StreetTalk: Trends to Watch in 2005

Blockbusters, generics, combination, and niche drugs? Even heftier health insurance payments? The rise of the Chinese market? The rise of nutraceuticals?
Jan 01, 2005

Brian O’Connell
I just hate predicting the future. To paraphrase Woody Allen on death, there's just no future in it. Those who try to gaze into their crystal balls and tell us what they see are just kidding themselves. As Peter Drucker once said, "We know only two things about the future: It cannot be known, and it will be different from what exists now and from what we now expect." Translated: Predicting the future is for suckers.

But even Drucker admits a forward-looking vision — studying the themes that will frame an industry going forward — makes good business sense. "It is futile to guess what products the future will want. But it is possible to make up one's mind what idea one wants to make a reality in the future and to build a different business on such an idea."

Make your own reality in the future . . . now there's an idea I can get behind. For the biopharm sector, making your own reality should be a top priority. But first, you have to know what trends are likely to gain strength as the new year progresses.

Here's my stab at what will really matter in 2005. Not predictions, per se, but themes and issues that should rise to the top of the industry this year.

Combination drugs. Some industry observers liken combo drugs to Reese's Peanut Butter Cups. The idea behind combo drugs is that two drugs work better than one. If Pfizer combines torcetrapib and Lipitor, the chances of that product doing a better job of boosting good HDL cholesterol and reducing bad LDL cholesterol could be exponentially higher. Pfizer sure thinks so. It's spending $800 million on the new combo drug. According to the industry research firm Greystone Associates, combination drug delivery products are growing at an annual rate of 14% and will total $38 billion in 2008. The company reports that growth will be led by inhalation devices, including intranasal and pulmonary systemic therapeutics. Transdermal delivery — in particular drug patches capable of delivering two or more drugs and patches based on microneedle technology — will also contribute significantly.

Pharma stock no longer a safe haven. When foul weather hits Wall Street, investors tend to go where it's dry. For years, the pharmaceutical sector has provided a safe haven for investors beaten about by brutal conditions in other sectors. I'm not so sure that will be the case in 2005. FDA's demand for stronger "Black Box" labeling on certain drugs, especially antidepressants, sends a sour message to investors who treat government interference like Shaquille O'Neal treats point guards driving to the hoop. The flu-vaccine "vacuum" crisis won't sit too well with investors, either. Too many vaccine developers have disappeared from the marketplace, driven out by low profit margins and, yes, more government interference. Then there is the Vioxx mess. The removal of Merck's COX-2 inhibitor due to an alleged link between the drug and cardiovascular disease drew high-profile media attention that neither Merck nor the drug industry wanted or needed. That leads to volatility and the stock market hates volatility.

Bye-bye blockbusters? Will the Vioxx debacle help drive companies away from producing blockbuster drugs? Probably not. After all, 67 drugs sold more than $1 billion worth of product in 2003. Experts say that the number of similar monster drugs will rise to over 100 by 2007. But a growing number of biopharm firms are thinking small, and a slew of manufacturers are redirecting resources to vertical niche markets. For example, the outlook for cancer therapies Gleevec (imatinib) and Avastin (bevacizumab) is great — don't think investors and industry marketers won't notice.

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