Pfizer-Wyeth: Why nobody wins

In an otherwise headline sluggish industry (lawsuits apart), the Pfizer-Wyeth deal certainly has lit up the newswires and sparked some much needed debate. The announcement of the $68 billion dollar deal was as much of a shock to some as it was the culmination of months of predictions for others in the industry. The merger is being touted as an “ideal marriage”, with the potential to save billions for both companies, as their most profitable products face patent expiration from 2011 onwards. They may have others buying into this hogwash, but I see this deal for being what it actually is – Twisted. The formation of Pfyeth benefits nobody- not the stockholders, not the employees, not consumer sentiment, definitely not drug development, and even misles the common tax-payer! Actually that is not completely true. It does benefit one person – Pfizer CEO Jeffrey Kindler. Kindler played his cards well and the announcement formed a welcome distraction from the news that Pfizer was also paying a $2.3 billion settlement to make the Department of Justice stop investigating the company’s illegal promotion of discontinued Cox-2 painkiller Bextra, and a 90% drop in income.

Kindler: "We're in a much better position to bring on board the scientists and programs and projects that Wyeth has"
The last couple of times Pfizer went appliance shopping, buying Warner –Lambert in 2000 and swallowing Pharmacia-Upjohn in 2003, it was faced with serious alignment and integration issues. Pfizer's "big corporation" image was at definite odds against Warner’s consumer health focus and there was a serious culture clash that was eventually only solved by new management. While corporate image may not be the issue at hand in this case, Pfizer thinks they can swiftly integrate an entirely new field of therapeutics! Wyeth alone with its expertise in biologics barely made it past facility inspections and product safety audits. One can only imagine the tensions in the hallways as Pfizer deploys its managers to oversee and “align” operations. Kindler mentions bringing aboard scientists, programs, and projects, he will also be bringing aboard the many lawsuits against Wyeth for the Hormone Replacement Therapy debacle.

Kindler: "In one single transaction, the combination with Wyeth advances every single one of (our) strategies,"
Really? Like the halving of stock dividend? Probably the only reason investors would consider having Pfizer stock in their nest egg post Lipitor. What about manufacturing capacity? Oh that’s right, you are shutting down 5 plants. Or maybe you are referring to sales? Together, the two companies will have 17 products with annual sales of $70 billion or more. Reasonable, but that’s only until 2012. This purchase is not transformational and as much as Pfizer would like to think that this will solve their pipeline problems, it is simply not acquiring a robust R&D model. As Derek Lowe of In the Pipeline fame says “as a research-driven company grows larger, everything scales except research productivity”.

Behind the Scenes
Despite all the above grievances with respect to this merger, there is one poorly publicized issue that troubles me the most. The deal is being financed by five banks: Bank of America Merrill Lynch, Barclays, Citigroup, Goldman Sachs and J.P. Morgan Chase. The billions that will be lent to Pfizer are coming from the Troubled Asset Relief Program (TARP) program- set up by the US government to purchase assets and equity from financial institutions in order to strengthen the financial sector. It is the largest component of the government's measures in 2008 to address the subprime financial crisis. That’s right. The money for this deal is coming from the American taxpayer! The money that will eventually be used to eliminate 20,000 jobs! So not only does Pfizer jip you on meds, but they take your money and punish you for helping? How is this right? Although meant to increase lending by banks, the only restrictions set on TARP money are that participating banks can't increase their dividends without Treasury's approval and must agree to certain limits on executive compensation. Few other strings are attached.

I am however hopeful. Hopeful that the Obama administration takes some steps in ensuring public rescue funds are used ethically, that the FTC investigates this deal closely, that Wyeth shareholders vote against this offer, and that the creation of Pfyeth does not send the industry into a desperate feeding frenzy.

UPDATE:
Pfizer currently has six Alzheimer drugs under development and one on the market, while Wyeth has four of Elan’s Alzheimer drugs and five Alzheimer drugs of its own in development. Pfizer will now control 16 Alzheimer drugs, which represents a majority of all Alzheimer drugs currently in clinical development and on the market, creating a virtual monopoly for itself.

If allowed to control all these drugs, Pfizer would undoubtedly be forced to determine which of these compounds would receive priority in clinical development and which would be slowed down. As a result, Pfizer will likely favor those drugs in which it holds a 100% interest. Ultimately, the biggest loser in this situation would be Alzheimer patients, along with their caregivers and physicians, who may have fewer treatment options available to them.

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Preemption: What is it good for?

For more than a decade, drug manufacturers in the US have been inadvertently protected from product liability claims thanks to preemption - the precedence of federal law over that of state law.

