Saturday, March 31, 2007
Wednesday, March 28, 2007
A few weeks back, Merck & Co announced that they were suspending their lobbying efforts to get various state govts to mandate Gardasil (their HPV vaccine) for pre-teen girls. Prior to the suspension of Merck's lobbying efforts, 19 states & DC had already issued state-wide mandates for this vaccination. Most state mandates require that girls get this vaccination by grade 6 & have an opt out provision. Merck thru its aggresive lobbying efforts had succeeded in alienating both sides of the political divide. By the time Merck announced its decision to suspend lobbying, a consensus (albeit for entirely different reasons) was emerging between the left and right, that while this vaccine should be widely available (and perhaps priced lower), it should not be mandatory.
By suspending their lobbying efforts, it appeared that Merck was sacrificing a lot of potential revenues given that the remaining 31 states were not going to mandate Gardasil. Pharmalyst did some back of the envelope calculations and concludes that the financial hit to Merck is about $130 million per year (till Galxo & others come up with competing products). These calculations also show that this is a lucrative market and despite Gardasil not being mandatory, Merck is likely to generate about $950 million from sixth grade female students each year.
To make these estimates, Pharmalyst took US census projections for 2005 (for 50 states and DC) of children aged 14 to 17 (could not find more granular data). From these census figures, I assumed that roughly 33% are aged 14. The next assumption was to assume that the population of 11 year olds (Gardasil target 6th grade mkt) would be the same as 14 year old females (females assumed to be 50%). For each of the 19 states and DC where there was an HPV mandate, I assumed that 95% of the 6th grade females would get vaccinated each year at $400 per course. The vaccination rate in the other states would be about 25% lower (10-12% uninsured children, rest being opt-out candidates for religious, scientific or lack of care reasons).
So by stopping lobbying and letting 31 states have no mandate, Merck is losing about 20% of 6th grade female student customers in each of the 31 states. This works out to $130 million at $400 per course. Actually they stand to lose a couple of millions less once you factor in their lobbying cost savings. Forgoing 130 million in incremental revenue is a no brainer once you consider the fact that at least some of the potential jurors in the thousands of pending Vioxx cases would probably be biased against Merck due to the negative publicity around this lobbying. Merck has been accused by critics of price gouging on Gardasil to "HPV" (help pay for Vioxx)...sometimes in subtle ways indeed! Detailed calculations below:
Substantive matters regarding trial design aside, it appears that just the name of a trial can reveal a lot of things under the hood. We now know that VIGOR lacked some RIGOR. This leads to Pharmalyst's rule of thumb regarding trial names for pharma-sponsored trials: The fancier the name of the trial, the more likely it is that the trial design had greater influences from the marketing and biz development arm of the company rather than the scientists. Therefore in all probability, these trials are likely to be testing fancier end-points and are more likely just fodder for the sales pitch.
Don't get me wrong, Pharmalyst is all for having easy to remember names and does not want trials to be named like the inscrutable model numbers that Japanese electronics mfrs come up for their otherwise fine wares. However, the odds are that a trial called the Framingham heart study will be much more useful that something called ASTEROID or PRECISION.
Perhaps I am wrong but I can't help but look at trial names like ILLUMINATE (the torcetrapib trial). Based on some recent ACC-related articles, it looks like Pfizer may have rushed things a bit too much (by doing both the outcomes and imaging parts in parallel). A more cautious approach may have detected the toxicity at an earlier stage. Similarly Astra Zeneca had some great sales ammo touting ASTEROID until a METEOR crashed on it.
Last but not least, I am hoping that PharmaGiles will issue some guidance to pharma on how to name trials :-)
Sunday, March 25, 2007
Schering’s recent deal to buy Organon came as a surprise to many, though the fact that Fred Hassan has been looking for deals is well known. Most analysts and the market in general (based on SGP’s price movements following the announcement) seem to be neutral (David Risinger of Merrill Lynch being the lone exception; Is Merrill vying for more business from Schering?). Most of the praise for the deal seems to be around the $500 million cost-savings that Fred has promised the street. However as a growth strategy, this does not seem to make much sense (see comments from the pipeline blog here).
In the women’s health area, Organon has good competition from J&J’s ortho division. The anti-psychotic asenapine’s prospects seem questionable too. For one, Pfizer decided to walk away from their joint development efforts. Second, by the time asenapine comes to market, many of today’s leaders would be probably go generic (Seroquel, Geodon?).Managed care will aggressively push to try Clozaril, Risperdal and these new generics as first-line therapy. Unless asenapine shows unusual value thru a great efficacy & safety profile, the prospects for this drug appear to be mediocre at best. Another promising anesthesia/hospital-use pipeline drug probably has the roughly the same market size as something like say Lilly’s Xigris.
In a nutshell, this is a neutral deal and that leads one to look at who is really benefiting from this transaction. It appears that Fred & Schering’s board would be the biggest beneficiaries of such a deal. Schering bulks up (current market cap: 36B) and makes it unattractive to acquirers by taking on more debt (which, to be sure, can be covered given the cash flows involved). Who would want to buy Schering? Pfizer and Astra Zeneca. Aside from pipeline problems, both would like to make a Lipitor or Crestor combo with Zetia. Any such moves by PFE or AZ would of course also cause Merck to enter the fray to protect its Vytorin franchise. One feels that rather than take a rich payout again (a la Pharmacia), Fred likes being Schering’s CEO.
Last but not least, Schering’s relatively low market cap & decent cash flows also probably make it attractive to private equity. While this would leave still leave Fred in control, he surely operates on a longer time frame and does not want any meddling by the private equity guys. Think branded pharma biz is too regulated, scientific, unpredictable, long-term oriented for private equity? Think again. According to the WSJ Health Blog, one of Hank McKinnell’s new wannabe areas is private equity (besides selling time-shares :-)). Another Hank & Fred pharma deal….gee I wonder how the last one turned out!
The last quote got me wondering about the kind of expectations that the brass at Pfizer must have built up. Here is my back of the envelope profit/loss model for Exubera.
As you may imagine, the numbers are my guestimates and includes only US numbers. Global numbers will be similar (lower reimbursements but also lower/no DTC expenses). Still, this model seems to indicate that even if Pfizer were to get 1.2 million Rx’s in the year 2010, Exubera would still be a bust for Pfizer. The model of course has several assumptions. Among them is the fact that rivals will launch inhaled insulins by 2011 and by 2015, Exubera will be replaced entirely by successor products (either from rivals or from Pfizer itself; an intriguing and purely speculative thought is that perhaps Pfizer may launch a needle-free injectible insulin using its PowderMed acquisition?). Also, I did not include the $2 billion plus development costs for Exubera since those costs are water under the bridge. With the benefit of hindsight, the model seems to indicate that Exubera probably should not have been launched (unless the Rx numbers really take off to resemble the dream scenario in the model). Presumably the execs that spent the $2B in development have been “ARSE’d” (hat tip: PharmaGiles).
Unlike most pharma bloggers, I am no expert. I am a student and welcome comments on the model and other feedback from readers. Many of you are much more knowledgeable and have lots of pharma experience. Hopefully this blog will be a valuable learning avenue for me. Thanks.