Drug Pipeline May Lift Takeda

TAKEDA Pharmaceutical, the Japanese drug maker known for ulcer treatment Prevacid and diabetes drug Actos, has such a rich pipeline of drugs that analysts now think its stock is looking cheap.

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Takeda Pharmaceutical's shares ended yesterday on the Tokyo Stock Exchange down 0.4% at 6,740 yen ($58.64), nearly 11% below a six-year high of 7,540 yen hit on May 17. But analysts attribute the fall to an overall selloff in the Tokyo stock market rather than concerns about Takeda's business. They say Takeda, Japan's biggest drug maker by sales, has a combination of drugs under development and research prowess that should produce steady profit growth ahead.
Takeda's current price -- which comes after the Nikkei Stock Average of 225 companies as a whole has dipped nearly 17% since it started a steep slide May 9 -- is well below the level analysts think the company merits. Based on the earnings and cash flow it can generate, the drug maker's shares warrant a price tag of 8,200 yen to 8,300 yen, says Shinko Securities analyst Takumi Yamagishi, who doesn't own Takeda shares. Mr. Yamagishi has a "2-plus" rating on Takeda, which means he expects its shares to outperform the Topix index of all major Tokyo Stock Exchange issues by as much as 10% over the next six months. "The stock is clearly undervalued," he says.

Takeda forecasts single-digit increases in net profit and sales each year through the fiscal year ending March 2011, when it expects its prescription-drug sales to total 1.4 trillion yen ($12.2 billion), up 37% from 1.019 trillion yen in the latest fiscal year, which ended March 31.

Takeda has a fully stocked medicine chest to back those upbeat projections. Prevacid and Actos brought in a combined 404 billion yen in revenue last fiscal year. Those drugs, along with a hypertension treatment called Blopress and prostate-cancer drug Lupron, accounted for 59% of its group sales in that year and likely will continue to generate solid earnings for the next several years, analysts say.

Based on these strong forecasts, J.P. Morgan Securities thinks Takeda's shares are worth 7,800 yen. Merrill Lynch on June 9 raised its price target for Takeda -- the amount it thinks the stock is worth, based on the company's expected earnings over the next five years -- to 9,000 yen, from 8,500 yen.
To be sure, some analysts warn that investing in Takeda has risks.

The Japanese government, which is trying to rein in ballooning public medical costs, is considering lowering the limits on prices that hospitals and doctors can charge patients for drugs from April 2007, according to local media. That would eat into Takeda's earnings, analysts say.

In addition, new drugs being developed by Takeda's foreign competitors may dent its outlook. AstraZeneca, Merck & Co. and Pfizer all are developing drugs that could directly compete with those Takeda is preparing. AstraZeneca, for example, is developing a diabetes drug with a treatment mechanism that is similar to TAK-654, the drug Takeda hopes will replace its current diabetes drug Actos.

Still, some analysts say Takeda has sufficient time to develop follow-ups for its big prescription drugs. The U.S. patent on Prevacid will expire in late 2009, while the one on Actos will expire in 2011, allowing rivals to start producing cheaper generic versions of its products. But Takeda has replacements in the works.

Takeda also aims by 2010 to launch several new drugs in the U.S., the world's biggest pharmaceutical market. These will treat conditions and diseases such as ulcer and diabetes and will boost its prescription-drug sales to two trillion yen by March 2016, Takeda predicts.

"The visibility of potential successors to the current strategic global drugs is rising," says J.P. Morgan analyst Masayuki Onozuka. "Aggressive licensing activities have also strengthened the R&D pipeline."

What's more, before these new drugs go on sale, Takeda is planning to reward its shareholders with higher dividends and share buybacks, which analysts say should support its stock price.

Takeda plans to boost its dividend-payout ratio -- the proportion of its profit that it pays in dividends -- to around 45% in the year ending March 2011. For this fiscal year, Takeda is raising its dividend per share to 120 yen, from 106 yen last fiscal year, lifting its dividend-payout ratio to 33%, from 30% last fiscal year.

For the first quarter of this fiscal year, which started April 1, Takeda will buy back 80 billion yen, or 1.4%, of its own shares outstanding and will decide on further buyback plans on a quarterly basis. When a company buys back some of its shares, fewer shares are left among which to divide up the total dividend payment. That means each share gets a higher dividend.

