Hearty Stock
INVESTORS' HEARTS SKIPPED a beat last week after Bristol-Myers Squibb (BMY) announced disappointing clinical data for its experimental hypertension drug Vanlev. Once considered a potential blockbuster, Bristol's new medicine is now expected to be a small niche therapy used when all other pills have failed to lower a patient's high blood pressure.
The news sent analysts rushing back to adjust their financial models. Not only did they slash their earnings estimates for Bristol, but they also began to reassess the $13 billion hypertension market. Analysts are now trying to figure out which new and existing therapies will benefit from Bristol's failure and grab a larger share of this lucrative market.
How lucrative is it? More than 50 million Americans suffer from high blood pressure, yet experts estimate that only 27% of them are receiving medical treatment. And the number of hypertension patients is only expected to increase. According to a recent study published in the Journal of the American Medical Association, baby boomers have a 90% chance of developing high blood pressure over their lifetimes. While proper diet and exercise can help stave off hypertension, a magic pill is a far more attractive alternative for many Americans. For all of these reasons, the hypertension market is expected to swell to $38.6 billion by 2006.
And that's good for the companies that make hypertension drugs — a surprisingly large group that includes Merck (MRK), Pfizer (PFE), Forest Laboratories (FRX), Bristol-Myers Squibb and Novartis (NVS). Why so many? It seems that despite the enormous development efforts over the last decade, there's still no single wonder drug. Physicians tend to treat hypertension using a cocktail approach, prescribing a combination of drugs from different classes. The most popular: ACE inhibitors, beta blockers, calcium channel blockers, diuretics and angiotensin II antagonists. "The majority of patients will need at least two drugs and a significant number will need three or more," says Dr. Michael Weber, editor of the American Journal of Hypertension.
With Vanlev now consigned to also-ran status, which drugs have the potential to gain market share in the future? Consider the following.
The Incumbents
With Vanlev out of the running, Pfizer's Norvasc should hold on to its dominant position in the hypertension arena. This calcium channel blocker generated some $3.6 billion in sales in 2001, fourth-largest among all prescription drugs. While no one worried that Vanlev would steal a significant portion of Norvasc's market share, investors always watch to see how a strong drug will hold up to new competition, says Kenneth Nover, a pharmaceutical analyst with A.G. Edwards. "Now we don't have to worry," he says. Because of Pfizer's sheer size, however, any earnings upside is likely to be small. Pfizer management recently reiterated its goal of 15% annual earnings growth in 2002 and 2003.
At the same conference that Bristol-Myers aired its disappointing news, Merck announced some positive data from a study on its hypertension drug Cozaar. In head-to-head trials, Cozaar, an angiotensin II antagonist, proved to reduce the risk of death by stroke or a heart attack more than the popular generic beta blocker atenolol. This strong clinical performance against a beta blocker could provide a boost to Cozaar's estimated revenues of $2.3 billion in 2002 and $3.0 billion in peak sales. "Whether Cozaar unseats the usage of beta blockers or simply is added on, the current upside to Cozaar is large," says Trevor Polischuk, a pharmaceutical analyst with Lehman Brothers. He points out that during 2001 there were nearly 96 million total prescriptions written for beta blockers in the U.S., compared with just 14.5 million for Cozaar.
Merck isn't the only drug maker boasting good news. In a recent clinical study, King Pharmaceuticals' (KG) ACE inhibitor Altace, which went to market in 1991, reduced rates of stroke, cardiovascular death and heart attack by 32%, 26% and 20%, respectively, in patients who had previously suffered a heart attack or were considered high risk. King is planning to launch a new marketing effort, in conjunction with Wyeth (WYE), that will feature direct-to-consumer ads with golf legend Jack Nicklaus. Sales of Altace are expected to jump 63% in 2002, to $460 million, and another 52% in 2003, to $700 million.
The Challengers
Pharmacia (PHA) hopes to win FDA approval for its new hypertension drug Eplerenone, a selective aldosterone blocker, and start marketing it before the end of the year. It's similar to an older generic drug, Spironolactone, but without the side effects of breast swelling and tenderness in women and men. "A lot of older doctors will see an old friend dressed in more acceptable clothing," says American Journal of Hypertension's Weber. In addition to lowering blood pressure, it's also known to protect the heart and kidneys from vascular injury. And since Eplerenone uses a slightly different chemical mechanism, Weber expects a lot of physicians to add it onto existing therapies. Sales are expected to ramp up slowly, from $100 million in 2003 to peak sales of $500 million — making Eplerenone a major driver of Pharmacia's earnings a few years down the line.
Forest Laboratories has also submitted a new hypertension therapy for FDA approval: calcium channel blocker Lercanidipine, which if approved could be launched later this year. According to Forest, Lercanidipine has far fewer side effects than other calcium channel blockers, particularly ankle swelling. If that proves to be true, and if Forest were to price its new pill lower than Pfizer's Norvasc, it could easily ring up peak sales of $300 million or more, writes David Maris of Credit Suisse First Boston. That would be a boon for a company with 2001 revenues and earnings of just $1.2 billion and $215 million, respectively.
It isn't yet clear which of these companies will win the hypertension war in the future. But one thing is for certain: The demand for new treatments is on the rise. "Any [drug maker] that has any ambition should be racking its brain for new and different hypertension drugs," says Weber. "If all they got was 1% [of the market], they would have a nice little business.
