Vivus’ new obesity drug: Will it get scooped by generics before it even hits the market?

This past Wednesday, the FDA approved Belviq, the recently renamed obesity drug from Arena.  It wasn’t a huge surprise since the FDA review panel gave a strong 18-4 vote of support for its approval.  Interestingly, it doesn’t appear that the REMS requirement for Belviq is all that onerous (something I commented on in my last blog post), so Arena looks like they have a real winner on their hands.

The next obesity drug up for approval is Qnexa from Vivus.  I’ve written about Qnexa in the past (here and here) and it’s been a long journey for Vivus with an initial rejection from the FDA, negotiations over new clinical trial data requirements and a refiling of the NDA.  However, after all that, it looks like Qnexa will be approved based on the 20-2 vote by the advisory panel.  And that’s a good thing!  The clinical trial data for Qnexa is actually much more positive than that for Belviq.  Almost 50% of patients taking Belviq lost at least 5% of their body weight (average of 5.7% overall), while 50% of patients taking the highest dose of Qnexa lost at least 15% of their body weight (average of 14.4% overall).  You’re probably thinking, “Wow!  Vivus has the obesity market cornered!!”.  Not so fast, Vivus may get scooped by generics before they even sell their first pill.

Unlike Belviq, which is a new chemical entity and covered under numerous patents which prevents other drug companies from making and selling the active ingredient, Qnexa is a combination of two drugs that are already available as generics (phentermine and topiramate).  The highest dose of Qnexa contains 15 mg of phentermine and 92 mg of topiramate.  A quick internet search reveals you can get a bottle of 100, 15 mg tablet of phentermine for $142 and a bottle of 120, 100 mg tablets of topiramate for $204, a cost per day of slightly over $3 or $90/month.  Yikes!  That’s some stiff competition for a branded drug where a price of $150-200 for a month of therapy is seen as a being “on the low end”.

However, Qnexa does an advantage that the generic drugs do not: Qnexa is a controlled-release combination of phentermine and topiramate (this formulation is no doubt patented).  This has the benefit that patients can take the drug less frequently and the levels of the drug in the body are much more stable since the dose is slowly release over a period of time.  When treating obesity, where food craving and appetite can vary over the course of a day, this is significant advantage.  However, it remains to be seen if a physician could simply have the patient split the dose of generic drugs, take it twice a day and see similar results as the sustained-release Qnexa.  I have no doubt that physicians will give it a try (or are already trying it).

Two factors will determine the impact of generic phentermine and topiramate on Qnexa’s sales: the price of Qnexa and how insurance companies respond to it.  If Qnexa hits the market at a modest premium, say $100 – $120/month, I predict that insurance companies won’t balk at it.  They won’t like it, but they’ll also judge the difference in price as too small to devote resources to controlling.  However, if the price goes much higher, say $150+, insurance companies will take notice and start to implement some controls that could significant curtail Qnexa sales.

Now insurance companies can’t force a physician to prescribe generic phentermine and topiramate instead of Qnexa, since neither is approved for use in weight loss (physicians on the other hand, are free to prescribe drugs for off-label use).  However, insurance companies have the ability to heavily incentivise the use of particular drugs through things like co-pays, step-edits and prior authorizations.  The really big risk for Qnexa is the co-pay.  Insurance companies typically have “tiers” for their prescription drug coverage that look something like this:

Tier 1: Generic drug: $10 co-pay

Tier 2: Preferred branded drug: $40 co-pay

Tier 3: Non-preferred branded drug: $65 co-pay

Tier 4: Specialty drug: 20% co-insurance

If we imagine a scenario where Qnexa is priced at $120/month (which is way lower than what I think they’ll price it at), insurance companies won’t complain too much about the cost and may choose to put it on tier 2.  However, patients will see a significant difference in out-of-pocket expense for Qnexa vs. generic phentermine and topiramate.  If a doctor prescribes Qnexa, the patient would pay around $40/month for the prescription.  If a doctor prescribes generic phentermine and topiramate, the patient only pays $20 per month ($10 for each prescription).  Over a year, that’s a difference of $240, not a lot, but enough to provide some incentive to take the generics.  If Qnexa gets price higher than $150, insurance companies may put it on tier 3, where patients are paying $45/month more than the generics for a difference of $540/year.  That is a significant amount of money in most people’s books and enough to get patients to ask their physician to prescribe the generic combination.

