[Paleopsych] NYT: Blockbuster Drugs Are So Last Century

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Blockbuster Drugs Are So Last Century
New York Times, 5.7.3
http://www.nytimes.com/2005/07/03/business/yourmoney/03drug.html

    By [3]ALEX BERENSON

    INDIANAPOLIS

    DRUG companies do an awful job of finding new medicines. They rely too
    much on billion-dollar blockbuster drugs that are both overmarketed
    and overprescribed. And they have been too slow to disclose side
    effects of popular medicines.

    Typical complaints from drug industry critics, right? Well, yes. Only
    this time they come from executives at Eli Lilly, the sixth-largest
    American drug maker and the company that invented Prozac.

    From this placid Midwestern city, well removed from the
    Boston-to-Washington corridor that is the core of the pharmaceutical
    industry, Lilly is ambitiously rethinking the way drugs are discovered
    and sold. In a speech to shareholders in April, Sidney Taurel, Lilly's
    chief executive, presented the company's new strategy in a pithy
    phrase: "the right dose of the right drug to the right patient at the
    right time."

    In other words, Lilly sees its future not in blockbuster medicines
    like Prozac that are meant for tens of millions of patients, but
    rather in drugs that are aimed at smaller groups and can be developed
    more quickly and cheaply, possibly with fewer side effects.

    There is no guarantee, of course, that Lilly will succeed. And some
    Wall Street analysts complain about the recent track record of the
    company, saying that it has habitually overpromised the potential of
    its drugs and taken one-time charges that distort its reported
    profits. In the last year, Lilly's stock has fallen 21 percent, while
    shares in the average big drug maker have been flat.

    Still, since late 2001, Lilly's labs have produced five truly new
    drugs, including treatments for osteoporosis, depression and lung
    cancer. The total exceeds that of many of its much-larger competitors.
    And at a time when the drug industry seems adrift, that Lilly has any
    vision at all for the future is striking.

    "The challenge for us as an industry, as a company, is to move more
    from a blockbuster model to a targeted model," Mr. Taurel said at
    Lilly's headquarters here recently. "We need a better value
    proposition than today."

    For five years, drug companies have struggled to bring new medicines
    to market. But Lilly executives say they believe that the drought is
    not permanent. Advances in understanding the ways that cells and genes
    work will soon lead to important new drugs, said Peter Johnson,
    executive director of corporate strategy.

    Moreover, Lilly expects that drug makers without breakthrough
    medicines that are either the first or the best in their categories
    will face increasing pressure from insurers to cut prices or lose
    coverage.

    If that vision is correct, the industry's winners will be companies
    that invest heavily in research and differentiate themselves by
    focusing on a few diseases instead of on building size and cutting
    costs through mergers, as [4]Pfizer has done. Lilly, which spends
    nearly 20 percent of its sales on research, compared with about 16
    percent for the average drug company, may be well positioned for the
    future.

    "We do not believe that size pays off for anybody, especially size
    acquired in an acquisition," Mr. Taurel said.

    But if Lilly is wrong about the industry's direction, or if its
    research efforts fail, it could wind up like [5]Merck, the
    third-biggest American drug company, which has also adamantly opposed
    mergers and bet instead on its labs. After its own eight-year drought
    of major new drugs, Merck has had a 65 percent decline in its stock
    price since 2000, and its chief executive was forced out in May.

    Mr. Johnson acknowledges that Lilly's strategy is risky. "You can't
    make a discovery operation invent what you want them to invent," he
    said.

    So Lilly is seeking to improve its odds and to cut research costs by
    changing the way it develops drugs, said Dr. Steven M. Paul, president
    of the company's laboratories.

    Bringing a drug to market cost more than $900 million on average in
    2003, compared with $230 million in 1987, according to estimates from
    Lilly and industry groups. But the public's willingness to accept side
    effects is shrinking, and some drug-safety experts and lawmakers want
    even larger and longer clinical trials for new drugs, increasing
    development costs. If nothing changes, Lilly expects that by 2010, the
    cost of finding a single new drug may reach $2 billion by 2010, an
    unsustainable amount, Dr. Paul said.

    "We've got to do something to reduce the costs," he added.

    The biggest expense in drug development comes not from early-stage
    research, he said, but from the failure of drugs after they have left
    the labs and been tested in humans. A drug that has moved into
    first-stage human clinical trials now has only about an 8 percent
    chance of reaching the market. Even in late-stage trials, about half
    of all drugs fail, often because they do not prove better than
    existing treatments.

    To change that, Lilly is focusing its research efforts on finding
    biomarkers - genes or other cellular signals that will indicate which
    patients are most likely to respond to a given drug. Other drug makers
    are also searching for biomarkers, but Lilly executives are the most
    vocal in expressing their belief that this area of research will
    fundamentally change the way drugs are developed.