Merrill Lynch analyst Masatake Miyoshi expects the company to buy back shares with a total value of between 700 billion yen and one trillion yen over the next five years. Mr. Miyoshi, who doesn't own Takeda shares, has a "buy" rating on them.
"Shareholder profits are likely to increase dramatically through the dividend increases and share buybacks" planned by Takeda, he says.

A Cancer For Drug Makers

The battle over Herceptin, the drug for breast cancer that this month won preliminary approval for broader use from U.K. health regulators, was a bruising affair that focused public attention on the high price of a shot at survival. With a cost of nearly GBP 20,000 a year for a typical breast cancer patient, Herceptin underscores that cancer medicines have some of the highest prices in the industry -- especially for the newest "targeted" therapies. That's partly because the R&D required for oncology drugs uses many of the most advanced biotechnologies and has a low success rate. It's also because products that truly improve survival rates are relatively scarce, and most cancer patients and their families are willing to pay whatever it costs to try to beat the disease. It all adds up to big business for drug makers and their investors.

But market forces are about to change the pricing picture for oncology drugs. Oncology is now the second-largest therapeutic area, with global sales last year of $40 billion, including supportive care drugs. It's on track to eclipse cardiovascular medicines in the next five years. Some market analysts have estimated that oncology could exceed $100 billion within 10 years. Partly as a result of their high profitability, oncology medicines have become the focus of an industry-wide rush. More than 500 compounds are currently in clinical trials -- four times more than any other therapeutic area. Pharma companies, including Novartis, Roche and GlaxoSmithKline, envision a future when high-priced targeted drugs will be the first-line therapy, and not just for those patients whose cancers have progressed the furthest. That alone could increase the eligible patient base by a factor of 10. And in some cases, these drugs, like Novartis's Gleevec for leukemia, may be taken for years to stop cancers from progressing.

All that is a boon for patients, but it poses a serious challenge to pharmaceutical companies. For one thing, recent history shows that fewer than 10% of compounds that begin preclinical trials are eventually approved as oncology treatments. Moreover, the rising intensity of competition will undercut the sales potential of "me-too" drugs that are similar to existing therapies. Merrill Lynch estimates that this competition will reduce prospective revenues of most cancer medicines by 21% to 32% by 2010.

Finally, as the history of cardiovascular drugs shows, payers -- whether individual patients or insurers -- focus aggressively on reducing the cost of medicines in the largest therapeutic areas as soon as there are enough competitive products. This track record signals further price pressures on oncology drugs. So far, infused biological drugs, like Avastin for colon cancer, have been spared generic competition. But the clock is ticking: The U.S. Food and Drug Administration took a step in this direction with the recent approval of a follow-on protein product, Omnitrope, a recombinant human growth hormone.

The upshot is that a small number of oncology drugs will manage to maintain a high price premium, because of their remarkable impact on survival. For most other products, including some that today command the highest prices despite having modest survival benefits, it's going to be much tougher. The market for oncology medicines will be smaller than many forecasts predict, reaching about $70 billion to $80 billion in 10 years' time, according to our analysis, as payers aggressively manage down prices and limit access to new oncology therapies That's still very healthy growth of 7% to 8% per year, but success will require more than rushing a "me-too" compound to market.

First and foremost, pharma companies need to begin focusing on actual patient survival, not just on whether a compound slows the progress of a tumor. That will be the all-important differentiator that justifies not only the costs of development but the price that payers are willing to reimburse. Viewed clinically -- and, some might argue, coldly -- many current cancer therapies have modest impacts, adding two to 10 months to a patient's life at a cost of $40,000 to $50,000. As a result, the FDA and the European Medicines Agency have both indicated that they will increasingly turn to true survival benefits as the standard of regulatory approval. For pharma companies, that's a clear signal to stop investing in drugs in development that do not show meaningful survival benefits. Investors -- and patients -- will want to take note of this trend, too.

Second, the market for oncology medicines is likely to grow more fragmented, as pharma companies are forced to get better at targeting the patients most affected by their medicines. One reason payers face a large and growing bill for cancer medicines is because the drugs are prescribed so broadly. But response rates among patients vary widely. A very small percentage of the people who took the lung-cancer drug Iressa during clinical trials, for example, improved their chances of survival. But it turns out that among Asian patients who never smoked, the drug is significantly more effective. The narrowed focus is becoming increasingly important in convincing therapy-assessment agencies that specific treatments are cost effective.