Either way you cut it, Qnexa, despite have a clear clinical benefit for obese patients, may have a hard time reaching the multi-billion dollar a year sales estimates that have been floating around.  When the FDA makes its final call on Qnexa on July 20th, keep an eye out for the price Vivus settles on because it will have a huge impact on how successful (or unsuccessful) the drug becomes.

If the FDA approves the new obesity drugs, will REMS crash the party?

Wow!  A lot has happened since my last blog post.  Two of the three new obesity drugs up for approval (Qnexa from Vivus and Lorquess from Arena) both received positive responses from their respective FDA advisory panels despite all of the pessimism from outside observers.  Of course, both drugs have yet to be officially approved by the FDA and they could still be rejected, just ask Intermune.

However, I refuse to be one of the pessimists and I do believe that at least the one of the two drugs will get the FDA’s stamp of approval, if not both.  However, before everyone breaks out the champagne and starts celebrating, we need to talk about something called REMS.

REMS stands for Risk Evaluation and Mitigation Strategy and was brought into effect through the 2007 Food and Drug Administration Amendments Act.  It was introduced to allow the approval of drugs that have a both an obvious benefit, but also substantial risks.  Think of it as a finger that tips the risk-benefit scale more to the benefit side.  REMS provides an additional level of control over drugs that otherwise couldn’t be approved for unrestricted use in the general population. If you’re interested in a more detailed overview of REMS, there are some great summaries here and here.

I’m sure you’re wondering what these controls look like. Well, they come in a number of different flavors.  Here is a list of typical REMS requirements, starting from the least onerous:

  1. Medication guide
  2. Communication plan
  3. ETASU (Elements to assure safe use)
  4. Implementation system

The most basic REMS is a medication guide.  The guide provides additional information for the prescriber so that they are completely informed of the risks and benefits of the drug and can fully inform the patient taking the drug.  It lays out the concerns around adverse events and procedures the prescriber can follow to minimize those risks.  The manufacturer provides a draft guide to the FDA, who, if satisfied it contains all the necessary information, approves it.

Pretty simple so far, right?  Medication guides are the most common type of REMS and account for around 2/3 of all the drugs that have REMS requirements.  The other 1/3 aren’t so lucky, some of those have ETASU requirements.

The types of controls within an ETASU can also vary.  They can be as simple as providing formal training for the prescriber so that he or she understands how the drug should be administered, how to educate the patient and how to recognize and report any adverse events.  However, on the other end of the spectrum, ETASU controls can also limit who can prescribe the drug, which pharmacies can fill the prescriptions and where the drug can be administered.  Where the problem comes in is that you can’t just have these controls, you need mechanisms in place to make sure they are being followed.  This requires pharmacists, nurses, physicians and hospitals to take on an incredible administrative burden and a burden that they don’t get reimbursed for.  That is how REMS can really put the squeeze on a new drug.  If you are a physician who has the choice of prescribing a drug where all you do is write a script versus a drug where your staff has to spend an hour filling out forms just so that the patient can drive across town to the one pharmacy that stocks it, which one would you prescribe?  Even if a drug with an onerous REMS is the only drug available to treat a condition, how often  will physicians think “I would love to use this drug, but I can justify the burden on me and my staff?”

Both Qnexa and Lorquess have the potential to be approved with a REMS requirement.  Qnexa contains topiramate, which is known to increase the risk of cleft palate in mothers who take the drug while pregnant.  REMS seems like a great way to keep Qnexa out of the hands of pregnant women, similar to Revlimid (which has an incredibly onerous REMS).  Lorquess has the FDA concerned about a possible increased risk of cardiovascular events and REMS would be a great way to collect patient data (through a registry) to determine if that risk is meaningful.