    Using biomarkers should make drugs more effective and reduce side
    effects, Dr. Paul said. If all goes as planned, the company will know
    sooner whether its drugs are working, and will develop fewer drugs
    that fail in clinical trials. The company may even be able to use
    shorter, smaller clinical trials because its drugs will demonstrate
    their effectiveness more quickly.

    To improve its chances further, Lilly has focused its research efforts
    on four types of diseases: diabetes, cancer, mental illness and some
    heart ailments. In each category, it has had a history of successful
    drugs.

    The company hopes to reduce the cost of new development to about $700
    million a drug by 2010. Because Lilly now spends about $2.7 billion
    annually on research, that figure would imply that the company could
    develop as many as four new drugs a year, compared with just one a
    year if current trends do not change.

    Among the company's most promising drugs in development are
    ruboxistaurin, for diabetes complications; arzoxifene, for the
    prevention of osteoporosis and breast cancer; and enzastaurin, for
    brain tumors and other cancers.

    The flip side of Lilly's plan is that drugs it develops may be used
    more narrowly than current treatments. For example, the company may
    find that a diabetes drug works best in patients under 40 with a
    specific genetic marker, and enroll only those patients in its
    clinical trials. While doctors can legally prescribe any medicine for
    any reason once it is on the market, insurers would probably balk at
    covering the drug for diabetics over 40 or for patients without the
    genetic marker.

    "The old model was, one size fits a whole lot of people," said Mr.
    Johnson, Lilly's strategist.

    Last month, Lilly's vision of targeted therapies gained some ground -
    albeit at another company. The Food and Drug Administration approved
    BiDil, a heart drug from [6]NitroMed that is intended for use by
    African-Americans. The approval, based on a clinical trial that
    enrolled only black patients, was the first ever for a drug meant for
    one racial group. While race can be a crude characterization of
    groups, it can serve as an effective biomarker, scientists said.

    Lilly's road map may look appealing. But some analysts question
    whether the company is as different from the rest of the industry as
    it would like to believe.

    While it professes to see a future of narrowly marketed medicines,
    Lilly is more dependent than any other major drug maker on a single
    blockbuster drug: Zyprexa, its treatment for schizophrenia and manic
    depression. Zyprexa accounted for about $4.4 billion in sales last
    year, 30 percent of the company's total sales.

    And while Lilly executives say they want to avoid marketing its drugs
    too heavily or in anything less than a forthright way, federal
    prosecutors in Philadelphia are investigating its marketing practices
    for Zyprexa and Prozac. Last month, Lilly said it would pay $690
    million to settle 8,000 lawsuits that contended that Zyprexa could
    cause obesity and diabetes and that the company had not properly
    disclosed that risk.

    Lilly says that it acted properly in marketing Zyprexa and that is
    cooperating with the federal investigation. Still, the controversy has
    hurt Zyprexa sales, which fell 8 percent in the United States last
    year.

    Some of Lilly's newest drugs have been commercial disappointments. The
    company and analysts hoped that annual sales of Xigris, a treatment
    introduced in late 2001 for a blood infection called sepsis, could
    reach $1 billion; Xigris's sales were $200 million last year. Sales of
    Strattera, for attention deficit disorder, slowed after a report in
    December that the drug can cause a rare but serious form of liver
    damage.

    Michael Krensavage, an analyst at Raymond James & Associates who rates
    Lilly shares as underperform, said that Lilly's emphasis on targeted
    therapies might be a defensive response to the industry's recent
    inability to produce blockbusters.

    Rather than targeted treatments, "drug companies would hope to produce
    a medicine that works for everybody," Mr. Krensavage said. "That's
    certainly the goal."

    Mr. Krensavage also criticized Lilly's accounting, noting that the
    company has taken one-time charges in each of the last three years
    that have muddied its financial results. Lilly said its accounting
    complied with all federal rules.

    Despite the company's recent stumbles with Zyprexa, other analysts say
    Lilly is well positioned, and they praise Mr. Taurel for looking for
    innovative ways to lower the cost of drug development.

    "Sidney has a better concept of what's happening outside his four
    walls and is far better in reflecting that in how the company runs on
    a day-to-day basis than any of his peers," said Richard Evans, an
    analyst at Sanford C. Bernstein & Company.

    Mr. Taurel acknowledged Lilly's dependence on Zyprexa and the fact
    that some new drugs had not met expectations. But he said the
    transition to targeted therapies would take years, if not decades.
    With earnings last year of $3.1 billion, before one-time charges, and
    no major patent expirations before 2011, Lilly can afford to make
    long-term bets, he said. "Our model needs to evolve," he said. "For
    the industry and for Lilly."