 - The Wall Street Transcript has just published Pharmaceuticals Report offering a timely review of the Pharmaceuticals sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Damien Conover is the editor of Morningstar's Healthcare Observer as well as a healthcare strategist for Morningstar. Mr. Conover has been covering the healthcare industry for close to a decade with a primary focus on pharmaceutical and biotechnology companies. Before joining Morningstar in July 2007, he held equity analyst positions at Raymond James, Bank of Montreal, and Tucker Anthony. Mr. Conover is a recognized authority in healthcare investing, appearing regularly on Bloomberg TV, CNBC and CNN. Mr. Conover holds a bachelor's degree as well as master's degree in finance from the University of Wisconsin, where he was a member of the Applied Security Analysis Program. Conover is a CFA charterholder
TWST: The industry, over the past couple of years has not been very good at coming up with major new products. What's the outlook, is that going to get any better or is this going to continue to be a problem?
Mr. Conover: Yes, I agree with you. I think there has been a lack of productivity in the pipelines of major pharmaceutical firms. I think it's going to get better. I think what's happened is we are shifting models a little bit. A decade ago, we were looking for a new cardiovascular disease, new drugs to treat cardiovascular disease and treat women's health and treat areas where there is tremendous amount of patients out there who need the drugs. But it was also an area that recently has been a concern from the FDA standpoint, where if you have any sort of side effect, they are just not going to approve it. A lot of these drugs have actually come to the FDA and said "This is pretty interesting drug for cardiovascular disease, for women's health, for other more mass indications" and the FDA has seen slight risk problem and decided not to approve the drug or delay the approval. I think this is partly in reaction to Vioxx and some of the other studies that have shown problems with other drugs. As a result, what we've seen is pharmaceutical firms shifting the direction of their pipelines, getting away from the mass blockbuster and going more towards niche indications like cancer, neurology, immunology. These are areas where the amount of patients is smaller, but the pricing point for these drugs is much higher, so you can still have a blockbuster new drug, but it's a different type of model.
The other thing that's beneficial about this model is, when you approach the FDA with these drugs, they are less concerned about side effects. Side effects for cancer drugs just isn't important, because the disease is so bad. The same with neurology, there just aren't any treatments out there. They are much more relaxed on some of the side effect profile, and hence I think it's easier to get some of these drugs through the FDA. I think, yes, we are seeing a shift in the tide. It's taking a little bit of time, because to fully change this model it takes several years because of the long process to get drugs through their Phase I, Phase II, and Phase III trials. But we think these are pharmaceutical firms that represent large ships, and as they turn, it takes time to make them a full turn. But I think they have seen the signals from the FDA, they have seen the signals from the marketplace, and they are shifting their ships, and we will see the re-introduction of quite a few new very important new pipeline drugs over the next two to five years.
TWST: Are these coming from internal development or is it because they've been active acquirers of other companies that already have drugs in process?
Mr. Conover: A lot of the drugs do come from either acquisitions or partnerships from smaller start-up biotech firms. We expect that trend to continue, if not increase. Some of the signals that we've seen from pharmaceutical firms is to perhaps spend even less internally and do more outsourcing. I think one of the things pharmaceutical firms will always hold on to is their ability to analyze other companies, so you have to have a very strong internal development process. But I think that will be augmented even more in the future by doing more acquisitions and in-licensing.
DAMIEN CONOVER
Morningstar
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