Amgen lacks freshness, but is by no means the worst offender
Amgen, heavily castigated this week for overreliance on old products, must feel like it has been unfairly targeted. After all, it is hardly alone in this predicament.
Several big pharma names, and other dominant drug makers like Novo Nordisk, derive more than 80% of their revenues from products launched over 10 years ago, EvaluatePharma reveals. Amgen has also been slated for excessive R&D spending, and it is interesting to note that the sector’s other big break-up target – Pfizer – also ranks poorly here (see tables).
As measured by R&D freshness – the efficiency with which a company replaces old drugs with newer pipeline entrants – Amgen does rely heavily on products launched some time ago. That said, Novo Nordisk, the highly rated Danish diabetes specialist, demonstrates that this is not necessarily a trigger for investor dissatisfaction.
A look at how the big pharma companies shape up on this measure shows a big difference in performance, ranging from AbbVie’s staggering 97% reliance on established brands, down to Bristol-Myers Squibb’s seemingly nubile portfolio, with only 40% of its sales this year coming from drugs launched more than a decade ago.
|An overreliance on old drugs? The picture in 2014|
|% of sales from
|Total Rx and
OTC sales ($bn)
|Merck & Co||63%||57.3||37.5|
|Johnson & Johnson||52%||71.3||33.4|
|Other big drug makers|
Of course, this analysis is skewed by the entries of products like Bristol and Merck’s anti-PD1 MAbs, which are forecast individually to generate billions of dollars a year. Meanwhile, Amgen’s most notable launch since 2005 is the anti-RANKL antibody sold to treat both osteoporosis and bone metastases, as Prolia and Xgeva; neither brand has been a runaway success.
AbbVie is perhaps not entirely relevant – it has only existed as a standalone entity since the beginning of 2013, and does not have a complete R&D spend record. But its reliance on Humira is a well-known cause for concern. The drug has been on the market since 2003, and its $12.3bn of forecast sales this year accounts for almost two thirds of group revenues. AbbVie's desire to buy a company like Shire is therefore understandable.
In Amgen’s defence, the elderly blockbusters Epogen, Enbrel and Neulasta are still forecast to be generating multi-billion sales in 2020. But with R&D spend way above the average for this peer group, the lack of more recent hits points to a disappointing return on a considerable investment – perhaps the biggest concern for Third Point, which is now agitating for a break-up (The heat on Amgen is not about to let up, October 22, 2014).
It is interesting that Eli Lilly, a big pharma group that has largely refused to de-emphasise R&D work, does not stand out as a particularly big spender relative to its peers. But its reliance on older products is notable, with several big launches having happened just over a decade ago, including Alimta and Cymbalta in 2004, and Cialis in 2003.
Pfizer, on the other hand, is pretty average in terms of portfolio youthfulness, but it has been spending big – more than any other company in its peer group, in fact. GlaxoSmithKline does not stand out on either count, though judging by yesterday’s financial results the UK group has more immediate things to worry about.
Pfizer was thought to have been manoeuvring towards a break-up until it launched a surprise bid for AstraZeneca, and investors would no doubt like to see a few big products emerging to improve its freshness ranking. GSK, too, is now floating the possibility of spinning out its HIV business.
Certainly, if Third Point is to be believed, a break-up is the way for Amgen to release hidden value. The boards of Pfizer and GSK might well make the same argument, benefiting along the way from the handy distraction from the underlying business malaise that this tactic would bring.