Over the next few years, drug makers are likely to face many new challenges, including government approved importation of cheaper drugs,  Medicare negotiating for lower prices, stricter regulations of direct-to-consumer advertising, and (hopefully) a more robust FDA under the Obama Administration. With so many changes afoot, Big Pharma will have to evolve or suffer the consequences. Even drug executives see the need for a restructuring of the industry. Earlier this month, the head of pharmaceuticals at Roche told reporters that the “marginally-different-and-market-it-like-hell model [of prescription drugs] is over.” But if that’s true, then what new model will take its place—and will it be any less troubling?

Winds of Change

One of the biggest indicators that change is on the horizon is the fact that spending on prescription drugs isn’t what it used to be. In fact, according to a recent Health Affairs article authored by Murray Aitken of the consulting firm IMS Health, Ernst Berndy of MIT’s Sloan school and David Cutler of Harvard, sales are beginning to level off. Though “U.S. spending on prescription drugs grew 9.9 percent annually between 1997 and 2007,” since 2003 “growth rates have declined rapidly”—to their slowest since 1974—“and in 2007 spending grew but 1.6 percent” after growing by 8.5 percent in 2006—the first decline in spending growth on record.

A major reason behind the slow-down is that drug makers are simply running out of new drugs to sell. Aitken et al. note that, “according to the FDA, between 1999 and 2001 the average total number of…new product approvals was about thirty-five per year, whereas between 2005 and 2007 this number fell to about twenty.” And as time goes on, newer drugs comprise a smaller share of drug sales: “Products introduced within the prior five years accounted for 34 percent of total drug sales in 1999” but “that share has declined steadily since then, to just 19 percent of total sales in 2007.”

Fewer new drugs mean fewer new patents, which limits drug makers’ ability to keep revenues high through monopolistic pricing. Over time, the value of brand-name drugs on the cusp of losing their patents—and thus becoming vulnerable to competition from cheaper generics—has almost doubled, “from an average of about $9 billion per year between 2002 and 2005 to about $16 billion in 2006-07.” Health Affairs points out that “the list of drugs losing patent protection in recent years has been substantial: Norvasc (value: $2.6 billion), Lotrel ($1.5 billion), and Flonase ($1.2 billion). Moreover, drugs likely to come off patent protection soon include Cozaar in 2010; Lipitor, Plavix, and Seroquel in 2011; and Diovan, Viagra, and Evista in 2012.

When drug makers lose blockbusters—that is, drugs with sales of $1 billion or more—they take a big hit. A 2004 BusinessWeek article cited a Boston Consulting Group study which estimated that “80% of growth for the 10 biggest drug makers during the last decade came from the eight or so blockbusters a year launched during the 1990s.” Aitken et al. note that “spending on blockbusters increased from about 12 percent of all sales in 1996 to almost half of all sales in 2006, accounting for three-quarters of prescription drug spending growth over the same time period.” Unfortunately for drug companies, blockbusters are on the decline: “in 2007, for the first time, the number of billion-dollar products fell—from fifty-two to forty-eight—and their share of all sales also fell slightly, to 44 percent.” More bad news for pharma: “As more blockbusters go off patent and fewer new ones are developed, the share of sales attributable to blockbuster molecules will likely decline still further.” In other words, drug companies need to find a new cash cow. But where to look?

Toward Specialization

By all accounts, the prescription drug industry is shifting its focus to specialty medications—that is, more expensive drugs targeted at rar, and usually more severe, diseases like cancer. The idea is that, while fewer people have cancer than say, high cholesterol, companies can charge more for the drugs in order to compensate for a lower volume of sales.

In theory, this strategy has an upside. If the industry targets a smaller group of sicker people who have to pay more for their medication, then that medication better be really effective. Indeed, Dr. Nancy Simonian, senior vice-president of clinical development at the biotech firm Millennium Pharmaceuticals Inc., told BusinessWeek that “we believe [that new specialty] drugs will really have to show—in order to get a premium price—a much better benefit-to-risk ratio.” She continued: “the way to do that is to identify the patients who get the greatest benefit." Unfortunately, this isn’t how things have played out.

There has indeed been a shift away from more general drugs usually prescribed by primary care physicians (such as lipid regulators, antidepressants, and antidiabetics). While these drugs account for 55 percent of drug sales, revenue growth has been sliding Aitken et al. note that “real spending growth in primary care-driven drugs fell steadily between 2003 and 2005, from 6.4 percent in 2003 to -0.8 percent in 2005,” increasing temporarily by “1.9 percent in 2006, but then declining by 3.7 percent in 2007.”

In contrast, spending on specialist-driven drugs—antipsychotics, cancer drugs, autoimmune agents, and the like—“grew 17.5 percent in 2003, slowed to 7.7 percent in 2005 and then rebounded to 9.5 percent in 2006 and 8.9 percent in 2007.” The shift toward specialization has begun.

