December 1, 2007 (Vol. 27, No. 21)
Douglas Martin M.D.
Such a Strategy Can Perpetuate a Blockbuster-like Revenue Stream
W hat should you do when your blockbuster is being legally copied and sold for a fraction of the cost? For pharmaceutical companies, the answer is to create a sequel with nearly the same cast and then target a new audience.
In taking an aggressive strategic innovation approach, companies should leverage years of research to identify molecular entities similar to an expiring blockbuster and erect new exclusivity barriers for these subsequent, modified drugs by targeting strategically chosen indications. This approach relies on purposeful coordination across functional teams to mitigate clinical development risk and to ensure a favorable reimbursement environment.
Reformulations Not All That
Traditional product life cycle management (LCM) strategies are defensive plays that aim to preserve market share in the face of lower-priced generics. For example, reformulations of popular drugs, often launched late in a product’s life cycle, try to compete by increasing dosing convenience. While this is a popular strategy, with reformulations making up over 50% of all new NDAs between 2002–2005, only a few companies have succeeded in extracting any real value out of these programs.
The high failure rates are attributed to an inability to garner higher reimbursement for increased dosing convenience. For example, Lilly’s (www.lilly.com) Prozac Weekly, the 2001 sequel to the 1990s blockbuster Prozac, did not enjoy preferred payer tiering, and as such, U.S. revenues collapsed from $2.05 billion in 2000 to $30 million in 2006. Importantly, even successful LCM strategies that focus on pediatric extensions and new indication identification only extend exclusivity barriers for six months and three years, respectively.
Strategic-innovation approaches combine marketplace knowledge and internal R&D resources to protect against generic competition far longer than traditional approaches. Successful application of strategic innovation can extend exclusivity for nearly 14 years compared with approximately three years with traditional approaches. To execute strategic innovation, companies should form three initiatives.
Initiative 1—Closely monitor off-label use and small investigator-led studies.
Companies must continuously monitor real-world prescription patterns and keep track of small evidence-based studies supporting novel uses. It is estimated that nearly 20% of outpatient prescriptions are written for clinical indications for which the drug has not received FDA approval. Understanding the true market for products may point to a new direction years before patent expiration.
Furthermore, initiating clinical studies in the new condition is likely to involve less risk given the early open-label signal showing a potential benefit in human subjects.
In a nearly flawless example of strategic innovation, Pfizer (www.pfizer.com) leveraged its in-house knowledge of GABAergic pathways to create Lyrica as a follow up to Neurontin. As early as a year after launch of Neurontin, small investigator-led clinical studies suggested that GABA agonists, Neurontin in particular, have a clinical benefit in chronic pain states.
Additionally, monitoring off-label prescriptions of Neurontin (estimated to be up to 86% of all Neurontin prescriptions) revealed extensive use in a variety of pain indications with anecdotal clinical pain relief. Using this data, Pfizer designed Lyrica’s clinical trials to test for epilepsy, the original indication of Neurontin, as well as neuropathic pain. The bet paid off when Pfizer received FDA approval for use of Lyrica in peripheral neuropathic pain in diabetic patients in 2004.
By leveraging use of a predecessor drug combined with a strategically planned Phase III trial, Pfizer differentiated Lyrica as the go-to therapy for neuropathic pain. The company exploited the move to evidence-based medicine for its new indication and insulated itself from payer pressures to use soon-to-market gabapentin generics because Neurontin was never indicated for pain. Generic manufacturers of gabapentin are unable to prove efficacy equivalence in the absence of bankrolling their own trials, and are unlikely to do so.
Moreover, Lyrica enjoys both FDA-granted NME exclusivity and new compound and medical-use patents, thus allowing Pfizer to recapture long-term revenue streams from essentially the same drug. Lyrica is projected to reach blockbuster status by this year with sales of $1.1 billion.
Initiative 2—Identify a franchise of similar compounds to target related conditions.
Accumulated R&D knowledge of chemistries and biological pathways must be leveraged to create a family of similar drugs. Traditional reformulations involve using the same active moiety and extending exclusivity for merely three years.
R&D teams should develop similar, yet enhanced drugs from the appropriate drug class to exploit both FDA exclusivity and new patents. This approach allows the extension of franchise revenue streams for the maximum term (e.g., 20 years including development time).
For example, AstraZeneca’s (www.astrazeneca.com) once-daily Nexium is a single isomer version of Prilosec. Compared to Prilosec, Nexium has decreased hepatic metabolism and slower plasma clearance, resulting in improved plasma concentration and better acid suppression. Improved kinetics alone would have led to a me-too proton pump inhibitor (PPI) that would have fallen to generic competition and payer restrictions, as did TAP Pharmaceutical’s(www.tap.com) Prevacid did.
On the other hand, AstraZeneca differentiated Nexium in a crowded PPI class by performing clinical trials showing a faster response benefit in GERD in addition to healing of esophageal ulcers. Furthermore, AstraZeneca performed trials showing that Nexium also helps to reduce the risk of NSAID-associated gastric ulcers, a benefit established in previous smaller clinical trials. The combination of a similar but new molecular entity and a suite of strategically chosen indications allowed AstraZeneca to distinguish Nexium from what was considered a class effect.
As a result, AstraZeneca placed Nexium as the first-line choice among mostly similar compounds. Pricing Nexium favorably to Prilosec allowed the compound to capture $5.1 billion of the $14 billion 2006 U.S. PPI market that includes inexpensive generics.
Initiative 3—Maintain tight communication between commercial and R&D teams.
A cross-functional team composed of R&D and brand and marketing teams should accompany a successful compound throughout its life cycle, and continuously evaluate both therapeutic and economic potential of emerging molecules and indications. An early team approach significantly mitigates development risks associated with the launch of next-generation products.
The R&D team’s significant know-how about drug classes accumulated over time should translate into a suite of related compounds with known efficacy and safety data.
The commercial team’s responsibility should be to identify lucrative markets and create effective communications that can be used to strategically position promising new drugs for novel, yet related indications. The teams must be managed to effectively share information and make joint decisions as to the best way a particular franchise should expand.
Strategic innovation is meant to augment traditional LCM approaches. Evidence of multiple blockbuster sequel drugs such as Lyrica and Nexium suggest that pharmaceutical companies can successfully perform strategic innovation.
While the development costs of reformulations are significantly lower than those of strategically innovated products, the rewards are significantly lower as well. Average development costs for reformulations run $80–100 million compared to $700 million for strategically innovated products. However, returns for reformulations are usually far below that of the predecessor drug and narrowed to approximately three years given limited exclusivity.
Strategic innovation drugs may achieve blockbuster status themselves with an exclusivity period comparable to a new patent life. Strategic innovation allows companies to go on the offensive, leverage years of research over longer periods, and develop a franchise of modified drugs that can generate revenue streams long after the initial blockbuster has retired.
Douglas Martin, M.D. is managing director, Leerink Swann Strategic Advisors. Web: www.leerink.com
E-mail: [email protected]