Medical financing: Subprime loans part deux?

The New York Times yesterday ran a fascinating story about how banks, insurers and doctors are now extending loans to people for various healthcare-related issues. You can read the full article here (registration required). To quote an excerpt:

"Zero-interest financing, a familiar sales incentive at car dealerships and furniture stores, has found its way to another big-ticket consumer market: doctors’ and dentists’ offices.

For $3,500 laser eye surgery, $6,000 ceramic tooth implants or other procedures not typically covered by insurance, millions of consumers have arranged financing through more than 100,000 doctors and dentists that offer a year or more of interest-free monthly payments.

Of course, going into debt to pay for medical procedures is nothing new for many people. And this type of financing is still only a fraction of the nation’s $900 billion market for consumer revolving credit.

But as the price of health care continues to rise and big lenders pursue new areas for growth, this type of medical financing has become one of the fastest-growing parts of consumer credit, led by lending giants like Capital One and Citigroup and the CareCredit unit of General Electric.

Big insurers, too, are devising new financing plans with various payback options. Upstart players have also aggressively cut deals with doctors."

As the movie "Sicko" and others have illustrated, besides large number of uninsured people, we Americans also have a significant number of under insured folks. Will this new lending market take off given such large numbers of the un and under insured? What is the next step for the Wall Street lenders in this? Securitize these loans like mortgages, auto loans and credit card debt and sell them off as CDOs to investors worldwide? Start selling credit default swaps on these :-)?

If this market were to grow, much of that growth would have to come from the subprime sector (the more wealthy are well insured and/or don't need the loans). In the event of rising defaults, it will be fun to watch say a bunch of Australian hedge funds trying to foreclose on a bunch of dental crowns in New Jersey!

As the NYT reports, banks, insurance companies and doctors are getting into the lending act. May be big pharma (which is sitting on buckets of money) too? Perhaps big pharma can extend its "patient assistance" programs to include loans. If your insurance company won't reimburse that $10,000 a year drug, big pharma can lend you the money if you are above a certain income level and don't qualify for their assistance. I'm kidding........but the way big pharma has invested its money lately, may be this is better for both patients and big pharma investors. I'm hoping that this "phoni patient assistance program" will be the subject of a future post on PharmaGiles.

And finally what happens when these loans go bad? Will there be a federal bail out? Boy that would be one convoluted way to expand govt subsidized health care!

Pfizer + Wyeth = ?

First things first - Thanks to insider for the hilarious picture on the left illustrating the trouble with mergers. As most readers of this blog have already read, there has been increasing talk in the egosphere and elsewhere regarding the potential merger of Pfizer and Wyeth (see here for the posting from Pharmalot). The genesis of this discussion was a note by Credit Suisse analyst Catherine Arnold suggesting that the lack of overlap between the two companies, the Alzhiemer's & other Wyeth pipeline products and the biologics capabilities of Wyeth would be well worth it for the Pfizer pfolks to splurge on.

A couple of semesters ago, Pharmalyst took a course in corporate strategy & the Professor had some interesting insights on why most mergers fail. According to her, most companies tout the cost savings that any proposed merger is likely to generate (by reduction of overlapping functions, facilities etc). However most of these cost savings barely cover the premium that the acquiring company pays. Then there are the merger related costs (integration of systems, severance packages etc). Once you add it all up, most mergers end up destroying value. She had a few interesting case studies to illustrate this (like the merger of Diamler and Chrysler). According to her, the only merger that generates value is the one that has what she called "unique synergies"...above and beyond the usual cost savings.

With that insight, Pharmalyst would like to present some numbers from Feb 2000, when Pfizer acquired Warner Lambert. This merger was has widely been viewed as a success.

Deal Size: $90 billion

Premium Paid: $30.6 billion (34% premium). There was also a break up fee paid to Wyeth (AHP then) of $1.8 billion

Combined market cap of the entity after the merger: $230 billion

Recent market cap of Pfizer: $170 billion (that is some amazing value destroyed over the years..don't forget that this includes Pfizer gobbling up Pharmacia and some other small companies & just one big divestiture of its consumer health business)

Annual Cost Savings Generated by Merger (from 2002): $1.6 billion

As you can see from the figures above the cost savings is hardly the factor that made this merger work. The redeeming factor for this merger was the drug Lipitor. Around the time of the merger, Lipitor had annual sales of around $5 billion. In seven years, this has grown to around $12 to $13 billion (though it is on its way back to 5!). This growth in Lipitor revenues was the unique synergy and the sole thing that justified the $30 billion premium paid.

