New And Improved Drugs? No Thanks

As seen on CNN Money

New York psychiatrist Jeffrey Lieberman has heard Johnson & Johnson's (JNJ) sales pitch for the new anti-schizophrenia drug Invega, but he's not too impressed.

Problem is, Invega isn't much different than one of J&J's best-selling drugs, the antipsychotic Risperdal. In late June, Risperdal is scheduled to lose its U.S. patent protection, clearing the way for competing generic copies that are cheaper than Invega, which could further diminish Invega sales, already characterized as a disappointment by J&J.

"I don't think they have a strong case to make," says Lieberman, chairman of the psychiatry department at Columbia University's medical school. "It's basically a me-too drug, and the company hasn't done the studies that would be required to really distinguish it."

Lieberman's skepticism is shared by health insurers and points to a rising challenge for drug makers: a tougher market for so-called follow-on drugs. As a result, some companies - including Wyeth (WYE) and Shire PLC (SHPGY) - are setting prices lower or emphasizing improved dosing for the newer drugs to help overcome any skepticism that they're not much more effective than the older drugs set to lose patent protection.

The growing disdain for follow-on drugs also should reinforce the need for drug makers to come up with truly innovative products, not just marginally better ones, industry watchers say.

Drug companies have used follow-on drugs to try to offset some of the revenue lost when older, top-selling drugs lose patent protection and become exposed to generic knockoffs. The goal is to convince patients, doctors and drug plans to switch to the newer drug that carries a brand-name price and patent protection for years.

A successful example was AstraZeneca PLC's (AZN) promotion of the Nexium heartburn pill when its older drug, Prilosec, became exposed to U.S. generic competition in 2002. Nexium went on to become a huge blockbuster despite being chemically similar to Prilosec, which became available as both a cheaper generic and over-the-counter product.

Such tactics, however, might not work as well in today's environment, in which drug-benefit plans are demanding steeper discounts and pushing use of generic drugs in order to lower costs and bolster profit margins.

"We don't think those opportunities are really going to fly," Deutsche Bank pharmaceutical analyst Barbara Ryan said. "I think managed-care sees them for what they are, extending the franchise."

The skepticism around Invega has contributed to a financial disappointment for J&J. The New Brunswick, N.J., healthcare giant hasn't broken out Invega sales but acknowledges they've been below expectations. Invega's share of U.S. antipsychotic prescriptions was only around 2% for the week ended May 9, according to Verispan, a drug-data marketer. In comparison, Risperdal, which had 2007 sales of more than $4 billion, held a 21% market share.

Insurer Pressure

Some insurers aren't putting certain follow-on drugs on their lists of preferred drugs, or they're requiring members to pay higher out-of-pocket costs for these drugs than for other branded and generics.

"It's a marketing scheme that is not looking at improving healthcare, it's looking at maintaining their revenues coming in," said Mirta Millares, in commenting on the industry's follow-on drug strategy.

Millares is manager of drug information services at Kaiser Permanente, a California health insurer that doesn't include Invega on its list of preferred drugs. The active ingredient of Invega is derived from that of Risperdal, Millares noted, though it was different enough to get a new patent and regulatory approval.

Minneapolis-based UnitedHealth Group Inc. (UNH), the nation's largest health insurer by revenue, has Invega on the "third tier" of its preferred drug list, which means members have to pay higher copays than if they were to use other schizophrenia drugs on the first and second tiers. The insurer deemed Invega clinically similar to other atypical antipsychotics.

Clinical studies supporting Invega's December 2006 Food and Drug Administration approval primarily compared it with a fake drug, or placebo, but not with Risperdal. In 2007, J&J released data showing Invega improved symptoms over AstraZeneca's Seroquel antipsychotic, which is the market leader for U.S. antipsychotic prescriptions. Also, J&J touts Invega's long-acting formulation and once-daily dosing.

J&J says it's not encouraging patients who are stable on Risperdal to switch to Invega. But it had hoped for Invega's performance to be better by now, making Risperdal's loss of U.S. market exclusivity next month less painful. "We need to do a better job at drawing a differentiation in a difficult-to-treat population, " David Norton, J&J's group chairman of pharmaceuticals, said earlier this month.

Norton said J&J should have ensured Invega had more favorable coverage by drug plans at the time of market launch. Still, he noted that new antipsychotics have historically taken a while to gain acceptance.

J&J has said it plans to seek FDA approval for Invega as a treatment for bipolar disorder, which could bolster sales. It also has applied for FDA approval of a long-acting, injectable version of Invega.

New Marketing Strategies

Despite the challenges, drug-company marketing remains a powerful tool, and it might be too early to write off follow-on campaigns such as that for Invega. The real test may come when Risperdal goes off patent, and J&J reduces its active promotion of Risperdal, leaving sales reps to focus on Invega.

"There are plenty of studies showing physicians are susceptible to marketing practices in their prescribing patterns," said Aaron Kesselheim, an instructor in medicine at Harvard Medical School who researches drug marketing. "My perception is that hasn't changed substantially."

A new marketing campaign that might be meeting with more success is underway at Shire, Basingstoke, U.K., which last year began selling a new drug for attention deficit hyperactivity disorder, Vyvanse. Shire's top drug, Adderall XR for ADHD, will face generic competition beginning next year.

So far, Vyvanse has captured about 7% of U.S. ADHD drug prescriptions, according to Verispan, which Chief Executive Matthew Emmens calls good progress. Although Shire recently said it expected 2008 Vyvanse sales to come in at the lower end of its forecast range of $350 million to $400 million, Emmens said in an interview he was confident that Vyvanse's market share will eventually surpass Adderall XR's peak market share of about 26%.

Emmens noted that Vyvanse is a different chemical entity than Adderall XR, and he thinks its pricing is attractive to health insurers. "In a general nature, the market has become more price sensitive in the last 10 years," he said. Not incidentally, in the 1990s, Emmens headed the AstraZeneca partnership with Merck & Co. (MRK) that marketed Prilosec and he was involved in the planning for Nexium's marketing.

The next test of the drug-switch campaign?

Wyeth, Madison, N.J., recently began selling Pristiq, an antidepressant that is chemically similar to Wyeth's older antidepressant Effexor XR, which is expected to face limited generic competition this year. Deutsche Bank's Ryan thinks the odds of Pristiq's success are slim because it appears to offer few benefits beyond those of Effexor.

Wyeth has said Pristiq is effective at treating depression, offers a convenient dose regimen for most patients, and is being priced at a 20% discount to Effexor.