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Global Warming
The Japanese Pharma League has spent almost $50 billion in a whirlwind year of foreign deals. But as the case of Astellas illustrates, becoming a global player in a game of catch-up will cost more than just money


Pharmaceutical Executive


Nearing the Patent Cliff

There's an irony to the fact that Astellas, Takeda, Daiichi, and Eisai are scaling up as the rest of Big Pharma scales down. Calling the Japanese Pharma League one-hit wonders would be unfair, but they have long lived off a slender yield of innovative blockbusters. And that means patent expirations pose as big a danger to them as to Pfizer or Sanofi.

"They have only one or two key global products and some nondynamic 'me-toos,'" says Decision Resources analyst Jackie Innes. "Their mature portfolio does well in Japan, thank you very much, but it does nothing in the US and Europe. There's enormous pressure to come up with new drugs that will sell here."

What's worse, their cash cows are due for the slaughter over the next few years, as US and European patents expire. Eisai's Alzheimer's blockbuster, Aricept, loses protection in 2010. Last year the company had revenues of $6.6 billion; for 2011, even assuming best-case revenue from the late-stage cancer drugs gained when Eisai acquired MGI, it projects sales of only $4 billion. And Takeda has two big tickets heading straight for the patent shredder: Actos, in 2009, and its ulcer drug, Prevacid, in 2011. By 2012, Japan's top drugmaker may see its $11.1 sales for 2007 cut in half. Astellas faces the same danger.

Inside the Medicine Cabinet

A leader in urology, Astellas makes Flomax and Vesicare, both of which treat urinary incontinence and have entertained TV viewers with DTC ads to make this hush-hush complaint comfortable, even amusing. Global Vesicare sales almost doubled last year to about $500 million, making up for ready-to-retire Flomax, whose sales fell to $1.1 billion. The firm has estimated that Flomax sales will drop by as much as 25 percent by 2011.

The fuel that drives Astellas' financial engine, however, is Prograf. Isolated in 1984 from soil containing a particular bacterium, Prograf is used during and after liver, kidney, and heart transplants to reduce the risk of organ rejection. The average US cost is about $1,500 a month.

Global sales of the product were $1.9 billion last year, up about 6 percent. Although its patent expired earlier this year, no generic has yet emerged to threaten Prograf's long-standing reign in this niche. Yet in anticipation of the inevitable, Astellas has whipped up Advagraf, a once-daily version of Prograf. Although approved in Europe, Advagraf has been delayed at FDA since 2005. Meanwhile, LifeCycle Pharma, a Danish biotech, has claimed superiority for its new immunosuppressant after a Phase II trial against Prograf in kidney-transplant patients. Astellas estimates that Prograf sales will sink to less than $750 million by 2011.

"Astellas is definitely over-reliant on Prograf," says Decision Resources' Innes. "Even though there is no generic yet, it shows you how exposed they are to risk."

Astellas execs acknowledge their predicament, though they frame it more optimistically. "The three key pillars of our 'Vision 2015' plan are transforming, partnering, and branding," says R&D head Fitzsimmons. "And 'transforming' is essentially the movement of the company away from relying just on Prograf."

Prograf is supported by a treasure trove of drugs in another narrow niche: hospital cardiology. Adenoscan and the just-approved Lexiscan are pharmacologic stress agents used in heart health imaging tests; Vaprisol is an injectable for the treatment of sodium/water imbalance; and Adenocard is an anti-arrhythmic. Astellas also sells two antifungals: Mycamine, which brought in $160 million in global sales last year, and AmBisome, a formulation of Amphotericin B. In dermatology, the company has Protopic, a version of Prograf used for eczema, which brought in $153 million; and Amevive, a psoriasis drug.

Meanwhile, the company owns the Japanese rights to global giants including Lipitor, Ambien, Micardis (for high blood pressure), Seroquel (schizophrenia), and Celecox (arthritis).

As luck would have it, in addition to Advagraf, the company has two other NDAs languishing in FDA "approvable letter" limbo: Telavancin, an injectable antibiotic for MRSA skin infections codeveloped with Theravance; and Kynapid, an IV anti-arrhythmic codeveloped with Cardiome.

Peering into Astellas's pipeline, its Phase III holds two novel compounds in urology and hospital cardiology, one to treat overactive bladder, the other an anti-thrombosis agent. Further back are compounds for dyspepsia, irritable bowel syndrome, and urinary tract syndrome, while the anti-infective franchise features agents for hospital-acquired pneumonia, herpes, and MSRA infections.

In Phase II, there are more novel compounds for diabetes, renal anemia, and cancer (a small-molecule survivin-blocker). And in Astellas' signature specialty, transplant-related immunosuppressants, there's Amevive—a psoriasis drug Biogen Idec was only too happy to unload in 2006 after lousy sales.

Such a portfolio and pipeline may seem respectable enough for a company that "has selected its own area and its own strengths," and is content with that. But industry dynamics have never been rougher. In response to Astellas' Q2 analysts' briefing, Credit Suisses' Fumiyoshi Sakai reported: "There is no drug in hand to follow overseas after Vesicare. We believe it is crucial for the company to take advantage of its marketing network developed in Europe, the US, and Asia to sell new drugs. But drugs developed in-house have been insufficient, and the company has not been licensing new drugs enough from other pharmaceuticals makers."

Citing J.P. Morgan calculations, AVOS's Jim Wahl says, "Astellas is projected to have peak sales in 2009, and then drop by 10 percent by 2012."

Investing in the Future

While each Japanese pharma is pursuing its own dealmaking strategy, a pattern is clear. According to Morrison & Foerster's Wicker, about a third of the deals are in oncology, with 10 percent each in the cardiovascular and autoimmune areas; the other half is made up of assets that fit into individual company portfolios.

But as far as buying protection from exposure to patent loss, the news is not great. "A good 50 percent of the deals are preclinical or discovery," Wicker says. "The rest are pretty much evenly split between Phase I, II, III, and licensings." Astellas, in particular, has made no notable late-stage purchase.

Part of the problem is that the best-looking deals have already been snapped up by US and European drug giants rushing to correct their own projected shortfalls. But another part of the problem lies elsewhere.

"For all the Japanese companies, it's not a question of whether they should go shopping but of what they should buy," says AVOS's Wahl. "For Astellas, it's also a question of, 'Are they buying the right things?'"

Astellas' sole acquisition since the merger is Agensys, a biotech founded and run by Donald Rice, an atypical CEO whose CV includes stints as Secretary of the Air Force; 17 years heading the RAND Corporation; and two years as an army captain during the Vietnam War. Though not a scientist, Rice speaks fluently about Agensys' expertise in antibody-based cancer biology. But when I ask him what attracted Astellas to Agensys, he becomes laconic. "Two things, probably," he says. "What we bring to the table and what synergies that creates for Astellas."

What Agensys brings to the table is a pipeline of monoclonal antibodies based on a portfolio of genetic targets supported by over 100 patents. "We have many antibody products based on these targets, so there are lots of shots on goal," Rice says. Astellas' millions buy it access to 30 different targets across 14 types of cancer.

As for synergies, "We're a fully integrated operation," Rice says. "From target and product discovery to manufacturing and Phase II," Rice says. "We ran the company in its private years as if we were trying to build the second Genentech."


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