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Pharma Pipeline Picks

By Arthur Wong from Standard & Poor's in New York Investors and consumers alike are interested to find out what the biggest drug breakthroughs of 2006 will be. BusinessWeek editors and writers Neil Gross, Amy Barrett, Catherine Arnst, and Arlene Weintraub put together a list of what they believe will be the biggest launches coming out of the pharmaceutical pipeline next year. We asked Standard & Poor's analyst Arthur Wong (with an assist from S&P European analysts) to weigh in on the prospects for those drugs and the companies that develop and manufacture them. Here are the top nine to watch for in 2006:

Drug: Sutent, a treatment for gastrointestinal stromal tumors and renal cell carcinoma

Manufacturer: Pfizer (PFE), with an S&P credit rating of AAA/Stable/A-1+

Status: Submitted to the Food & Drug Administration (FDA) for approval

Sutent is a member of a new class of cancer treatments that fight cancer by depriving tumors of their blood supply. Sutent is for the treatment of gastrointestinal stromal tumors, a rare form of stomach cancer, and renal cell carcinoma, a type of kidney cancer.

As many as 5,000 Americans are diagnosed with gastrointestinal stromal tumors each year. Sutent is relatively well tolerated, a big issue with cancer drugs. Sales of Sutent could approach $1 billion annually. Significant new drugs are key, as Pfizer is facing patent expirations over the next two years on products that account for 20% of revenues (see BW Online, 8/25/05, "Cancer Drugs: Therapy for Stocks?").

Drug: Acomplia, a treatment for obesity and smoking cessation

Manufacturer: Sanofi-Aventis (SNY), with an S&P credit rating of AA-/Stable/A-1+

Status: Submitted to the FDA for approval in June, 2005

Acomplia is a selective CB1 endocannabinoid receptor antagonist that Sanofi-Aventis hopes will be used for the treatment of obesity. The drug was developed following research showing that cannabis smokers often experienced extreme appetites. By blocking cannabinoid receptors in the brain, the drug reduces appetite. Acomplia, which is intended for chronic treatment, has been shown to help obese people lose weight, improve diabetic control, reduce cardiovascular risk factors, and stop smoking.

Obesity is now the most common nutritional disorder in Western industrialized countries. Unfortunately, the market for weight-reducing drugs has been characterized by major product withdrawals. Pharmaceuticals companies so far have been unable to capitalize on the need for antiobesity agents. There are only two major approved drugs currently on the market: lipase inhibitor Xenical from GlaxoSmithKline (GSK), which is the leading medicine for weight reduction, and Abbott Laboratories' (ABT) Meridia. The use of both products, however, has been limited by their adverse side effects.

If approved and free from any restrictions, Acomplia could reach $2 billion to $5 billion in peak sales. (See BW, 12/05/05, "A Second Bullet for Cholesterol").

Drug: Exubera, a diabetes treatment

Manufacturer: Pfizer, with an S&P credit rating of AAA/Stable/A-1+

Status: Submitted to the FDA for approval, and an advisory panel recommended the drug in September, 2005

Exubera is Pfizer's inhaled version of insulin, under development with Sanofi-Aventis and Nektar Therapeutics (NKTR). Exubera provides the obvious advantage of being more convenient to administer vs. injected insulin.

Exubera's efficacy is not questioned, but there have been some concerns on the safety front, due to the incidence of slight declines in lung function during clinical trials. Such declines did not progress, however, and they reversed upon halting of use.

Given Exubera's increased convenience, related better patient compliance, and large market, S&P believes the product could be a significant sales contributor. It's likely to be the first inhaled-insulin product to reach the market. (See BW, 7/18/05, "Developments to Watch: Of Insulin and Catcher's Mitts").

Drug: Revlimid, a treatment for multiple myeloma

Manufacturer: Celgene (CELG), with unrated credit

Status: FDA application filed in April, 2005, and an advisory panel recommended the drug the following September

Revlimid is a follow-on drug to Celgene's successful multiple-myeloma cancer treatment, Thalomid, which generates more than $300 million in annual revenues. Multiple myeloma is the second-most common cancer of the blood, representing 2% of all cancer deaths. In 2004, there were an estimated 74,000 new cases of multiple myeloma worldwide.

Revlimid is chemically similar to Thalomid, though it is more potent and has an improved safety profile. Revlimid is also patent-protected, while Thalomid's composition patents have expired. Although no known generic-drug company has filed for a generic version, and the extensive tracking and control requirements serve as a barrier to entry, the fact remains that a generic competitor to Thalomid may emerge.

