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New Drugs Launches Aren't Moving the Needle

20 December 2013 in Trading Ideas

In the wake of years of tepid growth numbers, pharmaceutical makers have peppered the market with more new drug launches than anything that’s been seen in two decades.

In this case, however, demand has not followed supply.

As the Wall Street Journal reported over the weekend, new medicines are encountering a skeptical and cost-conscious marketplace.1

According to ZS Associates, of the 271 drugs launched since 2006, only 13 of them have notched yearly sales of $1 billion, down from 33 of 257 drugs introduced during the previous five years.

As the Journal noted, drugmakers are finding it hard to convince doctors, patients and insurers that new advances in medicines are worth the premium prices that are typical. That reluctance is particularly acute with regard to drugs for conditions that already have effective treatments.

The result? The increasing rarity of the “blockbuster” drug and an overall slump in the performance of new pharmaceuticals. Drugs launched between 2006 and 2010 averaged $143 million in annual sales three years after coming to market. That’s down from $208 million for the previous five-year period.

drug-patent cliffs motifAll of which means likely difficulty for drugmakers to withstand the hit they are taking from generic competition for previous blockbusters. Drugs with nearly $100 billion in sales are expected to lose patent protection between 2011 and 2015.

That, essentially, is also the central premise behind the Drug-Patent Cliffs motif, which has gained 1.4% this month and 50% so far in 2013. The S&P 500 has gained 1.4% in the past month and has risen 24.9% in 2013.

And as much as a crack against health insurers is usually always in season, there is evidence that they are also playing a role in favoring generics – and lower costs for patients — to the detriment of new-drug sales when multiple treatments are available. Earlier this year, 34% of payers surveyed by Zitter Health Insights said their default for a new product is to reject coverage or impose tough restrictions like prior approval.

The Journal article highlights the cautionary tale of Xeljanz, a new rheumatoid arthritis pill made by Pfizer. In this case, insurers have said they took steps to keep doctors prescribing older drugs because Pfizer’s drug, although novel with its pill formulation, didn’t provide enough of a benefit to overcome the proven track record of existing drugs.

As we all know, when you have the health insurance companies against you, progress is going to be tough sledding, to say the very least.

1Jonathan D. Rockoff and Ron Winslow, “New Medicines Emerge, but Few Blockbusters,” WSJ.com, Dec. 15, 2013.