If either of these drugs ends up with strict REMS requirements, you can expect all those financial analysts to quickly revise their revenue estimates and the price of the companies’ stock to react accordingly.  So save your champagne until the FDA decisions come out on June 27th (Lorquess) and July 20th (Qnexa).  You may just end up saving it for New Year’s Eve.

Are small biotechs more productive because they have no other choice?

Over the last few years, much has been written about the poor R&D productivity of the big pharma companies.  There is a bit of a controversy as to whether or not small biotechs are truly more productive, but one can’t deny that many of the new drugs being launched didn’t originate from the labs of companies like Pfizer or Sanofi, but rather small, resource-constrained biotechs like Seattle Genetics (Adcetris) or Optimer (Dificid), to give a couple of examples.

Why is this?  Many theories have been bantered around such as biotech’s more collaborative culture, the agility of smaller companies or the science vs. financial-focus.  I think all of these ideas have merit, but I would like to examine another cause that I think many people overlook: small biotech companies don’t have a lot of other options.

Now before you say “Yeah, I’ve heard this before, it’s do or die at the small biotechs”, hear me out because that’s not quite where I’m going with this.

Let me start with an anecdote:  I was working on a diabetes drug at a big pharma company and during one of our meetings the project lead put up a slide that showed how far behind we were compared to the competition.  Our lead compound was in pre-clinical testing, while two of our competitors were already in phase II trials.  Yikes, we were at least 3-4 years behind.  Why was that?  It wasn’t because our program was having trouble, but rather because the program had been put on “pause” almost 5 years before while our resources went to other “higher priority” projects.  The project lead was understandably quite frustrated as he had been involved in that initial research and was now being asked “can you please do this faster?”

This type of thing goes on all the time at the big pharma companies; with research budgets in the billions of dollars, R&D portfolios are constantly re-evaluated and resources are reallocated.  From the top, this makes sense since why would you put $500M into project A, when putting $500M in project B gives you a bigger NPV (at least according to your model)?  The problem is, portfolio strategy is not an exact science and when one of those assumptions you made in your forecasting changes next month, your resource allocation can end up looking completely wrong.

Now contrast that with a small biotech company.  A handful of scientists and business folks find some promising technology and decided to develop it.  They spend months trying to line up financing and when they do, they have a nice pile of cash that has one purpose: develop the idea they started with.  Now this isn’t to say that development plans don’t change, because they do, but the thought never crosses their minds “Hey, maybe we should stop working on this compound and try something different, we can always come back to it.”  Even when things appear gloomy and failure seems almost certain, there is no real path other than forward.  They aren’t competing against another project for resources because there is no other project.  There is no opportunity to put things on “pause”.  Projects keep going until they either fail or the money runs out.

What is the consequence of this lack of options?  Projects that one day seem like a dead-end keep getting funded (for a while at least) and some of those turns out to be great ideas after all.  The same project in a big pharma company?  It gets shelved and may never see the light of day again.

How can big pharma fix this problem?  Well, the answer isn’t that straightforward.  As I mentioned, portfolio strategy is not an easy thing to get right and handing over a multi-billion dollar per year R&D budget to scientists to play with isn’t in the realm of possibility either.  What we are seeing is a strategy by big pharma companies to cut R&D budgets and use that cash to support academic research and emerging biotechs.  Is this the right strategy?  Only time will tell.

Pfizer’s Lipitor strategy worked… pretty well!

It’s been almost 3 months since Pfizer’s Lipitor lost exclusivity so it’s not a bad time to assess how the company’s strategy of maintaining market share has worked so far.  Keep in mind that Pfizer really broken new ground with this strategy.  Most R&D-based pharmaceutical companies practically abandon all sales and marketing efforts once a drug loses patent protection since within a month or two almost all of their market share is wiped out by the lower priced generics.  However, Lipitor is not your typical drug as shown by its $10B+ per year revenue numbers.  If Pfizer could keep even 10% of that market share, they would have a revenue stream that a lot of pharmaceutical companies would kill for.

