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Why Is the Blockbuster Model Breaking?

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The pharma megablockbuster model is dead. Rest in peace.

It isn't that drugmakers wanted to kill it. Drugs that hit the multibillion-dollar sales level typically produce higher margins than other drugs. It doesn't cost that much more to market a $5 billion drug than it does to market a $750 million drug.

But alas, investors will need to plan for the future when megablockbusters are the rare exception.

Where's the innovation?
Some people will argue that the problem is simply that drugmakers aren't innovating, perhaps because all the easy discoveries have already been made.

There's probably some truth to that. Some drugmakers have taken to developing me-too drugs as a less risky way pathway to development since the targets of the drug are already validated. Without innovation, drugs are only going to rack up a fraction of the sales of the first-in-class drug that preceded it. For example, sales of Merck's (NYSE: MRK  ) Januvia/Janumet franchise in 2012 were $5.7 billion, while Bristol-Myers Squibb (NYSE: BMY  ) and AstraZeneca's Onglyza/Kombiglyze franchise, which targets the same DPP4 molecule, amassed a little more than $700 million.

We've treated this before
The bigger problem that I see isn't necessarily innovation, but the competition that drugs face once they hit the market. Being first-in-class doesn't guarantee sales anymore.

First, there's the competition before drugs ever get to the market. For some diseases, such as diabetes, placebos aren't allowed, and drugmakers must compare their drugs to a currently approved drug. Can't beat the current offerings? Sorry, game over.

When drugs offer a benefit, it's often slight. Once they hit the market, they have to compete with drugs that doctors are already comfortable prescribing. I think this is the number one reason for the recent rash of slow drug launches.

In addition to the doctor's comfort with safety and efficacy, new brand drugs often have to compete on price with generic versions of drugs that came before them. When generic versions of Merck's Zocor hit the U.S. market in the middle of 2006, sales of Pfizer's (NYSE: PFE  ) Lipitor slipped. Now that generic Lipitor is on the market, we're seeing the same issue with AstraZeneca's Crestor. U.S. prescriptions of Crestor were down 6% in the fourth quarter, despite a 2% increase in total prescriptions for statins, the class of drugs that Crestor, Lipitor, and Zocor belong to.

Exception that proves the rule
Obviously, the corollary should also be true. A drug should do pretty well if it enters a large market where the standard of care isn't very effective and there aren't any competing generics, which is exactly what we saw with Vertex Pharmaceuticals' (NASDAQ: VRTX  ) Incivek.

Sales of the hepatitis C drug hit $420 million in its first full quarter on the market. Annualize that out and you've got a megablockbuster. Sales have pulled back some, but that's just a function of the hepatitis C market -- where drugs cure patients -- so sales are completely dependent on new patients starting medication.

Four singles still scores a run
The death of the megablockbuster isn't the end of the world. Drugmakers can still hit one out of the revenue park; it's just going to take a few drugs to get to the same sales level that one megablockbuster could hit.

The multidrug approach will cut into the bottom line. Developing multiple drugs costs more for R&D than one drug, and margins are likely lower for drugs at lower revenue levels.

But pharma is working to be more efficient with its R&D dollars, going after orphan indications where clinical trials can be cheaper to run for instance. They're also working on increasing the likelihood of success by limiting money spent on drugs that are bound to fail. Amgen's (NASDAQ: AMGN  ) strategy is to "pick winners" by developing drugs with a solid genetic basis, which should increase the likelihood of success.

If pharma can pump out the drugs and the FDA doesn't tighten the approval strings, investors might not feel the need to erect a shrine at the megablockbuster's gravesite.

Can Merck beat the patent cliff?
This titan of the pharmaceutical industry stumbled into 2013 and continues to battle patent expirations and pipeline problems. Is Merck still a solid dividend play, or should investors be looking elsewhere? In a new premium research report on Merck, The Fool tackles all of the company's moving parts, its major market opportunities, and reasons to both buy and sell. To find out more -- and get a full year of free updates -- click here to claim your copy today.

