Just worth noting that another round of consolidation in big pharma is underway asSanofi Bids 48 Billion Euros for Aventis.  While this is an all French deal, as if you hadn’t noticed by now, pharma companies make all their money in the US, so this will likely spur some consolidation here–Schering, Merck and maybe GlaxoSmithKline might be players on either side.

CBS marketwatch has an interesting list of new blockbuster drugs to watch for in ’04. One of the blockbusters is Caduet, an interesting combo pill from Pfizer that combines Novarsc and Lipitor for both hypertension and high cholesterol. This helps patients by making it easier for those with multiple conditions to remain compliant. But as was noted by the Industry Veteran last Friday, the development of the combo pill also gives pharma companies a chance to raise prices.  You can expect that the payers may not be so interested in improving the ease of patients, but will use three tier formularies and other tools to increasingly push the decision over spending extra for an easier to use product down to the consumer.

Two of my favorite contributors both have found me interesting stories about pharma company tactics today.  Jane Sarasohn Kahn sent me an article about the ongoing US-Australia talks on drug pricing.  Recall that the Aussies joined us in invading Iraq because they were promised in a nudge-nudge wink-wink way a free trade deal which would allow their agricultural products into the US market. However, fresh from victory in the Medicare drug coverage arena, the US pharmas a going after price "discounting" by governments abroad.  (For background info look at this latest edition of the Pfizer sponsored Health Politics which basically trots out Mark Pauly’s not entirely untrue line that Canadian drugs aren’t any cheaper than US drugs overall when you factor in that fact that they don’t use so many generics and don’t allow access to the some of the newest and most expensive drugs). As part of the Australian negotiations things are getting a little heated. The Australian (which is the pretty unsuccessful result of Murdoch’s attempt to create a highbrow national paper there) wrote that

US drug lobbyists were peddling misinformation about Australia’s medicine subsidy scheme to secure a better deal under a free trade agreement, federal Health Minister Tony Abbott warned a delegation from Washington yesterday.

During a meeting with a powerful US congressional delegation yesterday morning, Mr Abbott also said the Australian Government would not change the "basic architecture" of the $5.8 billion-a-year Pharmaceutical Benefits Scheme to secure a trade deal. But he left open the prospect of other concessions to multinational drug companies, saying he would be happy to talk with them about demands for greater transparency. After the talks with Acting Prime Minister John Anderson and eight influential Republican congressmen in Sydney yesterday, Mr Abbott accused drug lobbyists of waging a dishonest campaign against the scheme. "Misleading information is being peddled in Washington," he said in a statement. "The PBS is not a rationing system but a subsidy system. The PBS does not deny access to US drugs but treats them exactly the same as drugs made in Australia or elsewhere."

Now despite the party name (which harks back to the old European meaning of liberal not its American derviation) the Aussies have a very right wing government in power by all but US standards. (Randomly enough I’m a friend of Tony Abbot’s sister who’s political views are somewhat pinkish and despite the fact her brother is the rising star of the Aussie Liberal party and a likely future Prime Minister, she basically thinks he’s a right wing nut!) So if the Aussies feel that they can’t sacrifice their drug pricing system despite the huge carrot of free-trade in agriculture that the US is dangling, there’s no chance of the Europeans doing so.

Meanwhile, the Industry Veteran sends me this story about Abbot’s huge price increase in Novir, its protease inhibitor which is used as a component of many anti-viral HIV regimen. Basically Abbot has increased the price of a drug five-fold that is used in combination with its competitors anti-virals, but if you take Novir in a combo form with Abbot’s new protease inhibitor Kaletra, it’s now cheaper than taking it separately with the competitors’ drugs. The Seattle Times reports

Abbott is pricing Norvir as though it is a "full component" in the drug cocktail, complained Shalit. "But it’s not being used for its activity against the virus — it’s used as a booster for the other drugs." While Abbott vigorously denies it, Shalit and others believe the Norvir price increase was aimed at Abbott’s competition. In essence, Shalit said, increasing Norvir’s price raises the cost of taking Abbott’s competitors’ drugs used in combination therapy. That could push patients toward Abbott’s newer drug, Kaletra, a combination drug with Norvir built in. With the Norvir price increase, Kaletra’s competition has become more expensive than Kaletra, approved by the Food and Drug Administration in 2000.

In their letter to Abbott, the local doctors also expressed worry that the increased cost of Norvir would have a chilling effect on development of other drugs designed to work with its boosting power; at least one such drug is now being tested in Germany.