Another, equally important shift is toward biologics, drugs made through recombinant DNA technology, and vaccines. According to Health Affairs, “between 2002 and 2007, real spending on biologics grew at an average annual rate of 16 percent, while vaccine spending grew 19.3 percent annually. In comparison, sales of traditional…drugs grew only 3.7 percent annually. Overall, biologics' share of the market rose from 9 percent in 2002 to 15 percent in 2007, while vaccine sales grew from less than 1 percent in 2002 to 2 percent in 2007.”

Given all this, you can get a pretty good idea of where the drug industry is headed by looking at biologics and vaccines directed toward specialized conditions, like cancer. Unfortunately, when you do, you realize that the industry is operating the same way that it did through the blockbuster era—peddling  unproven drugs to as many people as possible, and encouraging doctors to prescribe them for as many conditions as possible.

New Focus, Same Pharma

Consider Avastin, a biologic originally approved for slowing the growth of colorectal cancer (a function for which its admittedly effective). A full course of treatment costs a whopping $43,000—a high price point which, by Simonian’s standards, should be justified by its effectiveness for the patients who take it. But that’s not always the case.  

Earlier this year, the drug industry successfully pushed the FDA to approve Avastin for the treatment of breast cancer as well. This was not a good move. Yes, clinical trials showed that Avastin plus a breast cancer drug called paclitaxel helped to keep the cancer from growing for five months longer than in patients on paclitaxel alone. But the American Cancer Society notes that “overall survival was not significantly better [for those who took Avastin], and women who received Avastin had more serious side effects compared to those who got paclitaxel alone.”

Note that “not significantly better” refers to the fact that women on Avastin “lived slightly longer, a median of 26.5 months compared with 24.8 with Taxol alone.” That means that, even though cancer growth was slowed for five months, the average lifespan of an Avastin-taker was ultimately only two-months longer than it was for those who didn’t take the drug.

At the same time, the side-effects observed in the Avastin trial include “high blood pressure, blood clots, heart problems, holes forming in the colon (bowel perforation) and high levels of protein in the urine, which is a sign of kidney damage.” The drug’s website lists other possible side-effects: “severe bleeding,” congestive heart failure (which the website notes is most likely for patients undergoing breast cancer treatment), reduced white blood cell count (meaning a greater risk of infection), and diarrhea. Not all of these are associated with breast cancer treatment, but the basic point is clear: Avastin is not a risk-free drug. This raises an obvious question: even if you had an extra two months to live, but spent that time with a hole punched through your colon and a bum heart, how would you feel?

Avastin isn’t about paying more for better medicine. As per usual, the drug industry has a hot new drug that it wants to peddle to as many people as possible–for as many conditions as possible–regardless of the evidence or its ineffectiveness.

When it comes to specialty vaccines, the story is the same. One of the most celebrated blockbuster vaccines is Gardasil, for prevention of cervical cancer. The drug costs $125 a dose—but, as Maggie has noted in the past, there is no evidence that it is more effective in reducing deaths from cervical cancer than a $30 Pap smear, which has helped slice the number of cervical cancer deaths by 74 percent between 1955 and 1992.

In fact, in contrast to a Pap smear, the vaccine can effectively protect against only two strains of the human papilloma virus ( HPV types 16 and 18,)  which are responsible for 70% of cervical cancers The product is not effective against several other types of viruses which are responsible for the remaining 30% of cervical cancer cases. So girls and women who receive the vaccine still will need regular Pap smears.

Meanwhile, Pap smears have done a good job:  From 1997 to 2003, deaths fell by an average of 3.8 percent each year, and today, cervical cancer accounts for less than one percent of cancer deaths. And, as Maggie pointed out last year, we still don’t know anything about the long-term risks of the drug which is being given to very young girls. 

Yet Merck, Gardasil’s manufacturer, keeps pushing its product, encouraging its use in mandatory vaccinations for young girls—and even boys!

Is Gardasil more expensive because it’s fantastically effective? No. Does it need to be used by everybody? No. But predictably, the drug industry is pushing to expand use of the profitable and pricey product.

Out of the Frying Pan?

Though it’s nice to see the prescription drug industry sweat, we might be going from bad to worse. The types of drugs that form the core of the prescription drug industry’s business are changing—but the business logic within the industry isn’t, and never will. Like any for profit business, the prescription drug industry wants the highest revenues and profits possible. That won’t change. The bad news is that now, instead of high cholesterol, the drug industry can invoke much more frightening bogeymen—like cancer—in order to expand its market share. And all the while, the “specialty” status of its products can command higher prices.

The good news is this:  the media has been drawing attention to the fact that we don’t know as much as we should about
many news drugs. And, as I noted in a post not long ago, more patients are becoming wary of taking a drug that has only been on the market for a year or two. They realize that, in many cases, we just don’t know much about risks. Older drugs are, by definition, safer because we have had more experience with them. And usually, they are less expensive. Meanwhile, many patients are beginning to realize that it might not be such a good idea to be taking 10 or 11 different pills, prescribed by 3 or 4 different physicians.

More and more, they are asking “Doctor, do I really need this?” It’s a legitimate question.
Your physician may well explain that, “Yes, you do—and here’s why”. But be sure he knows what other medications you are taking.