Healthy Skepticism Library item: 3258

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Publication type: news

Herper M.
Sneak Peek 2006 - Matthew Herper On The Drug Industry
Forbes.com 2005 Dec 27
http://www.forbes.com/2005/12/12/health-2006-predictions-sneakpeek_sp06_13_mherper_health.html?partner=yahootix

Notes:

Ralph Faggotters Comments:

“ But a more difficult fact may be facing the industry: Much of the low-hanging fruit in areas such as heart disease may have already been plucked. “

Matthew Herper correctly identifies one of the big problems facing the pharmaceutical industry, most of the easy drugs to find have already been found, and the discovery of new drugs (which is usually semi-accidental) will only get increasingly more difficult from now on.

Full text:

Sneak Peek 2006
Matthew Herper On The Drug Industry
12.27.05, 6:00 AM ET

The Big Trend
After a year of drug safety flare-ups, the pharmaceutical business is left trying to polish its tarnished image. Vioxx set the stage for further controversies involving drugs such as Pfizer’s (nyse: PFE – news – people ) pain pill Bextra, Natrecor, a Johnson & Johnson (nyse: JNJ – news – people ) treatment for heart failure, and muraglitazar, an experimental diabetes drug from Bristol-Myers Squibb (nyse: BMY – news – people ). But the problems go beyond drug safety, as the industry is now facing a new challenge. In 2006, the Medicare Prescription Drug Benefit goes into effect, and that could mean the government, eventually, will be the main buyer for many prescription drugs. Facing such a public market, drugmakers will do everything they can to try and regain favor in the public mind.

The Unconventional Wisdom
Both biotech and pharmaceutical firms might argue that the next set of breakthrough drugs are just around the corner. But a more difficult fact may be facing the industry: Much of the low-hanging fruit in areas such as heart disease may have already been plucked. With big-selling drugs such as Pfizer’s Norvasc for high blood pressure and Merck’s (nyse: MRK – news – people ) Zocor for elevated cholesterol going generic in 2006, new breakthroughs may not be big enough to replace the old ones that are being lost—even if they are saving millions of lives.

The Misplaced Assumption
That generic versions of high-tech protein drugs such as human growth hormone, insulin, or Amgen’s (nasdaq: AMGN – news – people ) Epogen are likely to reach the market with any great speed. The potential market is huge, but the regulatory hurdles for protein drugs is incredibly high—especially when the Food and Drug Administration is likely to become more gun shy when it comes to drug safety. That could help keep big biotech firms such as Amgen and Genentech (nyse: DNA – news – people ) insulated from the kind of generic competition that is hurting old big pharmaceutical firms. However, investors should be careful not to distinguish too much between biotech and pharma. The potential for safety flare-ups, marketing misbehavior and increased competition exists with both.

The Watch List
— Arthur Levinson and Susan Desmond-Hellmann. The chief executive and head of product development at Genentech have led their biotech firm in a third banner year. Can they do it again?

— Myogen (nasdaq: MYOG – news – people ): The small biotech has seen its stock price jump twice this year, and now has a market capitalization of more than $1 billion.

— Richard Clark: Can the new Merck chief executive steer his company out of the Vioxx mess?

— Kathy Miller: The Indiana University oncologist is a key player in the bid to develop targeted drugs such as Genentech’s Avastin and Pfizer’s Sutent in breast cancer.

The Bold Prediction
Pfizer, trying to increase its already immense financial flexibility, will decide to buy Serono, the Swiss biotech firm that is currently up for sale. Many investors will doubt that the deal makes much sense, given Pfizer’s already vast size and the fact that it is only now finishing up its last two acquisitions.