For the pharmaceutical and biotech industries, 2010 is likely to bring an increase in financial and regulatory pressures caused by continuing patent expirations of blockbuster drugs, dwindling product pipelines, increasingly cautious government regulators—not to mention company downsizings due to mergers, acquisitions, and outright dissolutions.

“Industry is at a breaking point in terms of regulatory requirements imposed by the government and from being squeezed by productivity and economic downturns,” said Christopher-Paul Milne, DVM, MPH, JD, associate director, Tufts University Center for the Study of Drug Development. “Companies are shutting down different parts of their operations with layoffs and downsizing,” he told Drug Discovery & Development.

But the news this year may not be all bad: R&D spending by pharma and biotech companies is likely to continue its upward climb from last year, especially in specific disease and therapeutic areas viewed as having upside potential. Vaccine sales are likely to continue the robust growth from last year’s swine flu and pandemic stockpiling—at least for the handful of companies capable of producing them. And while Big Pharma bemoans revenue reductions from blockbuster drugs falling off the so-called “patent cliff,” generic manufacturers are lining up to profit from their misfortune.

In addition, legislation to create a U.S. regulatory pathway for approval of generic biological or biopharmaceutical drugs is included in health care reform measures. While brand-name manufacturers get preferential marketing exclusivity in the current House and Senate bills, bringing a “follow-on” biological drug to market is likely to entail extensive (and expensive) clinical trials on the part of would-be generic competitors due to the complexities in manufacturing these large-molecule protein drugs.

Over the cliff
According to Datamonitor Inc., a market analysis firm, upwards of $140 billion in annual sales are expected to be lost by 2016 as blockbuster drugs lose their patent protection and go generic. The bulk of these patent expirations began last year and will continue for the next three years. During this time, manufacturers will try to maintain some patent continuation by creating new formulations. In some cases, demand for particular drugs will remain strong enough to keep generic prices closer to those of the originals.

Some of the blockbusters that have gone off-patent or will soon include Lipitor (Pfizer Inc.), Advair and Seroquel (GlaxoSmithKline Plc), Plavix (Sanofi-Aventis SA and Bristol-Myers Squibb Co.), and Zyprexa (Eli Lilly & Co.). The outlook for the pharmaceutical industry is decidedly negative, Moody’s Investor Services said, citing patent expirations and reductions in pipeline peak sales. These negative trends are likely to continue until the 2010-2012 patent cliff is largely over, the company said in a November 2009 report.

Last year’s mega-mergers were unprecedented, including Pfizer Inc.’s $68 billion takeover of Wyeth and Merck & Co. Inc.’s $41-billion takeover of Schering-Plough Corp. These provided “increased scale and a somewhat better balance” between the companies’ expiring patents and product pipelines, Moody’s said. While merger and acquisition activity is expected to slow this year, consolidation and diversification will continue—especially in small- to mid-sized transactions of a “bolt-on” nature—Moody’s predicts.

As a result of mergers and the economic downturn, Big Pharma and Big Biotech last year cut nearly 60,000 jobs, according to the Chicago-based executive outplacement firm Challenger, Gray and Christmas. Nearly 20,000 job cuts came from Pfizer-Wyeth (about 15% of their combined workforce), over 5,000 from Eli Lilly (about 13% reduction), and more than 7,000 by AstraZeneca PLC (about 10%).

Despite this, R&D growth is likely to continue, at least among the bigger players anxious to fill depleted pipelines. Merck increased R&D spending in the first half of 2009 by $371.9 million (16.5%) compared to the same period a year earlier, according to an analysis by Business Week. Merck was followed in spending by Biogen Idec ($185.4 million or 36.3%), Eli Lilly ($159.1 million or 8.7%) and Bristol-Myers Squibb ($144.0 million or 9.0%). 

But according to the A.T. Kearney Inc. consulting company, the pharmaceutical industry’s problems are structural, being “out of balance,” just like the nation’s healthcare system. To survive and prosper, Kearney says, drug companies must “move away from selling molecules and toward addressing health needs; to look away from traditional markets; to be driven by the way they are used, rather than by the discoveries they’ve made.”

Biogenerics on the horizon?
Health care reform legislation narrowly passed by the House on Nov. 7 and the Senate on Dec. 24 (substitute HR 3590) creates a regulatory pathway by which FDA could approve the marketing of follow-on biological drugs (also called “generic biologicals” or “biosimilars”).  Differences between the House and Senate versions of the massive reform legislation still need to be ironed out before a final bill can be sent to the White House. President Obama had last year suggested 7 years exclusivity, a compromise that lawmakers ignored.

Both the House and Senate bills grant innovator manufacturers 12 years of marketing exclusivity with an additional 6 months for pediatric applications. Brand-name manufacturers, patient groups and most lawmakers favor 12 years exclusivity, while generic drug makers, insurers, and pharmacy benefit managers are pressing for 5 years. Anything more, they argue, and the whole idea of follow-on biologics should be scuttled.

In the end, the exclusivity time period may not be pivotal in terms of bringing down drug prices. The Federal Trade Commission says follow-on biological competition, when allowed, is more likely to resemble competition between brand-name products because of high development costs. These likely will include substantial laboratory and clinical testing on the part of the generic manufacturer to demonstrate safety in order to win FDA approval.