Getting Value From End-of-Life-Cycle Pharmaceuticals

Approximately ten years ago, a new niche market emerged within the pharmaceutical industry: end-of-life-cycle pharmaceuticals. This phenomenon has risen out of several market factors and continues to grow as a market vehicle for the specialty pharmaceutical firms that sell them. This report describes how this niche market developed and how it is drawing more attention.

As big pharmaceutical companies continue to merge and consolidate, the companies become much larger, and the minimum sales volume of interest becomes higher. This leaves numerous products that the companies can no longer devote time and attention to and the decision is made divest. Products with less than $100 million in annual sales in a big firm usually are less desirable and targeted for divesture.

Rather than dropping a product from the catalog entirely, there is now the opportunity to sell some long-established branded products to a new firm that will try to extend its market life and boost sales. The originator company receives some payment for turning over the product to another firm and avoids the criticism of dropping a product that some physicians and patients rely on.

Some of the products do have growth potential. They are all mature, FDA-approved products getting inadequate attention or promotion. As a result, specialty pharmaceutical companies have come to acquire those products in attempt to make further profit with them. Oftentimes an old $5-10 million product that maintains good brand identification with physicians along with a reputation for effectiveness can be resuscitated and lifted to $20-30 million a year with focused promotion. [2]

Methodology

Products in this study were identified using Pharmacy Times [5] and the 2005 Red Book [6] was used to confirm the current vendor of the products. The year in which the ownership transfer took place was confirmed by telephone inquiries to the originator company and the annual sales figures from 2001 to 2005 were obtained from Wolters Kluwer.

1975, 1980, 1985, 1990 and 1995 were selected as the sample years. A list of the 200 top-selling drugs for each of the years was obtained, resulting in a list of 1,000 drugs for all five years. After screening out the duplicates, 522 unique products remained. Out of these products, only 84 belonged to branded manufacturers other than their original developers in 2005 and these became the subject products. Among these products are some that were prominent when first introduced, such as Ativan (originator: Wyeth-Ayerst; 2005 owner: Novaplus); Librium (Roche; Valeant); Nembutol (Abbott; Ovation Pharma);

After screening this list of products, their price data and annual sales figures were collected. The annual sales figures came from Wolters Kluwer and the price data from the Red Book. Original dates of FDA approval of the products were obtained from FDA’s Drugs@FDA online database [7] and dates of ownership transfer were acquired by telephone communication with the relevant companies. List prices for all products were used. Discounts were not considered even though they can have an effect on sales. However, prices in each year were discounted by inflation rates, using prices in 2001 as the baseline price. [8]

Results

There are 84 products included in the data set. Table 2 shows the breakdown by therapeutic category.

The average age of the 81 products where data were available is 32.7 years (Fig. 1). The original approval dates of Donnatal (originator: Robins; 2005 vendor: PBM Pharma), Entex LA (Norwich Eaton; Andrx Labs) and Kaon (Warren-Teed; Savage Labs) were not available. The oldest product is Butisol Sodium (McNeil; Medpointe Pharma), which was approved in 1939. Dates of product ownership transfer were obtained from telephone inquiries and product age at the time when ownership transfer took place was calculated (Fig. 2). Bentyl (Merrell-National; Axcan Scandipharma) had the longest life on the market at the time of ownership transfer. It had been on the market for 53.6 years. The average age for the 76 evaluated products was 26.0 years. Full data for eight products were not obtainable.

The data reveal that the trend of end-of-lifecycle product transaction began in the 1980s (Fig. 3). Since then, the number of products being transferred has increased. Tigan (Roche; Monarch Pharma), which was transferred in June 1980, is the first transfer in the list. Nordette-28 (Wyeth-Ayerst; Duramed/Barr), which was transferred in September 2006, is the latest transfer in the sample.

The data also show that, in 2005, the sales of the 84 end-of-lifecycle products ranged from $0 to $65.7 million (Fig. 4). The average annual sales figure is around $4 million and the median is $1.1 million. Serax (Wyeth; Faulding Pharma) was the only one with zero sales in 2005; Azmacort (Rhone-Poulenc Rorer; Kos Pharma) reached $65.7 million in sales and is the top-selling product on the list.

The sales figures in 2005 were adjusted for the general inflation rate each year and were compared to those in 2001. The difference ranges from -100% to 12,446% and the average of the difference is 330%. Fifty-five products had a higher adjusted sales figure in 2005 than that in 2001. However, 25 products had a decreased sales figure in 2005 compared to that in 2001. Sales of four products remained flat. Elixophyllin (Berlex; Forest Pharma) had the largest increase (12,446%) in sales.

