Exubera’s
approval was welcomed by the pharmaceutical industry and financial
analysts as one sign that 2006 will be a better year for pharmaceutical
innovation. For the last several years,
both new product innovation and financial performance have been
disappointing.
"There have been a number of product approvals which are showing the
world that the industry has not lost its capacity to innovate … there is
a resurgence of productivity in research and development."
Eli Lilly CEO Sidney Taurel in
The New York Times, 3 Feb 2006
Exubera may
expand the number of diabetics who take insulin. Currently, many adult
onset diabetics are not taking insulin because they don’t want to
self-inject.
“Fewer than a third of Type 2
diabetics use insulin, yet many more would benefit if they could take it
without having to inject it.”
Louisiana
State University Prof William Cefalu in The New York Times, 9 Sep
05
Exubera
qualifies as a potential blockbuster for Pfizer – a drug that could
generate potential sales of more than $1 billion. About 194 million
people in the world have diabetes, and Pfizer estimates that the number
will double by 2030. Exubera will be priced at about three times the
cost of injectable insulin, and industry analysts, quoted in The New
York Times, expect its sales to reach $2 billion by 2010.
Pfizer’s stock has recently rebounded about 25 percent from its lowest
level in eight years, thanks in part to the FDA’s approval of Exubera.
Both the FDA and
Pfizer have acknowledged many concerns about the product. As a result,
it comes with a large number of warnings – concern about providing
adequate training for patients, about its long-term effects on the
lungs, and the difficulty of administering an accurate dose with an
inhaler. Smokers can’t use Exubera, for example, because their lungs
absorb more insulin than do non-smokers.
Is the
exuberance over Exubera justified? Examining recent history would
indicate caution – sales may not materialize and margins may be lower
than anticipated.
Will Exubera be another FluMist?
Back in June,
2003, the FDA approved FluMist, a flu vaccine administered as a nasal
spray. The product was manufactured by MedImmune, a biotechnology
company based in Maryland. MedImmune began to offer the vaccine to
doctors for patients who did not want to get a flu shot.
Response was
initially unenthusiastic. Like Exubera, the product was difficult to
administer, and an injection was a cheaper alternative. By November
2003, MedImmune had sold only 400,000 vaccines, less than ten percent of
its original projection of 4 to 6 million. MedImmune’s stock price,
which had been around $42 a share in June 2003, dropped to a low of
$23.50 in November 2003. At the time, MedImmune CEO David Mott
contemplated killing the product completely.
When the
availability of injectable flu vaccine was severely reduced in 2004,
analysts expected FluMist sales to increase. But, as The Baltimore
Sun reported in January 2005, FluMist sales continued to disappoint
– MedImmune sold only one third of the vaccines it produced.
The parallels
between Exubera and FluMist are not precise, of course. But the nature
of the innovation itself is quite similar – both products are priced at
a significant premium over their alternatives, and the benefits for both
products come primarily in ease-of-use. MedImmune overestimated sales
by a factor of 10 in 2003 and a factor of 3 in 2004.
Exubera and Competition
Exubera’s
innovation relates to the delivery system, not the molecule. Thus, the
product does not have the kind of patent protection that allows
companies to generate significant profits. Both Lilly and Novo Nordisk,
the two major producers of insulin in the world, are working on
competing systems.
Analysts
estimate that Pfizer has a two-year lead on its competitors. After this
period, we can expect competition to bring prices and margins down for
inhalable insulin.
Exubera and R&D dis-integration
Pfizer is
manufacturing and distributing a product which it did not develop.
Exubera was developed by Nektar Therapeutics, a small biotechnology
company based in California. Nektar gets a 15 percent royalty on all
Pfizer’s sales of Exubera.
Pfizer will
contribute significantly to Exubera’s success. It brings scale and
expertise in the areas of manufacturing, marketing, and regulatory
assistance. It is investing to increase its operations capability as
well. In mid-January, it paid Sanofi-Aventis $1.3 billion to acquire
worldwide rights to Exubera and full ownership of an insulin
manufacturing facility in Frankfurt, Germany.
Pfizer has
strengths in a number of operating areas, and Exubera’s launch will make
use of those capabilities. But, in this case, the company has
outsourced its product development for a price of 15 percent of total
sales. Pharmaceutical companies will look outside their own labs for
new products that can effectively utilize their other capabilities.
More Information:
1.
My
November 2003 Update on FluMist is
here.
2.
FluMist sales didn’t meet expectations in the 2004 flu season, even
though there was a shortage of
vaccines. Here’s a
2005 article from The Baltimore Sun.
3.
A
recent New York Times article on Exubera’s attractiveness is
here.
4.
My
recent update on the dis-integration of R&D is
here.
5.
For more background on inhaled insulin, go
here.