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  • Report this Comment On March 01, 2013, at 8:24 PM, chocolatecracker wrote:

    ILNS works with VTRX Intellect Neurosciences Issues Letter to Shareholders

    NEW YORK, Feb 13, 2013 (GLOBE NEWSWIRE via COMTEX) -- Intellect Neurosciences, Inc. (OTCBB:ILNS), a biopharmaceutical company engaged in the discovery and development of treatments for the prevention and treatment of neurodegenerative diseases, issued the following Letter to Shareholders from Dr. Daniel Chain, Chairman and CEO.

    Dear Shareholder,

    I am quite pleased by the progress we made in 2012 despite various challenging setbacks we experienced during the year. We put the funds we received from ViroPharma to good use, on the one hand by significantly reducing our liabilities and on the other with the following achievements:

    -- We filed several new patent applications to protect our product candidates and technology platforms;

    -- We in-licensed new technologies, including two antibodies that target early neurotoxic forms of tau protein, which have application for therapeutic and diagnostic uses;

    -- We initiated an important collaboration with the University of California, Irvine's Dr. Frank LaFerla, Chancellor's Professor and Chair, Neurobiology and Behavior School of Biological Sciences, Director, Institute for Memory Impairments and Neurological Disorders, as well as Dr. Kim Green and his team;

    -- We appointed world-renowned antibody drug developer, Dr. Dan Shochat, as Consultant, VP Development;

    -- We developed a detailed road map and signed a Letter of Intent with Lonza regarding the manufacture of our antibody drug conjugate, CONJUMAB-A, which is being developed for age-related macular degeneration.

    -- We signed a Research Service Agreement with iNovacia to evaluate lead compounds for the CONJUMAB-A program;

    -- We initiated testing of our TauC3 monoclonal antibody in an Alzheimer's preclinical model; and

    -- We mounted a strong appeal against the patent challenge we face in Europe from Pfizer & Johnson & Johnson.

    We also initiated a lawsuit against one of our global pharmaceutical licensees to seek remedy for its failure to pay the $2 million milestone that was due upon the May 8, 2012 issuance of our ANTISENILIN patent by the USPTO. Based on discussions with our counsel following the recent motions and submissions by the defendants, our ability to prevail remains unabated.

    In 2013 we plan to move forward aggressively with our CONJUMAB and tau immunotherapy programs. These activities are expected to generate data that will increase the enterprise value of each program and attract new partnership opportunities that could result in substantial license revenues. This strategy is based on recent discussions with global pharmaceutical companies, several of which have expressed high levels of interest in these preclinical programs.

    An important event to anticipate in 2013 is the initiation of Phase 2 clinical trials with OX1 (VP 20629) in patients with Friedreich's Ataxia ("FA"), which we expect to occur mid-year based on statements Vincent Milano, CEO of ViroPharma, made during his presentation at the JP Morgan Health Care Conference in January. ViroPharma intends to file for Orphan Drug Designation upon review of the Phase 2 proof-of-concept data. February 28 marks the sixth international Rare Disease Day in 24 European countries. We are pleased ViroPharma is collaborating with FARA (Friedreich's Ataxia Research Alliance) to raise awareness about FA and Rare Disease through the media. Intellect helped forge the alliance between ViroPharma and FARA and we are proud of our role in developing OX1 and highlighting its potential for FA.

    Pipeline activities:


    I am excited about the potential of our CONJUMAB antibody drug conjugate platform and the therapeutic potential of the lead program, CONJUMAB-A, for treatment of age-related macular degeneration (AMD). CONJUMAB is designed to empower chaperone-like monoclonal antibodies with cytoprotective properties for treatment of various forms of amyloidosis and other types of proteinopathies in which irregular accumulation of abnormally folded proteins causes oxidative stress and inflammation, resulting in irreversible damage and death of cells. This relates to many different diseases, including diseases of the eye (AMD, glaucoma, diabetic retinopathy), brain diseases (Alzheimer's disease, Parkinson's disease (PD), Huntington's disease, motor neuron disease (ALS) and Creutzfeld Jacob disease (CJD)) and peripheral diseases (multiple myeloma, systemic amyloidosis, familial serum amyloid neuropathies and isolated atrial amyloidosis). Numerous proteins, including, amyloid beta (Aβ), tau protein, huntingtin protein, superoxide dismutase, prion and transthryetin, become abnormally folded, making them potential targets for the CONJUMAB approach.