I haven't had time to google the Pharmacia data but doesn't look like any Pharmacia drugs saw that kind of a spike in revenue (in fact Pfizer probably had similar expectations for the COX-2 franchise but that turned out to be quite the opposite!). Not sure what in Wyeth's current set of products can show the Lipitor kind of growth if Pfizer were to acquire them...unless Pfizer feels there are some gems in the Wyeth pipeline that it could grow dramatically and that the current valuation of Wyeth doesn't reflect those prospects, it is a safe bet that any such merger will destroy value.

At least the PR arm is working well at Astra Zeneca!!

Thanks to this post on Experimental Chimp blog, Pharmalyst recently became aware of how someone on the Astra Zeneca corporate network (someone in PR perhaps?) made some mods to the wikipedia entry on Seoquel.

Here is the before version:

"Quetiapine has the United States Food and Drug Administration (FDA) and international approvals for the treatment of schizophrenia, treatment as an adjunct to either Lithium or Divalproex, and acute mania in bipolar disorder. Quetiapine was first approved by the FDA in 1997. In October 2006, Seroquel was also approved by the FDA for the treatment of depressive episodes associated with Bipolar I (or Bipolar-II) Disorder and is the only agent approved for this indication as a single agent monotherapy. Despite a general National Institutes of Health recommendation against its use in children or those under 18, as well as a known risk that teenagers taking the drug “may be more likely to think about harming or killing themselves or to plan or try to do so”, Seroquel is controversially marketed to parents of moody and irritable teenagers in magazines such as Parade and TV Guide…"

Now here is the after version:

"SEROQUEL is indicated for the treatment of schizophrenia as well as for the treatment of acute manic episodes associated with bipolar I disorder, as either monotherapy or adjunct therapy to lithium or divalproex. SEROQUEL received its initial indication from the FDA for treatment of Schizophrenia in 1997. In 2004, it received its second indication for the treatment of Mania associated Bipolar Disorder. Seroquel is controversially marketed to parents of moody and irritable teenagers in magazines such as Parade and TV Guide…"

Wikiscanner reports, you decide. Wikiscanner is a new app started by a UCal graduate student that attempts to match Wikipedia edits to the networks those edits originate from. NPR's morning edition did a good segment on this today morning which you can listen to here.

Novartis, Glivec & the Indian Patent Board: Curry in a hurry version

If you want to read one blogger's insightful and interesting take on the Glivec issue in India, please read this post on the SpicyIP blog. Looks like the patent board rejected NVS application on the basis of some opaque definition of efficacy - which they refuse to clarify any further. Also looks like someone in the Patent office is now sitting on the panel that will hear Novartis' appeal thru the Indian patent process....so much for conflict of interest etc. Regardless of how sound the courts rationale in India, Pharmalyst does think that this could hurt their own pharma companies in the long run.




Hat Tip: Pharmalot

Can't build a better mousetrap in India?

So the Indian Patent office has refused to grant IP protection to the beta crytsal form of Glivec (Gleevec). Recently the high court in India refused to rule on a motion filed by Novartis stating that NVS should pursue the matter with the WTO appeals process (for which the Swiss government would have to become involved) rather than the Indian courts (Novartis can proceed with an appeal with India's Intellectual Property Appellate Board). More details can be found here.

While the beta crystal form may be marginal innovation at best, India should have granted patent protection to the initial version of Glivec - however at the the WTO rules had not kicked in at the time and the government there was pretty much looking out for their generic drug makers.

However sound the Indian Patent Office's judgment regarding incremental innovation in this matter may be - it better be prepared to face the unintended consequences of its decision. Under the new WTO IP regime, Indian drug makers are bracing for more competition from western multinationals. Many generic drug makers are trying to develop new molecules instead of making copycats of big pharma's gems. Take the intriguing case of Sun Pharma Advanced Research (SPARC). According to this Economic Times (an Indian newspaper) article, many of this company's Phase II molecules are incremental improvements on compounds from big pharma. For instance these guys are working on new forms of the anti-epilepsy medication Neurontin. The Indians could get a taste of their own medicine, if say the Swiss government were to deny IP protection to SPARC's "innovative" version of Neurontin or if SPARC's patents were challenged in India itself on the basis of the treatment Glivec has received there.

Has Pfizer lost its marketing mojo?

Quite a few blogger guns have been trained on the marketing arm of the drug giant recently. The Judge (John Mack) has added them to his league of undistinguished DTC advertisers. PharmaGiles has penned a funny post titled "Rigor Marketis". Yahoo's seeking alpha blog, references a Derek Lowe post and headlines that "Exubera Proves It: Pfizer's Marketing Can Get It Only So Far". Even the cafepharma boards have some postings regarding the departure of some high profile sales and marketing pfolks at Pfizer.


