By Randall Osborne
"Pipeline explosion" may sound like something the gas company gets sued for, or possibly some new terrorist tactic. In biotechnology, though, it means good news ¿ for those who are ready, anyway.
"Preparing for the Biotech Pipeline Explosion: The Imminent Impact on Healthcare Delivery" is the title of a 56-page report by the Healthcare Distribution Management Association, which bills itself as "a leader in stimulating innovations that enhance the distributors' role in health care." Formerly known as the National Wholesale Druggists' Association, the group also creates and trades ideas in the field of distributing, and aims to "[improve] standards and business processes that influence health care commerce."
Investors might get something out of the report, too, and not only by making note of which companies plan ahead to handle the trouble points.
Funded by Amgen Inc. and Ortho Biotech Products LP ¿ as well as, to a lesser degree, by Chiron Corp. and Ligand Pharmaceuticals Inc. ¿ the report examines 98 compounds and the companies developing them. Amgen and Ortho each provided $25,000 at the "platinum" level, with the others contributing $1,000 each at the "friend" level.
"There were 500 that we looked at, and we narrowed it down by choosing those in Phase II or III clinical trials," said Marsha Millonig, vice president of research and information for HDMA. "After that, we took a hit list of drugs that Amgen and Ortho Biotech were most interested in."
Frank Kurnik, director of channel development and sales at Amgen, came up with the idea. He describes his job as looking after "the movement of product from Amgen to the customer," and said he was mulling the firm's challenges about a year and a half ago, and thought of HDMA ¿ specifically, its nonprofit Healthcare Foundation (of which Millonig also is vice president) ¿ as a good choice to study them.
The foundation works with research, education and other programs, equipped with what it calls a "vision for an integrated health care system that makes consumers informed, responsible partners in their health care decisions." Following the proposal from Kurnik, it secured funding and its eight-month project jumped ahead.
The report's purpose is "checking out the landscape," Kurnik told BioWorld Financial Watch. "We wanted to prepare our customers for what's coming."
He said he called for the study because "there were wholesalers having financial difficulties. [Biotechnology] products are very expensive, and my original concern was whether the distribution channels would be ready," he said. "But that's not an issue. Plenty of distributors are credit-worthy and have the capacity."
So, the study widened.
"If you look at all the drugs in front of the FDA, the majority are biotech, and there will be more biotech drugs approved in the next three to five years than any other drugs," Kurnik said ¿ which is likely to create problems, even if they are just the sort any industry might like to have. HDMA identifies four "hurdles."
One is logistics. "On the positive side [is] confidence among specialty distributors that the system today has mastered the physical movement of products requiring special handling," the report says. Capacity seems adequate for the next three to five years.
"On the negative side [are] concerns about the ability of manufacturers to meet demand for products, since production of some products is already restricted by lack of manufacturing capacity," the report adds.
"That's a problem with proteins, if they take off quicker than you're prepared for," Kurnik said.
Millonig cited Immunex Corp.'s efforts with Enbrel (etanercept) for rheumatoid arthritis.
"Enbrel was needed more than distribution could supply, and how do you decide who gets it first, if there's not enough to go around?" she said, noting that "there are consent forms to be filled out. It's in short supply. There are side-effect profiles, and you have to be registered with Immunex and with the pharmacy."
Immunex took on the supply issue with a new manufacturing facility in Rhode Island, but such problems are likely to keep surfacing for the industry, Millonig said.
Another hurdle cited by the report is science. Individually tailored therapies will advance, it says, but information technologies needed to support patient populations "are lagging behind." Handling issues will become stronger forces in the market, the report says, with many drugs requiring freezing or refrigeration.
"Most are expected to continue to be injectables or require infusion," the report predicts. "Inhalation technologies, while beginning to surface, are not widespread, and the use of preservatives that would preclude the need for special handling in some cases is not well accepted among U.S. consumers, one source said."
HDMA expects such factors will "continue to complicate distribution and add to the cost."
Millonig puts it more succinctly, based on harder numbers.
"What we discovered is that out of the 98 [compounds studied], two-thirds of them will have to be made injectable, and 11 are vaccines, and 22 are monoclonal antibodies," she told BioWorld Financial Watch. "When these drugs comes to market, the vast majority will require special handling, which is different from the vast majority of drugs on the market today."
Finances make up hurdle three.
About 30 of the publicly traded 400 biotechnology firms will turn a profit in 2001, the report says, which is double the previous year's number.
"The real concern is in the area of reimbursement mechanisms, and the willingness of payers to absorb the cost of these very expensive therapies," cautions the report. "Reimbursement, even when something is pre-approved, [is] not guaranteed, according to some interviewees, and payers believe that there is not, in many cases with new drugs, the outcome history to support the up-front cost."
If manufacturers suspect they can't recoup the money they put in, the development cycle could lose steam. Kurnik said the reimbursement snag is particularly complex. Drugs may be infused or self-administered, which means "two different models" to be sifted through the Medicare, Medicaid and managed-care nets.
"I would say reimbursement is a key," he said.
The fourth hurdle comprises policy and ethics ¿ with all the religious and political issues that captivate the popular press.
Millonig said HDMA "wanted this to be long enough that Wall Street and investors could look beyond the short run." Although her group "didn't design the report primarily for people to invest on," its implications are clear and could guide players in the biotechnology financial game.
Kurnik agreed, and more.
"If you take a look at all the companies that have products that could be replacement drugs, and look at the size of the market, you have an investor's model of what companies to buy," he said. "I came up with about 14 companies, based on this study, that should be good stock buys."
His thesis is proving out, he added.
"Isis [Pharmaceuticals Inc.] already has had a big boom, and its stock has doubled since the study," Kurnik said, adding that Peregrine Pharmaceuticals Inc., also cited, has seen its stock double during the period since HDMA began the report.
"I'm not recommending stock buys," Kurnik said. "I'm just saying, that's how I would use it."