The prices in 2005 were also adjusted by the general inflation rate each year and were compared to those in 2001. The price changes range from -16% to 950%, with an average of 58%. 75 products increased their prices between 2001 and 2005, while 9 held their prices (within a 5% difference) and one decreased it. Brethine (Geigy; AAI Pharma) had the largest increase in price while Talwin (Winthrop; Hospira) had the greatest decrease.

After the year of ownership transfer was determined, the product price in the year prior to the ownership transfer was collected and compared it to that in 2005 (Fig. 5). Seventy-one products had an increased price, eight products had an unchanged price (within 5%) and only one (Talwin) had a decreased price.

According to statistical analysis, Pearson’s correlation coefficient is 0.083 for the change of annual sales between 2001 and 2005 and that of prices between 2001 and 2005: thus, change in annual sale and that in price are virtually unrelated.

Discussion

As the data show, the trend of end-of-life-cycle product sales transactions began in the 1980s, became routine in the 1990s, and continued to grow in the 2000s. Total sales for the 84 studied products, in 2005, were $336.6 million. Sales for the entire niche market are estimated four to five times the number above.

The average annual sales figure of the products on our list is only $4 million and many of them are just over $1 million. Some of them even have sales less than $1 million. In this situation, the originator company cannot devote any promotional effort to the product and keeping them in the catalog will be a burden as the inventory ties up capital, warehouse space and stability tests are needed as well as licensed and fees in some countries. Divesting the product to another firm can be a good choice.

Most of the products were transferred to another company at between 21 and 30 years on the market. Clearly, these products were not under patent protection any longer and had generic competition, which means they cannot contribute a significant amount of profit to their originator companies. However, with good clinical efficacy and reputation, they were excellent targets for the specialty pharmaceutical company to acquire.

There is another phenomenon seen here. There were six products sold to another company when they only had one to 10 years on the market and 17 sold when they were 11 to 20 years old. Some of them had possibly lost patent protection already when being transferred. A possible reason for those “younger” products being transferred is that the actual life of a pharmaceutical product on the market is often less than its patent period. Another possible reason for selling a relatively young product is that it never reached acceptable sales levels. Since there was little hope of significant profit contributions for the company, it could sell the product to another firm to retrieve some of the sunk costs.

Almost all of the products have increased prices during the past few years. However, price increases did not guarantee sales increases. Over a third of the products had unchanged or even decreased sales in the same period of time.

Not surprisingly, drugs for chronic diseases consist of a majority of the list. For a chronic disease medication, it is common to have some patients who have been living with the drug for years. Patients are likely satisfied with their current medication and rely on them and they are reluctant to change to a new medication. As a result, there is a demand for these older drugs, even when less costly alternatives become available.

On the other hand, acute-use drugs such as antibiotics are in a different situation. As bacteria develop greater resistance, old antibiotics are not as effective as before. There is always a need for newly developed, more powerful antibiotics to help overcome resistant bacteria. Consequently, there is less demand for antibiotics or other acute disease drugs as there is for chronic disease maintenance medications.

Conclusion

This niche market looks like one with healthy growth possibilities. The future growth may not come in individual products, but rather, in the total number of products that might be transferred. Today, only a small number of products have been sold out of a much larger universe of possible candidate products. Perhaps the model firm of the future will have a branded prescription drug division, a generic division, an OTC division and an end-of-life-cycle division. Then they can optimize revenues and products and manage the entire life cycle, transferring products as appropriate to other divisions, with product line extensions inserted as strategically appropriate as well. PC

REFERENCE

2 Cowen & Company. Weekly New Rx Trend Summary: week ending July 7, 2006.

5 Top 200 Drugs. Pharmacy Times. ASCEND Media, Port Washington, NY.

6 Red Book. 2005 Edition. Thomson PDR, Montvale, NJ, May 2005.

7 Drugs at FDA online database. (URL: http://www.accessdata.fda.gov/scripts/cder/drugsatfda/)

8 Consumer Price Index. U.S. Department of Labor Bureau of Labor Statistics. (URL: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt)

About the Authors

Dr. Albert I. Wertheimer, PhD, MBA, is a member of the faculty of the Center for Pharmaceutical Health Services Research, Temple University (3307 N. Broad Street, Philadelphia, PA 19104; tel: 215 707 1291; [email protected]).

Ellen F. Loh, BS, MBA, is a doctoral candidate in the Pharmaceutical Health Services Research Program at the University of Maryland School of Pharmacy.