A Peek At Europe's Pharma Pipeline

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The European pharmaceutical industry, like its U.S. counterpart, is looking for an improvement in 2008, following a poor performance in 2007. A key indicator -- although by no means the only one -- of its ability to grow this year and beyond is its new product flow.



In 2007, European companies launched only a handful of new drugs, and the outlook for 2008 isn't expected to be much better. The poor research and development output comes at a particularly bad time for pharmaceutical companies, as they scramble to compensate for revenues lost to generics when their key products lose patent protection. While 2008 is not likely to be a big year for patent expirations, 2009 onward is nearly certain to be. IMS Health estimates that in the U.S. in 2008, brand drugs valued at $17 billion are expected to go off patent, including AstraZeneca's (AZN; S&P investment rank, 4 STARS, buy) Casodex [oncology], and GlaxoSmithKline's (GSK; 4 STARS) Requip [Parkinson's disease].



In 2007, U.S. regulatory setbacks for key products hit two European companies particularly hard and dashed their hopes for making a splash in 2008: Sanofi-Aventis (SNY; 4 STARS), which withdrew its application for Zimulti [obesity], and Novartis (NVS; 3 STARS, hold), which ran into significant problems with Galvus [diabetes]. [Both drugs are cleared for marketing in the EU.] In addition, safety concerns hurt some European Union pharma megaproducts already on the market, including GSK's Avandia [diabetes] and Novartis' Zelnorm [gastrointestinal], increasing the urgency for new products.



Analysts believe that in 2008, Food & Drug Administration approvals are less likely to be a catalyst for news -- good or bad -- simply because not many EU pharmaceutical companies have important products up for review. Of the top European companies, GSK looks best poised to replace sales lost to new generic competition with new drugs, according to an analysis by Raymond James. In 2007 the company gained regulatory approvals for eight products, including Tykerb [advanced breast cancer], Altabax [topical antibiotic], and Veramyst [allergies]. Tykerb is competing against two best-selling Roche drugs, Avastin and Herceptin, but promising new data, released in December, 2007, could boost its prospects.



Promise at GSK

In addition, Cervarix, GSK's novel Human papillomavirus [HPV] vaccine, which has potential to be a blockbuster, received EU regulatory approval, although U.S. regulators want more data before making a decision. GSK hasn't released specifics about its concerns or how much additional work it has to do if it is to have a shot at the all-important U.S. market. GSK also submitted eight new drug applications [NDAs] in 2007 and started Phase III trials for nine drugs. Overall, analysts estimate that the company could launch up to eight brand-new drugs before 2010, including four for central nervous system disorders. Many of these aren't significant, but HuMax CD20 [oncology] and Synflorix [streptococcus vaccine] sales could approach $1 billion within five years, according to the data firm EvaluatePharma.



Roche (RO.DE; 3 STARS) is comparatively better off than its peers because it has no looming patent expirations and, while it doesn't expect to launch new products in 2008, it has ambitious plans for line extensions. Of these, the most important are Avastin and Rituxan. Phase III trial results of Rituxan's utility in progressive multiple sclerosis and lupus are expected in mid-2008. Roche also expects to launch Actemra [rheumatoid arthritis] in Western markets, and it's already on the market in Japan. This drug works differently than existing RA therapies, is supported by solid clinical data, and solidifies Roche's entry into the inflammatory and autoimmune diseases field. It has potential to be a blockbuster, but Landsbanki/Kepler, the investment bank, points out that its initial utility may be limited due to safety concerns; moreover, it will be entering a crowded market where it will have dosing disadvantages due to its intravenous formulation.



Also, Roche could initiate U.S. commercialization of its renal anemia therapy Mircera. This protein therapy received FDA approval in November, 2007, but its U.S. launch is delayed pending resolution of patent litigation with Amgen (AMGN; 3 STARS). Mircera went on the EU market in late 2007.



Sanofi, which has the greatest near-term exposure to generics among major EU pharmaceutical companies, doesn't expect to commercialize any major new products in 2008. It is still recovering from U.S. regulators' rejection of Zimulti/Acomplia. It continues to study Zimulti for non-obesity indications, notably diabetes [U.S. filing anticipated 2009 or later] and views the drug as an important contributor to future sales. Standard & Poor's believes Sanofi's R&D pipeline could transform into marketable products beginning in 2010 and onward. These would include some products, which the company expects to submit for approval this year, such as aflibercept, a VEGF-Trap drug initially indicated for ovarian cancer, S-1 [advanced gastric cancer], AVE5026 [a successor to anti-coagulant Lovenox], and antidepressant saredutant.



Novartis' 2009 Could Be a Winner

Novartis' regulatory track record is excellent, and second only to GSK in the percentage of its new product filings that were approved from 1998 to 2007. Recently launched Tekturna [hypertension], Xolair [asthma], Exforge [hypertension], Sebivo [hepatitis B], and Tasigna [cancer] could contribute a combined $2.1 billion to sales by 2009, according to ABN AMRO, enabling sales growth to reach 10% that year. Expect a considerable slowdown in new product activity in 2008, however, with the only important launch being Galvus, in Europe. Initially, Galvus may not contribute much to sales, however, because it faces stiff competition. The following year looks better for the company, which could launch three new products [for cancer, depression, and chronic obstructive pulmonary disease -- COPD]. Of these, QVA149 for COPD could be important if clinical trial data hold up since COPD has few treatment options; the others are likely to be small.



One of the most promising products in late-stage development at an EU pharma appears to be Bayer's (BAYRY; 4 STARS) anti-coagulant Xarelto. Bayer is a diversified health-care and chemicals conglomerate, but it has increased its reliance on pharmaceuticals. A successful new drug would certainly help to validate its strategy. Phase III study data released in late 2007 showed Xarelto to be more effective than the standard antithrombosis medication, Sanofi's Lovenox, at preventing venous clots from forming in patients following orthopedic surgery. Bayer has filed a regulatory application for this indication in the EU and anticipates a possible launch in 2009; a separate submission is planned in 2008 for the U.S., where Johnson & Johnson (JNJ; 4 STARS) has marketing rights. Standard & Poor's Equity Research anticipates first-year post-launch sales could total $120 million. A much bigger opportunity lies in the use of Xarelto as a medication in the acute-care setting [atrial fibrillation, deep vein thrombosis], but approval for this indication isn't likely to come before 2011.



AstraZeneca, on the other hand, is likely to struggle as up to three of its most important drugs face patent challenges in the U.S. in 2008 -- Nexium [gastrointestinal], Pulmicort [asthma], and, less likely, Seroquel [antidepressant]. Serious R&D setbacks have depleted its near-term pipeline. Nevertheless, it has 10 products in Phase III [including several line extensions]. In 2008, the company expects to submit documents for U.S. approval of motavizumab [Numax], an anti-infective, which it obtained when it bought MedImmune in June, 2007. In addition, it may file for approval of saxagliptin [diabetes] in the U.S.; EU filings for both drugs are slated for 2009.