Tuesday, November 01, 2005

Grimm reapers

If you like fairy tales, one of the best places to find them is from politicians who parrot Big Pharma's line at every opportunity. Joe Lieberman is perhaps the most notorious teller of tall tales but there are many others. Expect to hear one or two from President Bush today as he unveils his long awaited "Pandemic Influenza Plan."

Two story lines come up all the time. One is that patent protection is the engine of innovation and research. Without it the industry wouldn't be able to invest in the costly business of discovering and developing new life saving drugs. The second is that some life saving pharmaceuticals are too unprofitable to attract the scarce resources of Big Pharma and too risky to get involved with. Hence if they are going to provide us with vaccines they need guaranteed markets and protection from liability. The facts of Tamiflu and the vaccine industry, however, tell a different tale.

In the wake of spreading fear about a bird flu pandemic, Roche Holding of Switzerland, the only licensed manufacturer of Tamiflu, is fighting a rearguard action to stop desperate countries who cannot obtain a sufficient stockpile from "going generic," patents be damned. Thinking that Tamiflu is the magic bullet that will save a population is almost certainly wrong, but you can't blame countries from doing everything they can in the face of a potential catastrophe. Spending some of that dough on improving their public health infrastructure would probably be a better investment, but that's another story.

Tamiflu, however, is a great counterexample for the claim that it takes obscene profits to drive innovation. Tamiflu belongs to a class of influenza antivirals called neuriminidase inhibitors. The neuriminidase protein on the flu virus is required to release the budding virus after it has infected a host cell. Without a functioning neuriminidase component the newly assembled virus particles stay clumped together and stuck to the just infected host cell, unable to infect other cells. The function of neuriminidase was discovered in the 1950s and 60s, not by drug companies, but by government sponsored research. Attempts to find neuriminidase inhibitors by random screns began in the 1960s but were largely unsuccessful. By the 1970s basic research (especially x-ray crystallography that revealed the protein's 3-D structure) made mechanism-based design possible. By 1980 the first neuriminidase inhibitor, zanamivir (trade name Relenza), was produced. Zanamivir is a highly selective neuraminidase inhibitor marketed by GlaxoSmithKline. But zanamivir has a problem. Its action at the active site of neuriminidase required a negative charge on the molecule, but that charge prevents uptake of the drug orally. It has to be directly administered to the respiratory tract via inhalation in dry powder form.

Oseltamivir (Tamiflu) was the next advance, discovered not by Roche but by a small biotech company, Gilead Sciences. Their idea was to use a "prodrug" that could be given in oral form and once absorbed into the bloodstream converted into active form by enzymes in the patient's body. This strategy was successful, but Gilead didn't have the marketing or manufacturing expertise to produce the drug, so they licensed it to Roche for $50 million dollars and 10% sales royalty. Thus Roche's only "research" cost was the license purchase of an already proven molecule. Much of what made that and the zanamivir molecule possible was done at public expense through NIH supported basic research.

Gilead was unhappy about the lethargic way Roche developed and marketed Tamiflu and has given notice they want to start mediation prior to canceling the exclusive license agreement. It is expected a settlement will be reached that will include an increase in royalty payments for the suddenly popular drug. In any event, a Roche patent played no part in generating the money for R&D. Roche only has a license. NIH (public) and Gilead funds underwrote the research. This is a typical story in the pharmaceutical industry. Small firms do the innovation. Big Pharma scarfs up the profits.

And the profits are not just reasonable profits, but huge, gargantuan oil-industry-like profits. Which brings us to the second fairy tale, that if we want life-saving biologicals like a bird flu vaccine, we will have to entice Big Pharma with sweet deals to make these "low profit" products. The analogy with the oil industry is more than just passing. Just like that hyphenated world (Exxon-Mobil, Royal Dutch - Shell, Chevron - Texaco), consolidation of the drug giants is rife: Sanofi - Aventis, Glaxo-Smith-Kline, and now vaccine maker Chiron is being taken over by Novartis (itself a merger of Ciba Geigy and Sandoz).

Chiron is the world's fifth largest vaccine maker. Novartis already owned a good chunk of the company. Now Novartis owns it all.
Basel, Switzerland-based Novartis already owns 42 percent of Chiron, which touched off a public-health crisis in the United States last year when it failed to deliver half of the nation's expected flu-shot stockpile of 100 million.

Emeryville, Calif.-based Chiron had rejected a previous offer of $4.5 billion, or $40 a share, as inadequate. The improved bid of $45 a share represent a 23 percent premium to Chiron's closing price on Aug. 31, the last trading day before Novartis' original bid.

The deal must still be approved by regulators and a majority of the stock holders of the 113 million outstanding shares Novartis doesn't own. Chiron's directors who don't have ties to Novartis recommended shareholders approve the deal.

Analysts said Novartis is buying Chiron for two major reasons: It wants to protect a sizable investment and the once-sleepy vaccine market is heating up because of global concerns about a bird-flu pandemic. (AP via Business Week)
So much for the unprofitability of vaccines. Now everybody wants a piece of the action. And Novartis is having trouble getting rid of its cash:
Novartis has already splashed out $8 billion this year on two generic drugmakers and spent a further $660 million in cash on Bristol-Myers Squibb's portfolio of non-prescription drugs, bolstering two of the three units.

"They have around $5 billion in free cash flow every year, so they can pay for this and more," Koch said. (Reuters)
Did you get that? $5 billion dollars in free cash flow every year! The only help these companies need is in how to spend their obscene profits. And vaccines are now the hot ticket.

Fairy Tales, all right. Straight out of Grimm.