COX-2 inhibitors may have fallen from grace in the eyes of patients and doctors, but companies that once dominated the market are still big believers.

An FDA advisory committee last week gave its blessing to Pfizer's well known osteoarthritis drug, Celebrex (celecoxib), to treat juvenile rheumatoid arthritis. Novartis has released additional safety data on Prexige (lumiracoxib), which is awaiting FDA review. And even Merck, still nursing its wounds from the Vioxx debacle, is pursuing another COX-2, Arcoxia (etoricoxib), also awaiting FDA review.

Companies are forging ahead with COX-2 innovation, despite skepticism. Even if FDA green lights the pending applications, analysts balk at the idea that the category will ever return to its former glory. Some observers also suggest that the drugs could become test cases for new post-marketing safety initiatives that the agency has been trying to put in place--but has had trouble enforcing.

"The public is scared of them," said Mary Anne Crandall, an analyst at market research firm Kalorama Information. "I think they're still going to question their doctors, and physicians are going to be much more conservative about prescribing these drugs."

Yet at the same time, she said she was surprised that Celebrex's financial performance managed to exceed expectations. In the third quarter alone, Celebrex had sales of $537 million, a 20 percent increase over the same period in 2005. The drug has recaptured about three-quarters of the sales it had before the withdrawal of Merck's Vioxx (rofecoxib) cast the category into a tumult.

Nevertheless, new COX-2s still face regulatory hurdles, as well as a number of public relations challenges. Outspoken COX-2 critics like Drs. Steven Nissen, who heads cardiology at the Cleveland Clinic, and David Graham, the FDA whistleblower, have pushed for FDA to accept more authority for monitoring these drugs post-approval.

FDA, for instance, might question Merck's use of diclofenac to benchmark the heart risks of Arcoxia; the decision sparked controversy since the NSAID isn't what's known as a "first path" treatment in the United States.

"They have a long uphill battle," said Ed Vawter, president of consultancy QD Information Services, of drug makers pursuing COX-2 development programs. "Is it worth continuing to push [an R&D platform] forward?"

New clinical data, however, might be the saving grace for the class. More evidence has come to light about why COX-2 inhibitors pose heart risks. In the journal 

, researchers write that the drugs reduce production of prostacyclin and increase thromboxane--which dilate and constrict blood vessels, respectively. The findings could usher in the next generation of COX-2 drugs that have the same anti-inflammatory benefits but fewer side effects.

"That's going to be the key issue to keep an eye on: Is it all COX-2 inhibitors or just some COX-2 inhibitors" that pose heart risks? Vawter noted. "The jury's still out on that."

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Pfizer, Novartis--and even Merck--are putting the past behind them, and moving forward with COX-2 innovation.

Let Bygones Be Bygones

While Big Pharma struggles to determine whether the best business model is diversification or pure-play, Novartis appears to be playing it straight down the middle.

After it was leaked last week that the Swiss company is in negotiations to sell its Gerber baby food unit and other medical nutrition products to Nestle, Novartis insisted that it is not undergoing a major strategic shift and pledged to remain diversified.

The company is likely to reinvest profits from the sale--which could be as high as $5 billion--into its prescription drug business. But it will remain a player in the consumer space, focusing exclusively on its OTC brands.

John Gilardi, a spokesman in Novartis' Basel headquarters, declined to comment on what are still "market rumors" at this point. But Gregory Parekh, who heads the company's M&A group, told 

 that Novartis' strategy is to spread its assets across a few core areas.

"If you look at the big M&A deals that Novartis has done," he said, "they've been to build key strategic positions in areas with fast growth rates."

Novartis has identified those areas as branded drugs, generics, and vaccines. The three areas have compound annual growth rates of 5, 10, and 15 percent, respectively. The company has 138 clinical projects in development, and has described itself as having the strongest pipeline in the industry. Medical nutrition, meanwhile, with flat growth in 2005, is considered a non-core area.

Yet consumer brands--and OTC products in particular--remain an important part of Novartis' balance sheet. The company last year purchased Bristol-Myers Squibb's consumer business and today has a healthy portfolio that includes such brands as Maalox, Excedrin, and Triaminic.

Novartis' consumer business grew to $1.9 billion last quarter, with much of the growth attributed to OTC products. In contrast, pharmaceuticals earned $5.7 billion for the quarter, generics $1.4 billion, and vaccines $374 million.

While consumer products are generally less profitable than prescription drugs, retaining that business can provide some stability for companies facing the uncertainty of R&D and regulatory hurdles.

Case in point: Pfizer. In June, the company decided on a more pure-play pharma approach, selling off its consumer brands to Johnson & Johnson for $16.6 billion. Although Pfizer garnered praise from analysts at the time--many said J&J overpaid--the world's largest prescription drug maker may be kicking itself now, in light of Saturday's news that it would suspend Phase III trials for torceptrapib due to an increased rate of mortality.

