Pharma's dream of blockbusters in India and China is a mirage

For several years now, pharma and other sectors have been loudly pointing to the enormous sales awaiting them in countries such as Brazil, Russia, India and China, the so-called BRIC nations. Without doubt these emerging nations, and especially their growing middle classes, represent important new markets. But top executives keep pointing to this rosy future to mollify or distract major investors who perceive a number of fundamental problems with the trends occurring in particular industries. In pharma's case those problems involve expiring patents on major products, an underwhelming pipeline of new compounds, growing payor resistance to high drug prices, a consolidating customer base that will prove more resistant to marketing communications, and weekly scandals that fuel public disdain. Worry not, say the BRIC fabulists in pharma, because growing market demand in these rising countries, together with the availability of cheap labor there, will cover this multitude of difficulties.

Maybe so, but consider the possibility that a common thread running through a number of developments from last week suggests something else.

The run-up to last week's news started in the 1990s when statins became the drug industry's largest selling therapeutic category. Statin brands such as Lipitor, Zocor and Crestor each generated multi-billion dollar revenues every year. By the late '90s, pharma struck a mother lode as it convinced physicians that the more its medications reduced a patient's LDL (bad) cholesterol level, the lower the risks for heart disease. Primary care physicians found this lower-is-better mantra easy to remember and each new statin touted its supposedly better ability to reduce LDL cholesterol.

Then around 2005 a funny thing happened. Major studies conducted on tens of thousand of patients found that driving LDL levels below a generally achievable point failed to produce better outcomes of morbidity and mortality. More recently the safety monitors halted other large studies early when they found that driving LDL cholesterol levels below those levels was actually harmful. When the second best-selling statin, Merck's Zocor, lost patent protection in 2006, the LDL golden goose had been slain and pharma set about to find a replacement.

By the time the leading statin investigator, the Cleveland Clinic's Dr. Steven Nissen, said, "We've gone about as far as we can with LDL lowering," pharma had already committed enormous resources to developing new drugs for altering other blood lipids such as HDL (good) cholesterol and triglycerides. The premise there was that another gold mine awaited them to replace LDL lowering. Pharma's largest company, Pfizer, led the way in developing a class known as CETP inhibitors designed to raise the HDL cholesterol fraction. The only problem was that after spending $1 billion to develop its CETP product, torcetrapib, Pfizer was forced to discontinue the program at the end of 2006 because the compound increased deaths and heart problems.

Undaunted, pharma persisted in believing that other means of raising HDL cholesterol still represented the road to El Dorado. The thinking held that one of those roads may lie with compounds known as fibrates. Others claimed that high doses of niacin could also lead to the city of gold. According to the plan, as the statins lose patent protection (e.g., Lipitor goes generic at the end of this year), the companies could charge premium prices for their HDL enhancers that people would take together with the generic statins.

Then last week, on May 26, the National Institutes of Health discontinued its clinical trial on Abbott's brand of high-dose niacin, Niaspan, eighteen months ahead of schedule, because it provided no additional benefits and even raised the risk of ischemic stroke when patients took it together with a statin.

This unusual move by the NIH came a week after the unanimous vote of an FDA advisory committee that also required Abbott to run a new trial on its fibrate brand, Trilipix, that offered yet another means of raising HDL cholesterol. It seems that careful analysis of previous studies found that adding fibrates to a statin regimen fails to offer any substantial benefit.

If these events were setbacks for Abbott, and perhaps for Merck and Roche as well, because the latter two have HDL enhancing compounds in development, news also appeared last week that gave these disappointments concerning blood lipids a larger perspective related to the developing global markets.

A study sponsored by the UK's Wellcome Trust found that a "polypill" consisting of 75mg aspirin, 20mg simvastatin, 10mg lisinopril and 12.5mg hydrochlorothiazide cut by nearly 50% the incidence of major cardiovascular events among people at risk for such episodes. The study was conducted among patients in the UK, the Netherlands and India, and the investigator who led the UK arm said that since all ingredients of the polypill are available as generics, the Indian pharmaceutical firm Dr Reddys had committed to making the polypill "as dirt cheaply as possible."

So while the rising middle classes in India, China and other countries will demand effective medications as an important part of better health care, it appears that most of that demand can and will be met by low cost generics. The available margins in the generic business are far lower than anything on the branded side of pharma. Beyond that, the skills, organization and personality types needed to succeed in generics remain foreign to branded pharmas.

All of this goes to point out that the upside to the developing markets scenario remains more limited than what some executives would have investors believe. But last week also showed some downside hazards for companies that would stake their futures on the BRICs.

On Friday, May 27, Steve Ballmer, the CEO of Microsoft, announced that "rampant piracy" limited the company's total revenue in China, population 1.3 billion, to less than what it makes in the Netherlands, a country of fewer than 17 million. This year, according to Ballmer, Microsoft's revenue in China will only be about 5% of what it makes in the U.S., even though personal-computer sales in the two countries are almost equal. Microsoft is not alone in the extent of piracy it suffers in China. A trade group, the Business Software Alliance, estimated that 78% of the PC software installed in China last year was pirated.

Granted that it takes only two kids in a basement to pirate a version of Windows or Office, but the capability of making and distributing bootleg versions of branded medications is not all that rarefied. Many hundreds of legal, drug making facilities exist in China while, as the American Enterprise Institute concluded, "enforcement remains weak and official obfuscation is rampant."

No doubt that at some point in the unknowable future, the fate of pharma will be determined by what are now the developing nations. For the time being, however, the executive stories about cities of gold remain closer to bedtime fables than to hard facts.

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