So what happens when a patient takes a generic version of a drug that results in an adverse event (or death) due to inadequate warnings? Surely the consumer is protected by being able to sue the manufacturer, correct? Apparently not. Generic manufacturers have successfully argued that they were unable to provide sufficient warning as their labels are required to be the same as the labeling approved for the original innovators drug. Additionally, a generic drug manufacturer may not unilaterally strengthen a label without prior approval of the FDA. Therefore, it "would be impossible" for the manufacturers to abide by federal law requiring that the generic have the same label as the innovator and the state-law requirements for stronger warnings. Surely then the onus falls on the innovator companies for not originally having sufficient warnings, correct? The uninformed patient may be shocked to learn that most state courts have ruled that the name-brand manufacturers could not be held liable for injuries caused by another manufacturer's product.

This is the conundrum posed by preemption. Preemption prevents plaintiffs from pursuing their claims against defendants whom they allege caused their injuries, and yet the preemption doctrine is based on a choice of the superior method for regulation. The distinct lack of a legal remedy in such cases may explain the California Court of Appeal's decision in Conte v. Wyeth.

In Conte v. Wyeth, Elizabeth Conte alleged she developed an irreversible neurological condition after long-term use of generic versions of Wyeth’s Reglan. Although she only took the generic version of the drug, she argued that Wyeth negligently misrepresented the serious risks associated with long-term use of the brand-name version of the drug and should be held liable. Conte filed a lawsuit against Wyeth as well as generic manufacturers Purepac, Teva, and Pliva. After obtaining summary judgement in trial court, Wyeth & the generic manufacturers succesfully argued that Wyeth's product information had no causal relationship to Conte’s injuries and the Conte's claims against the generics were preempted under the Food, Drug and Cosmetic Act.
The California Court of Appeals, First Appellate District, reversed in part and reinstated Conte’s action against Wyeth. Ignoring decades of products liability precedent, the Court concluded Conte could proceed against Wyeth on her negligent misrepresentation claim on the basis of common law.

Preemption is a classic example of instances where enforcing an optimal regulatory strategy does not necessarily translate into protection of the public. In the search for a one size fits all approach to streamline a process, several caveats can be left which prevent legislation from meshing with the justice system. This year, in Levine v. Wyeth, the Supreme Court will address the issue of preemption of claims against name-brand manufacturers' in what could be a landmark victory for consumers. The judgement may very well impact consumer confidence in public agencies such as the FDA and further tarnish the image of drug manufacturers.

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Pipeline Execution

Parexel consulting just published a new white paper highlighting the key limiting factors in getting new drugs to approval. The paper focuses on perhaps the 2 most critical factors shaping the pharmaceutical industry’s future performance at a time when R&D costs continue to rise in relation to output and ‘safety first’ becomes the dominant principle in the US regulatory environment. The most pressing challenge for industry executives “has shifted from building the pipeline to executing the pipeline”, it comments. The hurdle has resulted in a decade long decrease in submissions of New Molecular Entities (NME's) in the US. After averaging 45+ per year in the mid-1990s, NME filings to the FDA dropped to 21 in 2006. Last year they recovered slightly to 28 submissions. The preliminary results of an FDA study on NMEs released in June indicated that the overall decline may reflect industry’s waning interest in seeking approval for less innovative NMEs.



First Cycle Approval

How much is getting a new drug through the FDA approval process at first attempt worth? About $639.2 million according to Parexel. For NMEs signed off by the FDA in 2007 and the first half of 2008, the approval times for compounds cleared in a single review cycle were less than one third those for NMEs requiring resubmissions (8.6 months versus 27.7 months).

The good : there has been a recent increase in the percentage of US NDAs gaining first-cycle approvals. In the 2006 fiscal year cohort (the latest to mature fully), the FDA’s Center for Drug Evaluation and Research set a record for the user-fee era of approving 51% of NDAs in the first review cycle.

The bad: In FY 2007, nearly a quarter of Class 1 NDA submissions – the less complex refilings in response to minor issues raised in the first-cycle review – failed to gain approval.

The ugly: Close to two-thirds of Class 2 NDA resubmissions – typically filed in response to more significant questions arising in the initial or previous review cycle – during FY2007 did not make it to approval.

Priority Review

Priority review status – usually reserved for drugs with indications where there are no satisfactory alternatives or that offer significant improvements over what is already available- is the second most critical factor that directly correlates with revenue loss. Nearly US$448.4 million worth .

The FDA’s performance goals specify six months for taking action on priority NDAs, compared with 10 months for standard NDAs, the white paper notes. However, the implications of a priority rating are “far more significant” – for example, between 1 January 2006 and 30 June 2008, priority NMEs were cleared on average 13 months ahead of standard-rated NMEs.

