It has been a long journey but the end is finally within sight for the large biopharmaceutical companies that have had to traverse steep patent cliffs along the way, which served to play havoc with their bottom-lines. It is estimated that a total of more than $300 billion of prescription drugs sales will have lost their patent exclusivity and become exposed to generic competition before the worst is over in a couple of years. Although the numbers do not make pleasant reading, those companies have proved there is indeed some good news. Judging from their presentations at the recent J.P. Morgan Healthcare (JPM) conference, the early implementation of creative strategies for growth to replace lost sales to generic competition is beginning to pay off.
The resurgence of big biopharma companies has been due in part to a commitment to changing the way they conduct research and development. The traditional model of investing billions of dollars annually into R&D was not providing the returns required in order to discover and introduce new medicines to replace those that had lost market share due to generic competition.
Think like a biotech
To achieve research efficiencies biopharma companies have taken a leaf out of biotech's playbook to become more agile and flexible, entering into collaborative, constructive partnerships to access biotechnology innovation as well as acquiring key technologies to bolster internal pipelines along the way.
It was a point emphasized by Andrew Witty, CEO of London-based Glaxosmithkline plc, in an overview of progress the company had made during 2015 at the JPM meeting in San Francisco.
The company has broken away from its old slow and cumbersome hierarchical R&D model. "In 2008, we had five global R&D centers with a fixed-cost infrastructure," Witty explained. "Today we have two. We worked very hard to try and make our investment into R&D much more flexible; it's allowed us to put much more pressure behind the projects and move things through more quickly."
The notable change for the company is acceleration in research efficiencies and a reduction in the time and costs it takes to bring products to market.
Research is only one piece of the changing mindset of companies to deal with massive losses as generic products eat into their blockbuster product sales. In addition to improving the way it does research, GSK, like many of its counterparts, has put into motion a new strategy to focus only on selected areas where it believes it can dominate and own the market.
In 2014, in what both companies called a "transformative" deal, Novartis AG and GSK exchanged assets in a three-way, "supercomplex" deal that saw Novartis paying $16 billion for GSK's marketed oncology portfolio, while GSK acquired Novartis' vaccines arm for $5.25 billion. The two also agreed to pool their consumer health care businesses in a joint venture.(See BioWorld Today, April 23, 2014.)
Witty said as the company moves into 2016, the integration of the various assets swapped with Novartis is basically concluded. "Most of the work is done and has it has left us with three businesses, all of which we expect to now move into a growth phase."
Pharmaceuticals account for about 60 percent of GSK's activity and its consumer and vaccine businesses now have global leadership positions. "We feel very good about what we've built through that period," Witty said.
GSK has had to respond to the ongoing genericization of its major asthma and chronic obstructive pulmonary disease (COPD) medicine Advair (fluticasone propionate), which at its peak was generating about $8 billion in sales for the company. Witty noted that the contribution from newly introduced products, which have been launched over the last four years is now far exceeding what the company is losing in terms of the Advair drag.
The product swap has continued at an increased pace. Just before the end of the year, GSK beefed up its HIV franchise, with Bristol-Myers Squibb Co. (BMS) exiting development of HIV therapies by selling its entire R&D pipeline of HIV assets to Viiv Healthcare Ltd., the joint venture established in 2009 by GSK and Pfizer Inc., of New York. (See BioWorld Today, Dec.21, 2015.)
Viiv agreed to pay $350 million up front plus potential development and regulatory milestone payments of up to $518 million for the clinical assets and up to $587 million for the discovery and preclinical programs. BMS also is entitled to tiered royalties on product sales, and Viiv agreed to pay sales-based milestone payments of up to $750 million apiece for clinical assets and up to $700 million for each of the discovery and preclinical programs.
For BMS, giving up its discovery efforts in virology allows the firm to focus on other key areas, especially genetically defined diseases and cancer immunotherapy.
The new order for pharmaceutical companies has, by and large, been well received by investors. Since the beginning of 2012 – the year the patent cliff reached its height – the BioWorld Pharma Index has steadily increased in value and was up 81 percent at the end of 2015. (See BioWorld Pharma Index: Crossing the Patent Cliff. below.)