    Our lead program, CONJUMAB-A, offers an important advantage to the Aβ antibodies currently in clinical development for both AD and AMD by several large pharmaceutical companies. This is because those antibodies (e.g. solanezumab, bapineuzumab, gantenerumab, crenzeumab, RN6G and GSK33766A) are designed for a single purpose, namely to clear Aβ, while none act on the important secondary neurotoxic mechanisms, such as oxidative stress that causes most of the damage from Aβ. By contrast, CONJUMAB-A is empowered with a potent antioxidant. An important step in establishing proof-of-principle was the initial data generated through our collaboration with iNovacia to evaluate compounds synthesized by Lonza for Intellect. The data demonstrated the conjugation of the antioxidant molecule to an amino acid does not reduce its antioxidant activity. Pending adequate financial resources, these studies, which are almost complete, will allow us to select a drug candidate to take into development, providing the trigger for us to move forward with LONZA into an expanded manufacturing project, bringing us closer to the submission of an Investigational New Drug application.

    In principle, our approach could be applied to improve many different types of antibodies, such as those that previously disappointed in clinical trials. However, currently we are focused on optimizing CONJUMAB-A using our own humanized antibody IN-N01, which targets the N-terminus of Aβ. We believe IN-N01 to be superior to bapineuzumab because of its reduced potential to cause inflammation that results from our reengineering into an IgG4 class antibody.

    Among several potential indications, we have decided to focus on AMD since both AMD and AD share several similarities, while the eye offers less challenge for delivering the drug. Indeed, physicians routinely perform injections into the eye cavity. Moreover, AMD is the leading cause of blindness in people over the age of 55, most of who respond poorly or not at all to existing therapies. While the relatively recent introduction of anti-vascular endothelial growth factor agents, such as intravitreal bevacizumab and ranibizumab, appear to have improved the prognosis for patients with wet AMD, preclinical studies have raised a potential red flag on anti-VEGF therapies, suggesting that increasingly aggressive use in eye disease could trigger side effects and potentially cause long-term damage. Moreover, no one has been able to develop an effective treatment for dry AMD, which is a significantly larger population, as it is the precursor to wet AMD.

    Ample evidence has established oxidative stress as an important contributor in the pathogenesis of AMD and several studies have indicated antioxidant molecules can help reduce damage to the retina. Various Aβ-lowering and Aβ-neuroprotective strategies have demonstrated the ability to protect against damage in various models of retinal degeneration, including Aβ-specific antibodies. Two such antibodies, GSK933766A and RN6Gare being tested in Phase 2 AMD trials having demonstrated an ability to reduce damage to RPE cells in animal models following systemic administration. These data lead us to believe CONJUMAB-A has the potential to become a strong leader in the field based on its combined properties to remove Aβ and reduce oxidative stress when delivered in high concentrations directly to the eye.

    Tau Programs:

    Tau immunotherapy is gaining traction in the Alzheimer's field, and it has potential applications for many orphan indications, such as the many types of frontotemporal dementia, among other tauopathies.

    TauC3 is a monoclonal antibody that uniquely targets a shortened form of tau protein known as ∆ tau that nerve cells produce after exposure to Aß. ∆ tau forms fibrils much faster than full-length tau and has been demonstrated to be a precursor of tangles commonly found in the brains of AD patients, as well as in the spectrum of diseases classified as frontotemporal dementias. The experiments we are conducting with our collaborators at UCI aim to validate ∆ tau as a therapeutic target and establish the potential of TauC3 for the treatment of AD and other tauopathies. As recently announced, we have initiated in vivo studies from which we anticipate data in the third quarter of 2013. If positive, we could develop TauC3 either as a single molecule or antibody-drug conjugate using the CONJUMAB platforms.