To pull that off, drug makers will need targeted diagnostic tests that can spot prime candidates for a drug by recognizing the presence of the right "biomarker" in the patient's blood or DNA. That won't be easy. To date, only a few biomarkers have been isolated. Efforts to develop biomarkers and drugs in tandem represent a sharp departure from pharma's standard R&D methods. But the old mindset of rushing a new cancer drug to market -- and then looking for a biomarker later -- becomes an even riskier path to gaining approval and attractive reimbursement.

In other words, parallel development of a drug and the biomarker that proves its efficacy might add cost in the short term, while the science required for developing the diagnostic is being worked out. In the long run, however, it will not only increase the drug's value but, most important, save lives.

Profound information about other potential cancer therapies

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Betting On A New Cancer Drug

(Abstract from the pharmaceutical pipeline database
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For decades, Bristol-Myers was the king of oncology. Then it lost patent protection on its blockbuster medications and its lead in research to nimbler biotech companies. Now the company is hoping that a long-planned comeback in cancer research can drive a turnaround from one of the darkest periods in its corporate history.

Dasatinib (whose tentative trade name is Sprycel) isn't a silver bullet for the company's woes, but it represents a promising first result from years of expensive research. Developed in Bristol-Myers's own labs, dasatinib has already won approval from a Food and Drug Administration advisory panel and is expected to win full FDA approval by June 28, just 31/2 years after it was first tested in patients. That would make it one of the fastest trips ever through the U.S. regulatory process.
The company has three other compounds in human studies for a variety of cancers, with hopes that they might be approved before the end of the decade. And the company is seeking to expand uses for the colorectal cancer drug Erbitux that it co-markets with ImClone Systems Inc. in a bid to bolster its sales.
"They're making progress," says Tim Anderson, an analyst at Prudential Equity Group. But he cautions, "I don't think they're there with a fully built-out franchise yet."
Converting this emerging portfolio of drugs into a robust revenue stream will take years. In the meantime, a healthy pipeline may be a lure for suitors. Lately, the company has been at the top of the list of potential drug industry takeover targets. Many analysts believe only uncertainty over whether the Federal Trade Commission will challenge an agreement that protects the patent of Plavix, the company's biggest seller, is keeping potential acquirers at bay. Plavix helps prevent formation of blood clots.

A Bristol-Myers spokesman, citing company policy, declined to comment on takeover speculation.
Bristol-Myers paved the way for some of the earliest cancer drugs. Beginning in the 1970s, it introduced a steady stream of chemotherapy agents, including platinum-based drugs such as carboplatin and the blockbuster Taxol for breast cancer. In 2000, its annual sales of oncology drugs peaked at $2.7 billion.
But after the U.S. patent for Taxol expired that year, the company's overall cancer drug sales tumbled to $1.5 billion by 2005. At the same time, momentum in oncology shifted to new so-called targeted drugs, designed to attack tumors directly with less-toxic effects than are associated with chemotherapy. Thanks in part to the high prices the new agents could command, drugs such as Genentech Inc.'s Herceptin and Novartis AG's Gleevec became blockbusters, vaulting those companies to the lead in cancer sales.

In late 2001, Bristol-Myers paid $2 billion for rights to ImClone's targeted colon cancer remedy Erbitux, only to have the FDA reject the drug a few weeks later. (The company ultimately renegotiated its deal with ImClone and the drug was eventually approved.) Then the company was rocked by a scandal involving inflated product sales to wholesalers -- a practice known as channel stuffing.

As they plotted their way out of the turmoil, company officials determined to regain prominence in cancer drugs. "This is one of the pillars upon which our company has been built," says Frank Pasqualone, head of Bristol-Myers's oncology business.
A major effort was directed at dasatinib, which was discovered by immunologists at Bristol-Myers and then found to have a molecular structure that led company scientists to believe it could inhibit two cancer causing genes. One is known as src, which is active in the breast and other solid tumors; the other is abl, which is what Gleevec blocks in patients with chronic myelogenous leukemia, or CML. Applied to human cancer cells in a test tube, the drug produced stunning results: It was as much as 300 times more potent than Gleevec. A big question was whether such potency, and its ability to home in on several mutations of the abl gene, would make it too toxic for patients.

In late 2003, doctors at M.D. Anderson Cancer Center, Houston, and the University of California at Los Angeles, began testing it in the first patients. Six months later, they saw the first major response: the drug had sharply reduced levels of the mutant gene from patients' bone marrow. "We knew we had a direct impact on the disease," says Robert LaCaze, the company's vice president for global oncology marketing. "It was a lot sooner than we had anticipated."