Before we look at the numbers, how about a quick primer on how the generics market works?  When an R&D-based pharmaceutical company first gets a new (small-molecule) drug approved, it’s via a New Drug Application (NDA).  Based on either the patents around the new drug, or the market exclusivity awarded through the NDA, the company has the sole right to sell the drug.  The logic behind this right is that it allows a company to recoup the costs associated with R&D over a defined period of time.  The period of exclusivity ends when a generics company gets an ANDA (Additional New Drug Application) approved after the patent “runs out” (or sometimes before it runs out by proving the patent is invalid).

Now here is the important part.  The ANDA has its own period of exclusivity.  The first generics company to get an ANDA approved gets 180-days of exclusivity as the sole provider of a generic alternative to the branded drug.  Again, the logic behind this is to provide a financial incentive to offset the costs of getting an ANDA approved and that incentive is substantial.  During the 180-day period, the price of the drug drops only 10-20% (so the generic manufacturer gets almost the same profit margin as the branded-manfucturer did, but only for 180 days).  Once that 180-day period of exclusivity runs out, any generics company can get an ANDA approved and sell the drug, thus competition drastically increases and drug prices drop to maybe 10-30% of the branded drug’s price.  At this point, profit margins are razor-thin and the drug is basically a commodity.  Due to the rather steep price cuts that come along with generics, the brand name drug typically loses all of its market share within a month or two of the first generic hitting the market, as most brand name manufacturers have little interest in competing on price.

In the case of Lipitor, Ranbaxy was awarded with the first ANDA approval and with a little help from Teva, they were able to overcome some manufacturing (and regulatory) difficulties and got their generic version of Lipitor to the market just after Pfizer’s last patent ran out.  The other generic was a so-called “authorized generic”, which is in fact a generic version of Lipitor produced under the approval of Pfizer (which the rules allow).  That version is produced by Watson and Pfizer gets a pretty nice slice of that pie as a result of the arrangement (70% of revenues according to this article).

Now with all the background out of the way, how has Pfizer’s strategy fared so far?  Pretty good.  As of mid-February, Pfizer still has approximately 41% market share of all atorvastatin prescriptions.  If we run some rough numbers based on Lipitor sales for 2010 ($10.7B), a 41% market share would bring in over $2B in revenue for the 180-day ANDA exclusivity period (the only time Pfizer has a chance of keeping market share).  Lipitor had been slowly losing market share even before the patent expired, so let’s assume a more conservative $1.5B.  All of the effort that Pfizer put into keeping market share (PBM contracts, co-pay cards) doesn’t come cheap, so let’s knock the figure down to $1B.  However, Pfizer’s cut of sales from Watson’s authorized generic (which by some simple math has about 20% of the market) probably pushes that up to $1.25B.

Not bad at all!  Rather than leaving Lipitor to the generics companies, Pfizer spent a little time and money and has successfully held onto a sizeable chunk of the market and gets to put another $1B or so in the bank.  A wise investment by any stretch of the imagination.

What will be interesting to see is if any of the other R&D-based pharmaceutical companies follow suit.  There are some big drugs going off patent in 2012 (Seroquel, Plavix, Singulair) and Pfizer may have just proven that a little effort can provide some big pay offs.  Keep a look out for more stories like this in the coming year!

UPDATE (3/15/2012): Adam Fein over at Drug Channels just put up a great post about Pfizer’s Lipitor strategy and it has some more recent data.  I suggest you check it out!

Has pharma been doing R&D wrong all these years?