So, has Pfizer lost its marketing mojo? Exubera has some fundamental issues that no amount of marketing could fix (and to be sure Pfizer's management has cited bad market research as the cause of their flawed initial projections). Setting Exubera aside, Pharmalyst looked for other indicators of Pfizer's marketing prowess and below is a summary of what he found:

Chantix/Champix: As this post from Pharmalot shows, this drug is really generating a lot of prescriptions. Smoking cessation has historically been a category where initial high expectations have subsequently been dashed (Zyban, NRTs etc). Pfizer's low key unbranded campaign coupled with reps pounding the pavement has so far worked. Pharmalyst gives their marketing & sales group an A here.

Sutent: Perhaps the performance of this drug is best compared to Bayer/Onyx's Nexavar. Nexavar was approved before Sutent and Bayer just reported Nexavar's Q2 sales at $82.4 million (up 161%). Now compare that to Sutent's Q2 sales which according to their Q2 earnings release stood at a whopping $141 million - up almost 300%. This despite the fact that Nexavar has lots of good stuff going on for it in areas like liver cancer. Here their marketing & sales group gets an A+.

Viva Viagra: Their new ad has come under a lot of criticism and Viagra is losing market share to Cialis. Pharmalyst agrees with most bloggers that the Viva Viagra ad (which you can see here) is definitely not an "ethical pharmaceutical" ad. But as an ad for a "recreational" drug, it is really good. Catchy tune, all American roadhouse, macho imagery all provide tonnes of self expressive benefits to the target audience (in this case somewhat young men who do NOT have ED). Their marketing prowess is the sole reason that this drug has not become another Levitra against the "Le weekend" pill Cialis. An A grade here too (not for ethics but for marketing).

Lipitor: This may be the one place where the marketing pfolks get a C. A semester ago, Pharmalyst took a marketing class where the Professor offered an interesting insight...according to him, increasingly in all categories there is a tendency towards bifurcation - one set of brands finds success in the low-cost/value end of the spectrum and the other set of brands finds success in the premium end of the spectrum. Any brand that tries to straddle the middle gets creamed (one of his examples was the retail sector where brands like Target have done well on the low end and brands like Nordstrom's have done well in the premium segment but a brand like a Sears or a JC Penney in the middle gets clobbered). Since simva going generic, this appears to be the case with Lipitor. Simva owned the value end of the market and Vytorin/Crestor owned the premium end. Pfizer did not lower the price of Lipitor & they did not do any licensing deals to make a Vytorin like compound. They pretty much played in the middle. Also all their talk about 5 new indications & outcomes did not really differentiate the product. These new indications did not offer them a sustainable advantage as all the benefits were perceived to be a class effect. The Robert Jarvik DTC campaign was also vague and did not really make Lipitor stand out. In contrast the Vytorin ads really hammered home the point that it works against two sources of cholesterol & was a home run.

So in general looks like Pfizer still has plenty of marketing juice left but the longer the drought of good products to market, the faster the erosion of sales & marketing talent. They may lose their marketing mojo unless they can bring promising products like apixaban to market faster.

Rheoscience & Dr. Reddy's: Brass Cojones?

Sure looks that way. The IN VIVO blog reports that they have just dosed their first patient for phase III trials for their partial PPAR gamma agonist balaglitazone.

Given all the issues with Rezulin, Avandia, Pargluva etc, that does take some solid cojones. What the IN VIVO folks did not report in their post was that Novo Nordisk (an almost pure play diabetes company) had previously decided to stop developing balaglitazone (this is one Dr. Reddy's first forays into original molecules). See press article on Novo's decision here ). Either Rheo sees the partial agonism aspect as truly unique with this compound or they are just desperate.

Correction: In Vivo did reference Novo's decision in their post. The link is fixed too. I'm sorry

Image Courtesy: Wall Street Bull by Jermany on Flickr.

Lilly, Pfizer: The new "Pet shop buys"

People (including yours truly) have previously commented about Eli Lilly's doggie prozac. WSJ health blog, Pharmalot and others have also featured Pfizer's Slentrol & Cerenia. (Update: See Pharmalot's postings here, here and here . Ed - thanks for links via comments).

The latest issue of BusinessWeek has some staggering statistics on the pet market. No wonder Lilly & others are gravitating to this market. You can read the full BusinessWeek article here. Here are some select stats:

• Neuticles - A patented testicular implant for neutered pfidos has sold over 240,000 pairs at $900+ a pair
  

• Americans spend $41 billion a year on pets (more than what they spend on movies and video games - about 10 to 12 billion each)

• 42% of dogs sleep on the same bed as their owners

• 77% of dogs have been medicated in the past year

• 71 million US homes have at least one pet

Bet big pharma especially likes the last two of those stats.

In a related note, everyone has been receiving loads of spam e-mails for Viagra, Xanax, Prozac, Vicodin etc. etc....This morning however Pharmalyst was amused to receive this spam for pet medications. When the spammers have caught on, you know that this is a big trend.
That doggie picture at the top was due to courtesy of the WSJ health blog & flickr.