The Industry Veteran comments

Here’s an ominous trend that I see as more pervasive than just the HIV area. Big Pharma will seek to extend patent protection and up-sell patients by exorbitantly raising the price of single-compound products, thereby coercing people onto fixed-dose combinations (one pill containing two or more compounds) that contain the unconscionably priced compound. Watch for this trend in (y)our favorite category: the statins.

In any event both these stories prove that big pharma, conscious of its potential problems with future drying pipelines, is going to fight hard to maintain its profits and protect its turf.  That’s to be expected and it is also part of their fiduciary duty which, lest we forget is not to Canadians, Australians or AIDS patients, but to their shareholders.  The question is will this type of behavior cross the line and cause sufficient resentment that politicians bring a backlash against them. That may yet happen in their incredibly unpopular opposition to Canadian imports.

Then again there is the other question that Jane posed in her post here a month or two back. She wrote

Pharmas are looking to biotech for new formulations, but they’re also looking to smaller pharmas too for licensing deals. This will be important over the next few years. Obviously, biotech will be important in the longer term, but the juries are still out on so many very expensive drugs. We will be hitting the wall on who is going to pay for those expensive bio drugs, and I anticipate that will be a big area of contention. It’s not clear really who will be willing to pay for innovation.

Jane’s follow up goes to the heart of the "how much will who pay, and be able to pay?" question.

In today’s news, I see that the small pharma Trimeris based in NC which produces the $20K/year drug, Fuzeon, for HIV/AIDS, is now laying off and looking like it could close shop…for a few weeks, literally, a few payers last year said they’d be willing to pay for such an expensive HIV drug. However, as I recently told one of my clients who is big in HIV, that’s one disease state where that high cost just won’t get rationalized….now an expensive prostate cancer drug used by rich old white (mostly) men, sure…but even $20K a year for that wouldn’t be chronically taken virtually ‘forever.’ Some discussions are afoot about whether we have "enough" innovation for now.

Just in case you thought you had tax troubles, the IRS thinks that GlaxoSmithKline owes it $5.2 billion. GSK has about $2bn in reserves to pay this, but obviously will be in tax court for a few years whittling this number down.  Given the way the stock market works the relative certainty of this upper limit may end up being a positive thing for GSK, and I doubt that rest of us will be passing the collection hat for them any time soon!

The AP reported on New Year’s Eve that the rough consensus of analysts is that 2004 will be a reasonable but not great year for the pharma stocks. Those stocks have of course underperformed the S&P over the last year but actually haven’t done too badly over the last 2 years compared to the S&P after their plunge 18 months ago. One potential major problem has been dodged, with a Medicare bill that’s as friendly to the pharmas as possible.  The longer term problem is the paucity of the pipelines, so I’d look for more deals in the biotech sector like the one Pfizer did with Esperion Therapeutics. But of course some time after 2006 when the Medicare coverage comes in, the likelihood of more governenment interference is a risk in the much longer term.

In the shorter term the most interesting stock remains Astra-Zeneca. Since its beautiful technical double bottom in February and March last year A-Z has rallied over 65%.  THCB has reported at length about the potential problems with both Crestor and its struggles with Lipitor. This past weekend the influential finance magazine Barrons essentially came out  warning that A-Z’s rally was overdone, but if you’d shorted A-Z a few months ago when this discussion started, you would be under water. Is it any different now?

This won’t be much new news for those of you who’ve been following the various commentators here on THCB about the war between Lipitor and Crestor, but The Motley Fool website has a good summary of the statin market called The Cholesterol Wars.

The NEJM reports a 5 year study that shows that a combo therapy of Finasteride (Proscar) and Doxazosin works better than either alone on improving the lives of men with an enlarged prostate. Here’s the news from the AP if you don’t like boring academic abstracts.

I didn’t think that the Industry Veteran would just ignore the comments from the Anonymous Cardiologist or the Anonymous Academic, and he doesn’t disappoint.  Unlike the Academic, at least he’s convinced that the Cardiologist is a doctor not a Crestor bag-carrier! I don’t know about you but I’m learning tons from these exchanges! So here’s the Veteran’s question:

Was the anonymous cardiologist on the grassy knoll?

The efforts of AstraZeneca’s partisans to free up your time with conspiracy theories and riffs on Pfizer must be gratifying, but their notes appear questionable.  In particular, your cardiologist may know how to complain about declining capitation rates for performing angiograms, but his knowledge of the pharmaceutical industry’s business side remains poor.

In particular, his perceptions relative to stain marketing are typical of office-based physicians.  Practitioners are not so much biased or uninformed about tactical details as they are arrogant grunts trying to pontificate on the war’s trends from foxholes.  Specifically, he adduces Pfizer’s panic over Crestor from the fact that they are cross-training their Women’s Healthcare sales group on Lipitor.