Since then, dasatinib has been tested on several hundred patients, yielding more convincing evidence of its benefit. Side effects include fluid retention and nausea. An FDA advisory panel voted overwhelmingly two weeks ago to recommend approval of dasatinib for chronic myelogenous leukemia patients who are resistant to Gleevec. Barring last-minute surprises, the company expects the FDA, which typically follows the advice of its panels, to make a decision by June 28.
Doctors say the new drug, and potentially a similar new compound from Novartis that is considered about a year behind dasatinib, offers hope for patients who don't respond to or can't tolerate Gleevec.

The next step is to establish dasatinib as a front-line treatment, and thus make it a direct rival to Gleevec and its $2.2 billion in annual sales. Trials are already under way to test the drug against Gleevec. The move will be tough even if those trials succeed, because Gleevec is well established in the market with impressive long-term results, doctors and analysts say. About 10,000 new cases of CML are diagnosed in the U.S. each year and a recent five-year follow-up of patients on Gleevec indicates that fewer than 5% of them per year become resistant to the drug.

Still, some analysts' estimates for dasatinib sales in 2010 range from $500 million to nearly $1 billion based on usage with patients who failed with Gleevec and on expectations that a combination of the drugs will be used.

Dasatinib may prove to be effective against other types of cancers. Once a new drug reaches the market, it is available for doctors to try with other patients. In any event, Bristol-Myers is testing the drug against other cancers with hopes of broadening its market well beyond CML.

For more information about current therapies in development visit the drug pipeline database

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Pharmaceutical pipeline and data

As pharmaceutical companies find it difficult to raise prices in the market place, the profitability--and hence continued development--of new drugs will depend increasingly on reducing the cost of launching new drugs. A significant source of that cost is the Food and Drug Administration's safety and efficacy review. Reducing the time spent in review, and increasing the chance of successfully completing it, will not only reduce the costs of producing new drugs, but ultimately lead to lower market prices for consumers.

New drugs in development

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Drug pipeline problem

The traditional pharmaceutical research model harks back to processes developed by German and Swiss chemical firms in the late nineteenth century, when chemists synthesized and screened thousands of compounds in search of a few potential new drug candidates. Although the methodology is more sophisticated now, success is still in many ways thought to be a matter of brute force: throw hundreds of scientists at a problem and hope for the best. It�s crapshoot economics; a few great successes can pay for myriad failures. So bigger has always been seen as better.

Today, though, the advantages of size are trumped by what are called �diseconomies� of scale: inertia, bureaucracy, risk aversion, clock-watching, office politics. Joseph Kim saw a lot of this firsthand, as a scientist at Merck for nine years, and now he likes to compare Merck to the Titanic. �Companies like Merck have fantastic scientists working for them, but they also have these middle and upper layers of managers who are just taking up space,� he said last week. �I like to call them �anti-bodies,� because they just sit there being anti-everything. No one ever gets fired for saying no to a new idea.� Now, as the founder and the C.E.O. of a little biotech called VGX Pharmaceuticals, Kim has a novel type of aids drug in clinical trials and a promising drug for cancer in development.
It turns out that research and development doesn�t scale�that bigger may be worse. That�s why the engines of pharmaceutical innovation have for some time now been smaller biotech firms like VGX, which can concentrate on a few promising avenues of research and can offer enterprising scientists the freedom�and the potentially enormous rewards�of working as entrepreneurs. Just as, in the seventies, the locus of innovation in the tech business shifted from Goliaths like Digital and I.B.M. toward the smaller, more narrowly focussed start-ups of Silicon Valley, so it is shifting now from big to little pharma.

To track the most advanced product in development you can use the pharmaceutical pipeline of

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Nutritional Supplement Market At a Crossroads

The U.S. market for nutritional supplements is shifting inexorably toward stricter governmental regulation, from the implementation of GMPs (Good Manufacturing Practices) and more stringent requirements for AERs (Adverse Event Reports), to the proposed registration of all supplement manufacturers and the burdens of the Bioterrorism Act. In the 20 years since the passage of DSHEA (Dietary Supplement and Health Education Act), the industry has not come up with an effective way to police itself, despite the sincere efforts of leading industry associations to do just that. As a result, supplements making unsubstantiated claims continue to appear on a daily basis, and while few of these products are actually unsafe, their presence on the market is unethical from a business standpoint and unfair to consumers. Given the therapeutic claims made by many nutritional supplements—from cancer support to penile enlargement—it is remarkable that the government has not cracked down sooner, even if such products claims are couched with the standard “not intended to treat, diagnose, cure, or prevent any disease” and “these statements have not been evaluated by the FDA” disclaimers.