It will be interesting to see whether companies can maintain their momentum as they report their annual financials. Like GSK, the U.K.'s other leading biopharma, Astrazeneca plc, reports this week.
So far, since the beginning of 2012, Astrazeneca's share value has grown by 79 percent. However, 2016 will be the year the company faces its steepest patent cliff, with the loss of exclusivity for its cholesterol-lowering Crestor (rosuvastatin) blockbuster in the U.S., whose peak annual sales were well more than $6 billion.
Commenting in its third quarter financials report, Astrazeneca CEO Pascal Soriot said, "2016 will be a pivotal year in our strategic journey as we face the impact of loss of exclusivity to Crestor in the U.S. Looking ahead however, the continued performance of our growth platforms and upcoming launches will combine with our increasing focus on costs and cash generation to help offset short-term headwinds and return Astrazeneca to sustainable growth."
Although the company faces pressure on its near-term goals, Soriot has pledged to boost the company's annual revenue to $45 billion by 2023.
Following a similar trajectory to GSK and other big biopharmas, the company has resorted to partnerships and acquisitions to remodel its pipeline. It was, in fact, one of the most active dealmakers last year by number of announced in-licenses, according to Thomson Reuters Deals Review of 2015.
In December, just prior to JPM, the company expanded its reach in the global respiratory market with a $575 million deal to acquire the core respiratory assets of Takeda Pharmaceutical Co. Ltd. (See BioWorld Today, Dec.17, 2015.)
The transaction included the expansion of rights to roflumilast, marketed as Daliresp in the U.S. and Daxas elsewhere, a once-daily oral PDE4 inhibitor approved to treat COPD. And, as part of its growth strategy, Astrazeneca has been adding to the roflumilast portfolio since February 2015, when it picked up U.S. marketing rights to Daliresp by acquiring the branded respiratory business of Actavis plc (currently Allergan plc) in the U.S. and Canada. That deal was worth $600 million up front, with additional low single-digit royalties above an undisclosed revenue threshold.
The company was also no slouch with news flow during the week of the J.P. Morgan event. Notably, it said it is buying 55 percent of privately held Acerta Pharma LLC, the developer of acalabrutinib, a phase III oral, small-molecule Bruton's tyrosine kinase inhibitor that it expects to transform the treatment of B-cell malignancies. (See BioWorld Today, Jan. 18, 2016.)
The company will pay $2.5 billion up-front followed by a deferred $1.5 billion more by the end of 2018 or upon approval of the drug, whichever comes first. The agreement also includes an option for shareholders of Redwood City, Calif.-based Acerta to sell their remaining 45 percent stake to Astrazeneca for about $3 billion upon acalabrutinib's approval in the U.S. and Europe. The companies said, "The extent of the commercial opportunity has been fully established." The total deal value could approach $7 billion.
Astrazeneca and Incyte Corp., meanwhile, reported a new collaboration to evaluate the efficacy and safety of Incyte's JAK 1 inhibitor, INCB39110, in combination with Astrazeneca's next-generation EGFR inhibitor, Tagrisso (osimertinib). The combination will be assessed as a second-line treatment for patients with EGFR mutation-positive non-small-cell lung cancer, who have been treated with a first-generation EGFR tyrosine kinase inhibitor and subsequently developed the T790M resistance mutation.
The companies originally inked an agreement in May 2014 to research the potential of Astrazeneca's anti-PD-L1 immune checkpoint inhibitor, durvalumab, in combination with Incyte's oral indoleamine dioxygenase-1 inhibitor, epacadostat (INCB24360).
To round off its news for the week Astrazeneca, together with its research arm, MedImmune, and Moderna Therapeutics Inc. revealed a new collaboration to discover, co-develop and co-commercialize messenger RNA (mRNA) therapeutic candidates for the treatment of a range of cancers. The collaboration is in addition to the agreement announced by the companies in 2013 to develop mRNA therapeutics for the treatment of cardiovascular, metabolic and renal diseases as well as selected targets in oncology, the company said. (See BioWorld Today, Jan.13, 2016.)
Editor's note: In part two of this feature, we will continue to dissect the growth strategies of other leading biopharmaceutical companies in the wake of their fourth quarter and annual financials.