In the first place, it is often standard practice in the industry for companies to cross-train virtually all their reps on the big PCP products.  For example, specialty reps from Merck who only detail neurologists on the migraine drug Maxalt also carry Vioxx in their bags.  In the case of Pfizer reps carrying Lipitor to OB/GYNs, it remains a fact that a large segment of women who do not suffer some chronic condition receive their primary medical care from their gynecologists.  As Pfizer will next year launch Caduet, a fixed-dose combination of Lipitor and Norvasc, it is entirely appropriate that they would try to recapture some of $4 billion they will lose to generic amlodipine with an all-hands-on-deck sales effort for the new product.  Former CEO Bill Steere was an especially strong advocate of cross-training; when products such as their antibiotic Trovan hit the crapper, it allowed Pfizer to redeploy the reps they had hired for that launch into other areas.  If one is to impute panic, I hear from sources far more reliable than the umbrella man or three tramps in the railroad yard that Dave Brennan and Tony Zook (Note: respectively President & Senior VP, AstraZeneca in the United States) are running out of toilet paper in the executive bathroom due to Crestor’s slow start.

Your cardiologist’s second error consists of his effort to suggest Pfizer’s panic is leading them to make underhanded payoffs as a result of Crestor’s greater potency at reducing LDL.  Pfizer has known Crestor’s clinical profile for several years and they adopted a well conceived marketng strategy to defend against it.  Two years ago Karen Katen (Note: Kate is Exec VP, & President of the Pfizer Global Pharmaceuticals) responded to the superstatin tagline that AZ was trying to pin on Crestor with the reply, "Superstatin or superfluous statin?"  Pfizer’s idea, then as now, was that for all but the more refractory patients, Lipitor produces good LDL reduction with a demonstrated safety record.  If some self-styled lipidologist needs a Hail Mary pill to use on a familial homozygous patient before going to plasma aphoresis, then he can try Crestor until the Zocor-Zetia or the Lipitor-torcetrapib combinations appear on the market.

Your cardiologist’s main contention — that Pfizer paid the Lancet’s editors for their rant on Crestor — is really where he emulates Arlen Spector and propounds a magic bullet theory.  While conclusive proof of this would neither shock or surprise me, I tend to be highly skeptical of your man’s allegation for four reasons.

Pfizer has lawyers crawling all over it from the Neurontin whistleblower suit that the Department of Justice joined.  Any e-mail or note hinting at this sort of payoff to the Lancet could easily come up as a by-product of discovery and would seriously jeopardize the entire Lipitor franchise.  The downside risk far outweighs even the worst consequences of the Neurontin suit that involve disgorgement of all profits from off-label Neurontin sales.

My second reason for doubting a Lancet payoff is based on the fact that since the Warner-Lambert takeover, Pfizer has been a fairly disorganized company.  The two organizations were not well integrated and this problem was further exacerbated by the Pharmacia acquisition.  Unless there was a rogue contingent there operating entirely beyond control, I doubt Pfizer could exercise the coordination required for such a black bag job.

My third reason for skepticism comes from experience with the Lancet editors.  They constitute some of Big Pharma’s fiercest critics.  If Pfizer had approached them with a bag of cash, it would have become the lead story for every news outlet around the world.

Last but not least, the Lipitor people knew that a payoff was unnecessary.  When Arnold Relman comes out and says that Crestor is a me-too drug and Sidney Wolfe predicts it will prove worse than Baycol, Pfizer couldn’t buy such PR for any amount of money.

Your academic contributor stands on much firmer ground when she notes Pfizer’s impending loss of big product sales to generics.  This does not, however, substantiate any implication that Pfizer is going ballistic over Crestor.  McKinnell and his people have in place some well articulated strategies (fixed-dose combinations, co-development deals, marketing structure, others) that seek to cope with this.  I have my doubts that they’ll be able to carry it off without their sales and stock price going into a trough similar to Merck’s current one, but we’ll have to see.  Deducing current panic and payoffs from this possible scenario is too farfetched.

Alas, while I don’t care for your cardiologist’s style of thinking or his blithe ignorance of the industry, I do come down beside him in predicting that Crestor will eventually sell $2.5 billion a year as a result of hypolipidemic market growth and patent loss for Zocor and Pravachol.

I’ll step in to referee this soon, but let it be known that I’m with Oliver Stone and believe that there was more than one shooter in Dallas in 1963. And I’m somewhat with Noam Chomsky when he says that the Media "manufactures consent" based on knowing which side its bread is buttered, and he wouldn’t be quite as comfortable as some with the chinese wall between The Lancet‘s editorial board and its advertising business manager.