Moreover, 94% of the priority NMEs approved in 2006, 2007 and the first half of 2008 were cleared in the first review cycle, while around one quarter of all standard NMEs approved over the same period needed three cycles to get through the process. To make matters worse after granting priority ratings to 30% of the NDAs submitted in 2005, the agency has done so for only 18% of applications filed in FY 2007 and up to 31 March 2008.

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A Thin Red Line ...

Developing nations - once ignored & considered to be closed economies, but now the biggest area of growth for most multinational corporations- have always had a strangely dichotomous relationship with the industrial powerhouses of the west. Cheap labour, abundant resources, large talent pools, have all spurred on the R&D investment & outsourcing by major pharmaceutical firms. Even though the generic, CRO & API scene is thriving in many Asian & east European countries, big pharma is still very reluctant to launch their new drugs here. Perhaps where this is most prominent is India - where most multinational pharma companies have held back from launching new products since 1995 for fear of them being immediately copied & manufactured by the generic mafia.

India has had a booming, cost effective generic industry since the 1970's when the government decided to amend its patent act to exclude pharmaceutical products from patent protection. This action catapulted India from a country importing most of its medicines at some of the highest prices in the world to a country that was self-reliant in producing life-saving medicines. India has been and remains the producer of choice for medications in most developing countries, producing medicines of assured quality that meet all international standards, at the lowest costs and highest volumes. Self sufficiency did come at a price though, and for India this meant sustaining a closed economy void of any foreign investment.

On Jan 1, 2005, India finally opened its doors to the world by becoming a member of the WTO. This also meant embracing the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. TRIPS required WTO member states to grant patents on all classes of products (including medicines), to provide protections for a minimum of 20 years, and to allow patent rights to be satisfied either by importing the drug or by producing the drug domestically. India was now required to start collecting drug patent applications filed between 1995 and 2005 and to amend its patent law by Jan. 1, 2005. Despite these new requirements, the TRIPS agreement allowed the continuing production of pre-1995 drugs and several "transitional" years to become TRIPS-compliant. It also contained important allowances enabling access to lower-priced medicines. These included rights to issue compulsory licenses (involuntary rights to the process and product with payment of a reasonable royalty) and rights to parallel import (unrestricted rights to buy patented medicines previously produced and sold elsewhere at a lower cost).

The new Patents (Amendment) Act of 2005, attempts to balance the interests of the domestic industry while trying to entice big pharma to increase their capital investment in the subcontinent. No small feat for a nation known for notoriously one sided policy making. Intense lobbying & political pressures mean that the new Act does leave some loopholes that have social activists up in arms. Some of the main points of contention are:

1. Instead of limiting patent protection to "new chemical entities," the act creates rights to patent certain new uses, formulations, delivery systems, combinations of existing products, and minor variations of existing chemical entities.

2. The act makes no changes to the procedurally laborious and inefficient compulsory licensing scheme.

3. The act fails to specify guidelines for setting modest royalty rates (2-4 percent) for compulsory licenses and, except in a government-declared emergency, it requires applicants for compulsory licenses to wait three-years before applying.

4. The act grants 'patent-like' rights for patent applications between the publication and approval of the patent deterring generic entry even in cases where the patent application may later be denied.

Plans to enforce 5 year data exclusivity for clinical trial information are also on the table even though this is not required by TRIPS. This TRIPS-plus exclusivity would prevent a generic producer and the drug regulatory authority from relying on previously submitted data. The generic producer would be required to duplicate costly, time-consuming and possibly unethical clinical trials to prove what is already a matter of record.

India's policy makers now find themselves in an unparalled situation. Do they continue to champion the effort to provide low cost, effective medication for the millions of poverty ridden individuals or should they risk the countries rich generic heritage in their pursuit of becoming an economic powerhouse? The government is being increasingly vocal in trying to allay big pharma's fears and are pushing the agenda of greater investment. However, the numerous opposition avenues being utilised by the domestic companies & activists are clearly retroactive. GSK has had to withdraw its patent applications for the antiretrovirals Combivir, Abacavir & Trizivir, and Novartis lost its landmark case against section 3d of the Indian Act in 2006. Perhaps more importantly India has set a precedent for other developing nations. Thailand is working swiftly towards an efficient compulsory licensing system & the Phillipines is also modeling its strict patent standards to be in line with that of India's.

The million dollar question is: With the increasingly westernized population (in terms of disease profiles) & burgeoning middle class in these developing economies, how much longer can big pharma afford to stay out of these markets? With drying pipelines, patent clocks ticking down, & increasingly negative publicity perhaps embracing compulsory licensing and forming north-south networks isnt such a bad idea?

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