    TOC-1 is a monoclonal antibody that selectively targets yet another pretangle form of tau known as oligomeric tau. Oligomeric tau are small aggregates of tau that are thought to be extremely toxic and occur very early in Alzheimer's disease and other tauopathies. We currently are working toward re-engineering TOC-1 to produce a more druggable form of the molecule. This work is being undertaken in collaboration with two separate contract research organizations in Switzerland and China.

    Patent news:

    Tau patents: Intellect has established its position as a leader in tau immunotherapy with the publication of two Tau patent applications, which are accessible on the Internet: Patterson et al. 2011 Antibodies Selective for Pathological Tau Timers and Prefibrillar Tau Oligomers and their use in Treatment, Diagnosis and Monitoring of Tauopathies, published March 3 2012 under Publication No. WO 2012/1493653 and Chain, 2011: Treatment of Tauopathies, WO 2012/106363 published November 15, 2012. We have received a Written Report in each case, but we do not generally respond to such reports that are non-binding until there is an action from a foreign patent office during the national phase filings based on the PCT applications. We plan to enter the national phase filings next summer.

    ANTISENILIN patents:

    For reasons that are unclear to us, Johnson & Johnson and Pfizer are continuing in their opposition to our ANTISENILIN patent in Europe, having responded quite aggressively to our appeal notice and submissions even after the bapineuzumab Phase 3 results were announced. We are considering our response and strategy leading up to the Oral Hearings in Munich, which we anticipate will be scheduled for early next year. Meanwhile, we are waiting for an Official Action from the EPO with regard to our pending divisional patent application that aims to overcome the formalistic objections raised in the opposition. If the EOP grants us a patent on this second application, the opposition becomes moot.

    We received a first official action from the USPTO to our continuation-in-part application in which we are seeking additional claims, including to the amino terminus of Aß. We believe the arguments from the Examiner are quite straightforward to address and we are preparing our response. If successful, the issuance of this second patent would trigger another $2 million milestone payment from certain of our global pharmaceutical licensees.

    Increased Public Awareness:

    We continue our efforts to increase public and investor awareness of Intellect through media outreach and other activities, including my participation as presenter at several international industry and investor conferences. These activities also comprise an important component of our business development strategy as it gives us the opportunity to meet potential pharma partners face-to-face. Intellect was selected to give a presentation at BIOEUROPE in Barcelona March 11-13 and I have scheduled several meetings with potential partners. I also am an invited speaker at the Asian Antibody Conference in Singapore, June 17-20.

    Recent articles about Intellect include in the January edition of Merger Markets, part of the Financial Times Group, and the Jerusalem Report carried a profile this week paralleling some of the challenges I have faced in developing treatments for Alzheimer's disease to those experienced by my father, Ernst Chain, who discovered the therapeutic properties of penicillin in 1939. Also in January, Neurotech Insights published my article regarding the highlights of the 2012 Alzheimer's Drug Discovery.

    One of our stakeholders recently told me he thinks Intellect is the cat with nine lives! Indeed, we have overcome quite a few setbacks that may have put an end to many of our peers. However, despite those setbacks - and being chronically underfunded - our pipeline has continued to grow while a myriad of important achievements give us hope for the future. We continue to suffer from an enormously undervalued stock which I believe is the result of a few shareholders who for some reason are not invested in the long-term growth of the company. This single factor - their lack of support - is the largest hindrance to raising the new capital needed to advance our drug programs to points of value accretion where they can be partnered. My biggest hope for 2013 is for all of our stakeholders to recognize the tremendous inherent value of Intellect's remarkable discovery engine, intellectual property portfolio and pipeline and license agreements that are the envy of many much larger companies. We urge them to help reverse the previous trend and make the good news events really count!

    Thank you for your continued support of Intellect and its important mission to create a world without Alzheimer's disease and other debilitating neurodegenerative diseases.


    Daniel Chain, PhD

    Chairman and Chief Executive Officer

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