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Pfizer Inc. (PFE), Johnson & Johnson (JNJ): The Next Frontier?

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Only 19 drugs have ever netted at least $5 billion in annual sales — and most were at their peak –according to a list compiled by Simon King of Forbes earlier this year. Lipitor from Pfizer Inc. (NYSE:PFE) peaked at $13.7 billion in 2006 and remains the only drug to achieve annual sales of $10 billion or more. Humira from AbbVie Inc (NYSE:ABBV) will eclipse the watermark this year, which is quite an amazing feat when you consider the history of the pharmaceutical industry.

Pfizer Inc. (NYSE:PFE)Image: Pfizer Inc. (NYSE:PFE)

Big Pharma has learned the hard way that having ridiculously successful products is great when the checks are rolling in, but they can be transformed into huge liabilities when the music stops. Combine that with an industry stuffed full of competition and it is easy to see why many, including King, say that the Golden Age of the Blockbuster is gone. Companies will have a much more difficult time fielding single drugs that enjoy this kind of success. Is that sentiment right? Or are analysts just fatigued from the industry’s patent cliff? Let’s review.

A Golden Age dawns
Big Pharma exploded onto the scene during the three-year span from 1996 to 1998 when a record 135 drugs received regulatory approval in the U.S. It should be no surprise that many of the megablockbuster small molecules were approved during this time.

Company Drug, treatment Approval date Peak sales (world)
Pfizer Inc. (NYSE:PFE) Lipitor, high cholesterol Dec. 17, 1996 $13.7 billion
Bristol Myers Squibb Co. (NYSE:BMY) / Sanofi SA (ADR) (NYSE:SNY) Plavix, blood clots Nov. 17, 1997 $9.32 billion
AstraZeneca plc (ADR) (NYSE:AZN) Seroquel, antipsychotic Sept. 26, 1997 $6.18 billion
Merck & Co., Inc. (NYSE:MRK) Singulair, asthma Feb. 20, 1998 $5.48 billion
Eli Lilly & Co. (NYSE:LLY) Zyprexa, antipsychotic Sept. 30, 1996 $5.03 billion
Johnson & Johnson (NYSE:JNJ) Levaquin, infections Dec. 20, 1996 $1.36 billion

Sources: FDA Orange Book, FirstWord Pharma.

The euphoria for the new treatments was bound to end at some point, which is exactly how the industry found itself in the midst of the patent cliff in the first place. As you can imagine, the competition eventually caught on to the enormous potential of cholesterol, antipsychotic, and asthma drugs. Absent a major research lab breakthrough, investors likely won’t see any spectacular gems in these markets.

If everyone has a drug, then no one has THE drug
Companies have instead decided to throw their weight behind the next big markets: diabetes, cancer, and immunology. Even these indications are becoming crowded, though. Take diabetes, for example. Despite bringing in $5.75 billion in 2012, Merck & Co., Inc. (NYSE:MRK)’s Januvia/Janumet franchise stumbled out of the gates this year thanks to increased competition. Total sales slipped 1.5% from the year-ago period. Newer therapies, such as Invokana from Johnson & Johnson (NYSE:JNJ), have nudged the bar upward by offering patients more convenience and improved safety characteristics.

Does all of this market saturation foreshadow a bleak future for an industry currently ripe with blockbusters? There may be a period of calm ahead, but investors cannot rule out that future game changers won’t emerge.

The next frontier?
The one thing that each of history’s most successful drugs has in common is that each drastically improved upon the standard of care at the time of launch. Whether it was treating a disease that was never before treatable (severe rheumatoid arthritis) or pioneering a new class of drugs altogether (TNF-alpha inhibitors), each of the most successful drugs in history did not get there by targeting incremental improvements.

So, what fields could offer investors the next batch of game-changing drugs?

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