Celgene also is evaluating Revlimid for a broad range of hematology and oncology conditions, including malignant blood-cell disorders, as well as solid tumor cancers. Revlimid sales could exceed $1 billion as early as 2008. (See BW, 6/13/05, "The Next Wave").

Drug: Gardasil, a vaccine for human papilloma virus

Manufacturer: Merck (MRK), with an S&P credit rating of AA-/Negative/A-1+

Status: Submitted to the FDA for approval

S&P believes Gardasil is Merck's most important near-term internally developed product prospect, given its sales potential. Gardasil is a vaccine against infection by the human papilloma virus (HPV), which can lead to cervical cancer. Effective against four strains of the virus, or quadrivalent, the vaccine has been shown to be 100% effective during clinical trials.

Merck, which has done surveys suggesting that the vaccine will be well received by women, is shifting promotional assets freed up with the loss of Vioxx to support its upcoming vaccine launches, including Gardasil.

GlaxoSmithKline has a competing vaccine under development, but it appears that Gardasil will reach the market first (see BW Online, 11/3/05, "A Weak Tonic for Merck").

Drug: Orencia, a treatment for rheumatoid arthritis

Manufacturer: Bristol-Myers Squibb (BMY) with an S&P rating A+/Negative/A-1

Status: Phase III, rolling submission; holds FDA fast-track review status; expected to be launched in early 2006

Orencia is Bristol-Myers Squibb's entry into the fast-growing rheumatoid-arthritis treatment market.

Orencia is a first-in-class T-cell co-stimulation modulator, discovered by Bristol-Myers. T-cells manage the autoimmune response that leads to joint inflammation often associated with rheumatoid arthritis. Orencia disrupts the T-cell activation process, preventing joint inflammation. It will provide an alternative to patients that have failed to respond to tumor necrosis factor (TNF) inhibitors, which include the three current leading rheumatoid-arthritis treatments: Amgen's (AMGN) Enbrel, Johnson & Johnson's (JNJ) Remicade, and Abbott Laboratories' Humira, all high-priced treatments that are generating significant sales (see BW, 10/10/05, "J&J: How a Dealmaker Nurtures Newcomers.")

Drug: Zostavax, a shingles vaccine

Manufacturer: Merck, with an S&P rating of AA-/Negative/A-1

Status: Submitted to the FDA for approval

Zostavax is a vaccine for the protection against shingles, which is caused by the varicella zoster virus, the same one that causes chicken pox. Shingles is a painful, blistering rash that mainly afflicts older people.

Clinical data have shown that Zostavax significantly reduces the incidence of and the pain associated with adult shingles. Zostavax is one of three vaccines that Merck plans to bring to market in 2006 (see BW, 7/25/05, "O.K., Roll Up Your Sleeve.").

Drug: Paliperidone, an antipyschotic treatment for schizophrenia

Manufacturer: Johnson & Johnson, with an S&P credit rating of AAA/Stable/A-1+

Status: Submitted to the FDA for approval

Paliperidone is an extended-release tablet for schizophrenia, a very large therapeutic market. The drug's once-a-day dosing regimen is an obvious advantage over existing competing antipsychotic treatments, especially in a market where compliance is critical. Johnson & Johnson's Risperdal, which generated $2.7 billion in sales for the nine months ended Sept. 30, already has made the company a leading player in the schizophrenia treatment market.

Risperdal is due to lose patent protection, however, in late 2007. Paliperidone will be key to defending J&J's antipsychotic franchise (see BW Online, 10/26/05, "A New Roadmap for Genetics").

Drug: Lucentis, a treatment for age-related macular degeneration

Manufacturer: Genentech (DNA) with an S&P rating of A+/Stable/A-1

Status: Phase III clinical trials; planning to submit in December, 2005, for FDA approval

An antibody that binds to and inhibits vascular endothelial growth factor (VEGF-A), Lucentis is designed to treat the "wet" form of age-related macular degeneration. VEGF-A is a protein that plays a role in angiogenesis, the formation of new blood vessels. Abnormal blood vessels grow under the retina and macula. These blood vessels may leak blood or fluids into the eye, causing a loss of vision.

Clinical data have shown that Lucentis can actually improve vision, where existing treatments have only been able to slow vision loss (see BW Online, 7/6/04, "Can Avastin Cure Genetech's Slide?").

With contributions from S&P analysts in Europe: Christian Wenk, Olaf Toelke, and Marketa Horkova

Wong is a credit analyst for Standard & Poor's Ratings Services

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