This year we will see three more big drugs go generic: two Pfizer drugs, Zyrtec for allergy and Norvasc for high blood pressure
and angina, and Merck's Fosamax for osteoporosis. And as the business media are at constant pains to point out, there has
been no concurrent improvement in the rate of powerhouse-drug approvals. The number of new molecular entities and biologic
license applications OK'd in 2006 was consistent with levels seen since 2000 (see "New Drug Approvals"). There have been,
to be sure, many important, even lifesaving, therapeutic advances. But only a handful of new products are expected to be blockbusters
with the volume of earnings equal to those lost along with patents. Meantime, the explosion in generics has not only raised
the stakes of business development for each company but increased competition among them for deals.
No matter how desperate it is to fill pipeline gaps, a company will obviously only license products with a reasonable chance
of commercial success. While there can be a great deal of interest in true innovation, such as a compound with a new mechanism
of action, many firms understandably prefer a safer, less ambitious fast-follower strategy, licensing the second, third, or
fourth product in a class simply to gain a piece of the revenue pie.
Yet fast followers, by definition, tend to quickly fill up a category, and the promise of a fifth, sixth, or seventh me-too
drug pales unless it boasts a distinct advantage, such as easier administration, new delivery, or fewer side effects. Even
such long-running classes as the atypical anti-psychotics for schizophrenia, selective serotonin reuptake inhibitors for depression,
and statins for cholesterol are all now hitting a ceiling (see "Trends in Treatments"). As a result, a company aiming to enter
these mature markets for the first time has only two options when it comes to licensing innovation: delivery technologies
or a less established therapeutic area. This situation drives many firms to look elsewhere for promising R&D, especially first-in-class
compounds and new combinations of existing products.
In licensing and acquisition deals, deep pockets matter every bit as much as supply of innovation and pipeline demand. When
the financing window is open for a small pharma or biotechnology company, it may continue to fund development of its product,
hoping to increase the value of its assets. But when cash is tight, it is likely to be more willing to out-license in order
to move the drug forward. On the other side of the deal, when a large company has a significant reserve of money, it can either
pay more upfront for licensing rights or opt to acquire an entire company outright.
Recently, the cash-on-hand factor has favored large pharmaceutical and biotech companies, partly due to the US government's
2005 program to repatriate foreign earnings. As a result, the trend is up for large companies making large purchases for late-stage
products. Last September, for example, Pozen received a $40 million upfront payment from AstraZeneca to co-develop and co-market
a single-tablet combo of esomeprazole magnesium (a proton pump inhibitor) and naproxen (a non-steroidal anti-inflammatory).
Then, last December, GlaxoSmithKline paid $100 million to Genmab to co-develop and co-market ofatumumab, a humanized monoclonal
antibody with potential applications in both immunology and oncology.
The size of acquisitions for early-stage technologies has been, if anything, even more impressive. Consider Merck's $1.1 billion
purchase of Sirna Therapeutics and Pfizer's $500 million purchase of Rinat Neurosciences Corp.