"I do think there's a legitimate argument that the ethical pharmaceutical business has gotten a lot riskier over the past 10, 15 years," said Peter Young, president of specialty investment-banking firm Young & Partners. "No one yet--none of the big firms--has shown that they know how to repair a business model that has been broken."

In addition to providing protection from the volatility of drug development, points out Elgar Peerschke, head of the global healthcare practice at Bain & Company, OTC products may experience a lift in the coming years, as consumer-directed healthcare takes shape.

Possible sale of medical nutrition unit would not mark change in business model for the diversified drug maker.

Pure Diversification

Pfizer's aggressive reorganization plan shifted to crisis control last week as its senior leaders halted trials on the company's most promising drug compound. Torcetrapib was slated to help Pfizer overcome billions of dollars in patent expirations and sluggish top-line growth, and breathe life into a therapeutic category that's been virtually void of innovation since the late-1980s advent of statins.

Now, it appears Pfizer's decision to reduce the size of its sales force by 20 percent may be just the tip of the iceberg as the drug giant struggles to get back on its feet. Pfizer has one of the most anemic pipelines among the 12 largest drug companies, according to an analysis from research firm EvaluatePharma, which compared compounds in development to 2005 sales.

Pfizer halted clinical trials on torcetrapib, designed to increase levels of "good cholesterol," due to an increase in mortality among study participants--nearly 50 percent more deaths in the torcetrapib group than the one that took Lipitor (atorvastatin) alone. Investigators are still trying to make sense of what caused the increase in deaths, leaving not just Pfizer, but also Merck, Roche, Abbott and other companies with HDL-raising drugs in their pipelines wondering how to proceed.

Pfizer executives appeared to be blindsided by the trial results, which were delivered from independent monitors observing the trials. The company's senior leaders had come out swinging for the drug at an R&D briefing a mere two days before the devastating news.

The loss of torcetrapib will accelerate Pfizer's cost-cutting efforts. Still, it remains to be seen how competitors will react--follow suit or try to capitalize on Pfizer's setback.

Pfizer has been trimming its sales and marketing operations since late last year, when observers first suggested that the rest of the industry would begin similar cutbacks. Although many of its competitors--like Johnson & Johnson, Novartis, Wyeth, and Bristol-Myers Squibb--did reduce the size of their sales teams, others, like Boehringer-Ingelheim, Takeda, and Reliant, added significant manpower, according to Verispan.

Despite the cuts, the overall size of the industry's sales forces remained flat last year, topping off at just over 101,000 reps nationwide.

Other companies closely watch Pfizer because of its reputation as one of the savviest marketers in the industry. Yet few drug makers can afford to staff their sales forces the way Pfizer does. While some analysts have predicted widespread layoffs in light of Pfizer's recent trimming, "that might not be the case," said John Kain, vice president of marketing at ImpactRx. "It's going to take a lot of time to shake out."

Sales force staffing depends on a multitude of factors, most importantly, where a company's lead products are in their life cycles. Pfizer lost patent protection on Zithromax (azithromycin) and Zoloft (sertraline) this year, and is facing patent expirations on Norvasc (amlodipine) and Zyrtec (cetirizine) in 2007.

"This is something that you could see coming," Kain said. "They're recognizing that they're not getting the same ROI in their sales force."

Pfizer has about 10 percent more sales reps than its closest competitor, GlaxoSmithKline, according to Verispan, and the company remains a formidable marketing force.

Still, what might go by the wayside is the tactic of using multiple sales reps to call on the same physician. "Pfizer pioneered the 'multiplex' sales call," said Mark Bard, president of Manhattan Research. "Part of the problem is an access issue."

Physicians have less time to spend with sales representatives, and are finding that they can find the same information from other sources. Electronic programs, like Pfizer's MedNet Web site, can provide many of the services that reps previously offered, such as facilitating sample orders.

At Pfizer headquarters, officials are trying to soften the blow, pledging to bring six new products to market each year starting in 2010. They will also in-license compounds to help account for gaps in the company's pipeline.

Nevertheless, cost-containment measures are also on the agenda, and will be "accelerated" in light of this weekend's torcetrapib news, according to a company statement. "Pfizer will focus on its core research and development, manufacturing and commercial operations, as well as procurement and other areas, to improve efficiency and lower its costs as expeditiously as possible," the statement said, leaving industry watchers wondering if others will do the same.

Pfizer's torcetrapib blow shifts cost-cutting measures into overdrive, causing all of industry to reevaluate staffing, marketing spend, and the viability of a potential cardiovascular breakthrough.

Pharmaceutical Executive-12-06-2006

Let Bygones Be Bygones

Pure Diversification

The Ripple Effect