1992 Will Be Easy To SwallowJane H. Cutaia
It's hard to beat the prescription for success that U.S. pharmaceutical companies have this year. The U.S. population is aging and increasingly more health-conscious, drug exports are soaring, and a number of new, high-price drugs are about ready for market. The industry's sales could jump 20% in 1992, analysts say, to about $75 billion, and its profit margins could approach 17%.
Even so, drug-company executives aren't content to sit back and count their blessings. They face aggressive foreign competition and a new breed of domestic generic-drug makers. The way to stay on top is to watch costs and keep the new products rolling--and the industry is doing both.
In 1991, the Food & Drug Administration approved about 25 new drugs, a 25% increase from the year before. More important, the industry saw signs that the FDA may soon speed up its drug approval procedures. "Over the last several years, the FDA has doubled the number of medical reviewers," says John Petricciani, vice-president for regulatory and medical affairs at the Pharmaceutical Manufacturers Assn. It has taken time to train them. "But we should [soon] see some additional output, both in older applications...and with new submissions."
This is one reason for the healthy sales and profit outlook. It now takes some $245 million--and 10 years--to develop a new drug, test it, and bring it to market in the U.S. Indeed, the industry's R&D spending will increase about 10% again in 1992, to $10 billion or so. "We can't do much more to speed the discovery process," says the executive vice-president of one major company. "But when a drug is in the FDA's review process [now up to three years], it's lost money for us."
TOO QUICK. As a sign that times are changing, FDA Commissioner David A. Kessler points to one U.S. drugmaker that panicked briefly when informed last year that a drug application would likely be approved after only a 12-month wait. Such speedy approval "had never happened before," says Kessler. Apparently the company wasn't ready to start production. Kessler won't name the company or the drug. But cancer- and AIDS-drug approvals are now coming through "in about eight months, which is as good as anybody does in the world," says another top FDA official.
For the next few years, though, the approval process will remain lengthy for generic drugs, the chemical and therapeutic equivalents of brand-name drugs that sell for up to 50% less. This will hurt makers of generics, since an unusually large number of pharmaceuticals, with combined annual sales of more than $10 billion, will come off patent in the next 18 months and be available for cloning. These include Tagamet, the anti-ulcer drug made by SmithKline Beecham of Philadelphia.
Generic producers are paying the price for a 1989 scandal, when FDA investigators found that several of them had doctored data and misrepresented their products in other ways. The agency ordered several generics recalled from the market, and others were withdrawn voluntarily. Singed by that experience, the FDA has tightened the rules for generic-drug applications. And when it does issue approvals, it only O.K.'s two or three per patented drug, not six or seven as it once did. "It may take three to four years for the approval process to loosen up," according to one FDA official. As a result, some companies have withdrawn from the business. Their successors, including Chase Pharmaceutical Co. of Newark, N.J., and Marsam Pharmaceuticals in Cherry Hill, N.J., have invested heavily to improve their manufacturing and research capabilities.
LEGAL BRAKES. Because makers of generics have been temporarily reined in, drug prices probably will continue to rise this year, and that could invite the wrath of Congress. Federal laws passed in 1990 require drug companies to give the same discounts to medicaid that they offer other large-volume government buyers, such as the Veterans Administration. Some companies have reacted by raising prices to these other buyers. Now, several bills that are being considered in Congress would set specific prices for drugs sold under medicaid and peg future price increases to inflation.
Whether such proposals will pass is uncertain, but most drugmakers are cutting costs just in case. Late last year, for instance, Warner-Lambert Co. took a charge of $524 million against earnings to consolidate its facilities, mainly in Europe. "Our thesis is that creation of borderless markets [in Europe] will permit us to generate better economies, much as we did in the U.S." in the 1980s, says Chairman Melvin R. Goodes. Warner-Lambert expects to eliminate some 2,700 of its 10,000 jobs this year, including some 2,000 outside the U.S.
Even giant Merck & Co., whose earnings rose 19%, to $1.6 billion, in the first nine months of 1991, on a 13% increase in sales, to $6.3 billion, is restructuring to improve efficiency and cut costs. This despite plenty of good news ahead for the world's No.1 drugmaker. Chairman P. Roy Vagelos expects that as early as February, the FDA may let Merck start selling Proscar, a drug that halts the enlargementof the prostate gland, a condition that af-flicts most men older than 50. It ordinarily takes surgery to fix this problem. Proscar "will help redefine the aging process in men," says Vagelos.
That's an exciting promise--for Merck as well as for men. Proscar's annual world sales could reach $1 billion in a couple of years. And it is just one of several blockbuster drugs in the industry's pipeline.
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