The Year of Living Dangerously

It will be hard to top that list in 2006, but make no mistake: The industry faces more upheavals next year, as old blockbusters go off patent, new products hit the shelves and more caregivers wrap their heads around that federal drug plan. Here's a preview of the coming distractions.

Oncology
Given the success of cancer drugs from Genentech (DNA) and ImClone Systems (IMCL), little wonder that Big Pharma is looking to this field to replace profits from the wonder drugs of the 1990s. IMS Health, a data service that tracks pharmaceutical trends, projects that sales of oncology therapies will grow between 17% and 18% in 2006, much faster than the 6% to 7% range for the entire pharmaceutical industry. Watch for a few rising stars and potential blockbusters to emerge from the annual meeting of the American Society of Clinical Oncology, which sets up shop in Atlanta in June.

Merck (MRK)
Could any pharmaceutical company use an image boost more than the beleaguered giant from Whitehouse Station, N.J.? As if the Vioxx debacle weren't bad enough, the company announced earlier this month that its major restructuring plan would include large-scale layoffs. (So much for those favorable juries in New Jersey.)

Merck will face another headache next year when it loses exclusivity on cholesterol treatment Zocor, the world's second-largest selling drug. That is terrible news for a company still reeling from the loss of Vioxx revenue.

Want a ray of hope? In the second half of 2006, Merck should launch Gardasil, a human papillomavirus (HPV) vaccine that could be used to prevent most types of cervical cancer and genital warts. According to the World Health Organization, just over a half million new cases of cervical cancer are reported every year. Gardasil is designed to protect against four types of HPV, two of which account for 70% of cervical cancer cases and two of which account for 90% of cases of genital warts. Gardasil won't be a blockbuster to rival Zocor, not least because it will have to compete against an alternative vaccine from GlaxoSmithKline (GSK). But talking about a novel and promising drug of any kind beats discussing the unknown costs of Vioxx.

Pfizer (PFE)
It's been a busy year in the Pfizer labs, and that work is about to pay off in 2006 with four new drugs up for FDA approvals. Indiplon, a new insomnia treatment, and Exubera, a brand of inhaled insulin for type 1 and type 2 diabetes, are now under review. Varenicline, a novel treatment for those trying to stop smoking, could be lucrative given the big potential market. But Pfizer's real moneymaker will likely be Sutent, a cancer drug that works by cutting off the blood supply to tumors. Initial approval in 2006 could green-light Sutent for gastrointestinal tumors, but analysts expect some doctors to prescribe the drug for kidney cancer patients as well.

The bad news: When Merck's Zocor loses its patent protection, Pfizer's global bestseller Lipitor could also take a hit. In the third quarter of 2005, the cholesterol fighter brought in nearly $2.9 billion in global revenues, up 6% from the year-ago period. However, once generic variants of Zocor become available, Lipitor sales are bound to suffer. The company has said as much, and a sales decline is likely built into its disappointing 2006 guidance.

Pfizer actually has a near-term patent problem of its own in Zoloft. The world's top-selling antidepressant loses patent exclusivity next year, with generic manufacturer Ivax (IVX) poised to launch its own version in June.

Novartis (NVS)
For a company with the fourth-largest market cap in Big Pharma at $122.9 billion, Novartis has a funny way of staying out of the news. That won't be the case in 2006, when it's expected to launch oral diabetes treatment Vildagliptin. Al Rauch, an analyst with A.G. Edwards, calls the drug "probably the most exciting product that will be filed next year."

"It looks like it could slow down the progression of the disease," he says. "We're seeing a lot of excitement in the diabetic community, especially with endocrinologists, about that therapy." Rauch expects Vildagliptin to launch in the first half of 2006. "We think in a few years, it could be over a billion dollars annually."

FDA
Meanwhile in Washington, look for some changes at the FDA, as new commissioner Andrew von Eschenbach tries to put his stamp on the embattled agency. Von Eschenbach was the director of the National Cancer Institute before taking the reigns at the FDA. At NCI, he pushed drug companies to develop cancer therapies tailored to specific mutations. Now he's in the position to influence the approval process for some of these therapies as they emerge from drug labs.

The FDA came under intense scrutiny in the wake of the Vioxx scandal over its alleged coziness with drug companies like Merck. It was also accused of letting the Christian Right taint the approval process for the Plan B morning-after contraceptive. Von Eschenbach will have to find a way to rebuild the agency's credibility without delaying the arrival of truly useful new drugs. Some observers believe the drug makers may be required to raise the number of patients involved in crucial trials threefold or fourfold, a potentially costly undertaking. Others argue that Big Pharma won't suffer.

"Recent FDA initiatives indicate an interest in enabling innovation...by encouraging continuous data collection, analysis and process improvement after product launch and facilitating adjustments to the NDA [New Drug Applications] and BLA [Biologic License Applications]," says Dan Pincus, a consultant for the Quantic Group, a pharmaceutical management and technology consulting firm in Livingston, N.J. "Concepts such as Design Space — a new way of thinking about drug applications — will provide the opportunity for companies to launch products with the explicit knowledge of parameters within which adjustments to the product formulation and manufacturing process may be safely made, without going through the costly NDA or BLA regulatory change process. This assumes that the product quality at the time of launch may be less than optimal, but the company assumes the responsibility to improve it."

As far as drugs that are already on the market are concerned, watch for overall sales to increase as patients, caregivers and insurers familiarize themselves with the new Medicare prescription drug benefit. "Our expectation is for some increased utilization," says Rauch. "Overall, it will probably be a positive for the sector. I think for the first year, the benefit managers are going to want to encourage as many people into the plan as they can, so they may not use generics as extensively as they will in later years."

Got all that? Good. There will be a test next December.