You can’t keep up on the latest biopharmaceutical industry news without hearing about the crisis in R&D productivity.  Basically, the amount of money being spent on R&D by companies has been growing at a rapid pace, but so far productivity, as measured by the number of new products that reach the market, has not been keeping up.  In fact, it’s been pretty flat over the last 20 or so year as the graph below illustrates (link to source).  As a result, the cost of getting a new drug approved by the FDA has been pegged at north of $1B when you include all the money spent on projects that go nowhere.

What’s the reason behind his trend?  Well, a number of theories have been put forth:

1. All the “low hanging fruit” have been picked.  I honestly find this reason to be pretty weak.  Sure, we probably don’t need another opioid receptor agonist/antagonist and I doubt there is much use in finding another M1-muscarinic receptor agonist, but considering how little we know about the biological systems that make up the human body I find the idea that we’re running out of easy targets laughable.  There are plenty of easy targets out there that would produce a plethora of new drugs, the problem is we don’t know what they are.

2. The strategic shift from away from innovation to financial returns has killed productivity. There is likely something to this point.  However, this trend didn’t just start happening in the mid-1990s.  I was recently speaking with a gentleman who is getting close to retirement after spending most of his life in pharma.  He mentioned how in the mid-1970s he was working for Searle and a new CEO came in who completely thrashed R&D in order to improve the bottom line.  I have no doubt that a strategy that is overly focused on profit maximization can reduce R&D productivity, but I don’t think that’s the root cause of today’s problems.

3.  The recent spat of mergers and acquisitions has killed morale among R&D personnel. Again, I think there is something to this, but mergers and acquisitions aren’t a recent phenomenum either.  I personally witnessed the level of morale at a big pharmaceutical company during the multiple mergers that happened in the early 2000s and yes, productivity took a nose dive.  However, I don’t think this is the root cause of the drop in R&D productivity.

At this point you might be asking “Well, what is it then?”  I don’t claim to have the final answer, but a recent paper in Nature Reviews – Drug Discovery gave me pause because it backed up a hypothesis that I’ve been thinking about for the past few years.

The most logical way to approach this problem is to ask the question: When were things better and what has changed since then?  If we look back to the golden age of pharma, say the 1950s – 1970s, we see incredible productivity.  Entire drugs classes were discovered during this time including the benzodiazepines, antipsychotics, synthetic opiods, antifungals, etc, etc.  Janssen Pharmaceuticals alone discovered over 70 new chemical entities over a 40 year period starting in the 1950s, with many of those occurring in the earlier years.

So what changed since then?  Well, the Nature paper discusses the shift in R&D strategy from phenotypic-screening to target-based screening.  In layman’s terms, it was the change from screening drugs based on the response they produced in living tissue or an organism to screening drugs based on the effect they produced on a drug target (typically a receptor or enzyme).  Phenotypic-screening is how the benzodiazepines were discovered.  The first benzodiazepine, chlordiazepoxide, was not made because they thought it would make for a good anxiety drug, it was an unexpected product that was produced during a chemical reaction.  The chemical was then administered to a laboratory animal (likely a mouse or rat) and the sedative effect was noted.

Contrast this with the drug discovery strategy that is typically seen today in pharmaceutical companies: researchers isolate a drug target that is believed to play a role in a disease and then the chemists and biologists go about making new chemicals that interact with the receptor in a particular way, optimizing for solubility, logP and all the other metrics that make for a good drug.  At this point they have no idea if the drug actually works, they only know it interacts with the target.  They then move to animal models of the disease and try to confirm efficacy, which if successful leads to the drug being tested in humans.

The key difference between these two drug discovery strategies is that the first (phenotypic-screening) ignores how the drug works and just focuses on if it works.  Target-based screening focuses on knowing how the drug works, not if it works (yes, I’m painting with a broad brush here, but bear with me).  Now, if you’re in the business of discovering new drugs that interact with biological systems that you have little understanding of, which makes more sense as a strategy?  Which is more likely to lead you to the discovery of a new class of drugs?  It’s really a choice between trying to expand on current knowledge (target-based screening) and throwing a hail-mary and trying to find something you never knew existed (phenotypic screening).

