2015 New Drug Approvals Hit 66-Year High!
Bernard Munos Contributor
2015 has been a remarkable year for pharmaceutical innovation. What would have been a dream (or perhaps a delusion) a few years ago has happened. Last year's new drug approvals reached 51 (Figure 1), besting every year since 1950. This tally includes 45 drugs approved by FDA's Center for Drug Evaluation and Research (CDER), and 6 recombinant therapies approved by the Center for Biologics Evaluation and Research (CBER). The latter include four drugs to treat blood coagulation disorders (e.g., hemophilia), a therapeutic vaccine for melanoma, and a preventive vaccine for meningococcal meningitis type B.
Turnover at the top?
Thirty nine companies contributed to that success, with eight gaining multiple approvals. The indisputable champion was Novartis with five approvals, followed by Amgen with three. Other front runners were Actavis, Alexion, Baxalta, Bristol-Myers Squibb , Johnson & Johnson , and Roche, with two approvals each. If we take the longer view and examine the approvals of the last 5 and 10 years, interesting trends start emerging (Figure 2):
The top three companies are the same: J&J, GSK and Novartis.
The bottom three Big Pharmas are also the same: Bayer, Lilly and Abbvie.
The top three Big Pharmas have collectively brought 47 drugs to market over the last ten years, while the bottom three have only produced nine.
A handful of companies that have traditionally been seen as "mid-sized" are muscling their way into the top, perhaps portending a reordering of the industry leaders, and calling for a re-examination of who qualifies for "Big Pharma" membership.
Biologicals and first-in-class drugs make new highs
Twenty approvals (39%) went to biological drugs—up from 35% in 2014 and 22% in 2013—which confirms the growing importance of biopharmaceuticals in the industry pipeline. Twenty drugs (39%) featured 'first-in-class' modes of action—about the same as in 2014 (39%) and 2013 (37%). This count, however, relies on FDA figures, which appear conservative. One can argue that the following drugs should also merit first-in-class recognition:
Farydak: first HDAC inhibitor for multiple myeloma
Unituxin: only ganglioside GD2 inhibitor approved
Kybella: first drug for submental fat (double chin)
Natpara, which activates the parathyroid hormone 2 receptor unlike Forteo which seems to act by binding to the parathyroid hormone/parathyroid hormone-related peptide receptor.
Including them in the tally would boost the percentage of first-in-class drugs to 47%, a remarkable turnaround for an industry that, only a few years ago, was slammed for often producing variations of past successes.
Oncology leads, neuroscience lags
Four therapeutic areas account for 63% of all approvals (Figure 3). Cancer, with 16 new drugs—double last year's eight—captured the lion's share with almost one-third of all approvals. Infectious diseases is down from 12 drugs last year, but still came through with a diversified range of vaccine, antibacterial, antifungal, and antivirals. Hematology makes a strong showing again with five drugs, boosting the number of new therapies for blood disorders—mostly hemophilia—to 13 over the last five years, which is as many as were approved during the previous twenty. On the negative side, one should note the continued weakness in the number of new treatments for mental disorders, with only four, as in 2014.
Has the industry returned to sustainability?
It would be more accurate to say that last year's progress has put some companies back on the path to sustainability, but significant challenges remain. In the last 15 years, the branded pharmaceutical industry has lost most of its customers to generics due to the innovation crisis, patent expirations, escalating prices and the narrowly-targeted drugs it now produces. The share of US prescriptions filled by generics has swelled from about 50% in 2002 to 88% in 2014.To put it differently, 88% of the pharmaceutical needs of Americans are met by generics at a cost of $65 billion, while the remaining 12% cost $311 billion (Figure 4). The major challenge to the industry is to grow its $311 billion revenue in the face of its dwindling number of customers. There are not a lot of ways to do that.
One of them is to raise prices, and the industry has not been shy about it. Even after excluding the likes of Martin Shkreli and Valeant, price increases from mainstream companies have been robust—reaching 76% for the 30 top-selling drugs between 2010 and 2014, and much higher for old mainstays like Humulin (launched in 1982) and EpiPen (launched in 1987). That has brought a momentous change of attitude among Americans with 73% now supporting price controls, including a majority of Republicans. With such uproar, it is unclear how long the industry can rely on pricing to drive revenue growth.
Another way to do it is through consolidation. This does not address the underlying causes of unsustainability, but allows the acquiring company to show a temporary bulge in revenues. Over the long-run, however, it hurts innovation and thus future growth, since it does not change the new drug output of the acquirer, while it eliminates that of its target. It also creates unwieldy companies that spend far more to bring a drug to market than their leaner competitors.
Yet another way to grow is simply to produce more innovation, if one can find enough money to pay for it, which can no longer be taken for granted. But as money gets tighter, it will increasingly be claimed by breakthroughs—the Gleevecs and Harvonis of the future—which will precipitate the commercial failure of me-too—or me-less—treatments that come with big sticker prices and small benefits.
The result is that revenue growth in the industry is likely to be constrained and protracted. What is more probable is a redistribution of the current revenue among new and existing players. It's already happening under our noses, with Gilead, Celgene, Novo, Biogen and others growing by leaps and bounds as they displace older established "big pharmas".
Threats remain
As if this weren't enough, under-appreciated threats to the industry's top-line will add their own challenges. One of them is the emergence of biosimilars, which have surprisingly been seen as an opportunity by companies such as Amgen, Pfizer, Lilly, Merck and others. It's unlikely to be one. Data from markets where they have been launched show them grabbing a much bigger market share than anticipated, but at discounts far steeper than had been predicted. This will likely spread and result in a rather unexpected outcome: a take-down of big pharma by itself. Current biopharmaceutical blockbusters will be squashed, but at prices where the squashing biosimilars will struggle to meet their expected profit targets.
Some companies (e.g., Lilly, Pfizer) will also experience a return of the patent cliffs within the next two to three years. They are ill-prepared for it. Depending upon who runs them at the time, they may merge or shrink. The latter, although counterintuitive, would be preferable. Shrinking in pharma is not necessarily bad since it can realign a company with its R&D output, and make it sustainable again. Among the top 13 historic big pharma, seven were shrinking last year. And among those that were growing, two—Bayer and Bristol-Myers Squibb—were rebounding from previous severe shrinkages, which their leaders used to transform them into agile and innovative competitors. Bayer is now the fastest-growing of the 13—bouncing up by 15.6% during the first nine months—while BMS added 5.6% even though it was going through a $2 billion patent cliff with its Abilify schizophrenia drug.
Leadership, leadership, leadership
All this is cause for optimism, as the combination of more and better drugs, and fitter companies bodes well for the industry's innovation leaders. But J&J, Novartis and GSK did not rise to the top by luck. Or by buying pipelines or doing tax inversions. Their output is the result of their transformation. They each followed a different path, which reflects the vision of its leaders who made no secret of their frustration with the broken R&D model they had inherited. They did not pretend that "everything is great". They set out to change what was not, and in the process created R&D models that can deliver new drugs reliably at an unprecedented pace—which can quite likely rise even higher. Luck had no part in their success, except to the extent that it favors good leaders. As more of them follow in their tracks, the industry's prospects will keep brightening.
Bernard Munos
I study pharmaceutical innovation, what causes it and how to get more of it. Several of my papers, published in Nature and Science, have helped stimulate a rethinkin...