If you’re at all interested in this topic, I strongly encourage you read the Nature paper (it’s open-access) and look at some of the data that the authors uncovered.  They do a much better job of explaining the trade offs between the two methods and came up with some pretty interesting evidence that the shift away from phenotypic-screening has had direct consequences on R&D productivity.

Maybe it’s time for pharma to look to the past for guidance on how to suceed in the future?

More Lipitor news: Ahhh… that’s why independent pharmacists are mad!

Yet another updated on the Lipitor-is-going-generic saga.  Rather than reiterating what I said in prior blog posts, I’ll just add some interesting tidbits of information.

Over at the drug distribution blog DrugChannels (highly recommended), Adam Fein posted some very interesting commentary on the Lipitor story.  When the news about Pfizer’s agreements with major PBMs to get preferential treatment for Lipitor, even after the generics became available (in some cases the PBM wouldn’t reimburse for the generic at all), a group called Pharmacists United for Truth and Transparency (PUTT) had this to say:

The statement called the move “a blatant attempt” by benefit managers to keep Pfizer’s discount while employers still have to pay the full price of the brand-name drug.

Hmmm…. that’s awfully heartwarming that a group of pharmacists decided to look out for employers who offer drug coverage.  However, if you dig a little deeper, you’ll see there is a “healthy dose of economic self-interest” in play here, as outlined in Adam Fein’s blog.  What is of particular interest is this chart Adam put together…

Now things become a little clearer!  PUTT says they are outraged that employers will be stuck paying higher drug prices if Lipitor is used instead of the generic (which, by the way, they have no proof of), but I would hazard to guess that some of their anger comes from the fact that they are missing out on those juicy margins they usually make during the 180-day exclusivity period.

If you want to see how contentious this issue of pharmacy margins can be, check out the comment section of a another blog post by Adam here.  Who knew drug distribution strategy could elicit such emotion?

Update: Pfizer and Lipitor (Show me the money!)

I posted a few days ago about Pfizer’s strategy for dealing with the upcoming loss of exclusivity for it blockbuster drug Lipitor.  Well, there is more news on that front, this time concerning the Federal Trade Commission’s (FTC) interest in the deals Pfizer made with pharmacy benefit managers (PBMs).

As reported by Pharmalot, the FTC has started calling around, asking about the details of the contracts.  It’s not an official investigation yet, but does show that the federal government is concerned that Pfizer is participating in anti-competitive practices.  However, if you read the letters from the PBMs to pharmacies that were leaked, it does appear that Pfizer (through the use of discounts) is making the continued use of branded Lipitor the cheapest option out there.  If you check out page three of the link, you’ll see that Catalyst Rx is being offered a 31% discount, which bring the cost of Lipitor for the insurance company to just under what generic Lipitor would cost in the first six months after the patent expires.

In addition, it appears that my guess that Medco was passing on all of the discount to the insurance provider was correct.  Coventry (which relies on Medco to manage its pharmacy benefits) had this to say…

A Coventry spokesman confirms the deal was cut directly with Pfizer. “Most of Coventry’s fully-insured members will save money on Lipitor when we pass on the savings by lowering their pharmacy co-pay to the amount they would pay for the generic. We think our members will appreciate the change and lower co-pays, but it also reduces our bottom-line cost of Lipitor, which helps Coventry keep coverage more affordable.” He declined, though, to offer any specifics.

So it would appear that Pfizer is isn’t doing anything underhanded at all.  They are providing discounts which makes Lipitor the lowest cost option, even after generic become available.

However, the question remains, why is Pfizer doing this?  Is it simply to cash in on another 6 months of Lipitor profit (albeit at a lower margin and smaller overall market)?  That could be, but I would guess that this the first stage of a multistage strategy to keep Lipitor profits flowing (or at least a significant portion of them).

As I mentioned in my previous post, keep an eye out in the next 3-4 months for news about Lipitor and Pfizer.  If there is a long-term plan involved, Pfizer should start rolling out the next stage soon.