For the industry as a whole, the most important effect of increased regulation will be a continued shift of power into the hands of a mighty few. Product testing and development is costly and will only become more so, meaning that most smaller marketers, who usually prefer to spend their budget on marketing, will find it increasingly difficult to meet the new requirements. The resultant power shift will therefore be a function of many smaller supplement makers exiting the field, with others—fortunately including many of those with truly worthwhile products—being swallowed up by larger companies able to back them with product testing, certification, and marketing support. Established names like One-A-Day and Centrum could easily grow from multiproduct lines to extended brand families encompassing dozens of products, with increasingly esoteric ingredients finding a place at the mass-market table. In other cases, mass-market leaders whose presence is not yet significant in the health/natural sector will field separate new divisions (as Wyeth already does with Solgar) to cover that side of the business.

While this may be bad news for smaller companies unable meet the new demands, it will likely be beneficial for the market as a whole, at least from a strictly bottom-line perspective. That is, as nutritional supplements are increasingly sanctioned by the government and backed by known companies with strong brands, consumer confidence in the products will go up, and so will sales. The bad news for consumers is that part of this sales hike will stem from higher prices, as the largest companies become increasingly capable of naming their own prices for product types that were previously widely available at more competitive prices.

Currently, much of the research into nutritional supplements is funded by the National Center for Complementary and Alternative Medicine (NCCAM), and this agency recently indicated an intention to shift its focus from clinical trials to more basic pharmacological/mechanistic research. At the same time, more and more companies are funding their own clinical trials on their own products, with the goal of developing proprietary formulas. That most nutraceutical ingredients have originated from an herb or other plant suggests this is the area of greatest new product potential. According to Brien Quirk, technical director for Draco Natural Products, a leading plant ingredient supplier, “Increasing study of the biochemistry of existing or new phytocompounds will provide the impetus and basis for new product development. Traditional herbal medicine may also provide new ingredients to use in whole extract form, even if it is not known which compound is responsible for the activity.” Among the most recently introduced patented plant-based ingredients is Cargill’s CoroWise (www.corowise.com), a plant sterol found in GNC’s new Preventive Nutrition Heart Advance Softgels, as well as in beverages like Minute Maid’s Premium Heart Wise orange juice.

Another important new ingredient, also from Cargill, is Regenasure, a glucosamine hydrochloride derived from the fungus Aspergillus niger. Cargill developed the ingredient in response to growing demand for an alternative glucosamine source in Europe, which is facing a shortage of raw material production (i.e., mainly shrimp). Launched in fall 2003, Regenasure is the only glucosamine being produced in the United States, and several major U.S. marketers are expected to introduce new products formulated with the new ingredient within the next few months. Because of Regenasure’s “shellfish-free” formula, along with its vegetarian and kosher status, products boasting it will carry a distinct market advantage over traditional glucosamine products, given the recent passage of the Food Allergen Labeling and Consumer Protection Act (FALCPA), which requires all U.S. food and beverage producers to include more prominent allergy warnings on their products by January 2006.

For at least a decade functional foods and beverages have been subtly encroaching on the turf of nutritional supplements, but this trend is picking up steam, driven by recent media reports citing scientific studies showing that foods may be better delivery systems for certain nutrients, and by functional foods’ trendier and more user-friendly incarnation as “phoods.” As a result, just as food and beverage marketers have been morphing their products into phoods, so are a growing number of nutritional supplement makers morphing their products in phoods. This is especially apparent in the area of calcium supplements, where products like McNeil/Johnson & Johnson’s Viactiv “soft chewables”—which come in tempting flavors including Milk Chocolate and Strawberry Cream, as well as in new resealable “To-Go Packs”—are making big inroads; and in kids supplements, where products in candy form (chewing gum, taffy, gummies) are gradually unseating the standard “chewables.” Opportunities also lie in the licensing of famous-name supplement brands for usage on foods and beverages, although not even the biggest name can guarantee success. For example, after entering the foods bars market with its Centrum brand, a cool reception for the product forced Wyeth to withdraw.

Omega-3s are now widely accepted for their ability to help reduce the risk of cardiovascular disease, but a growing body of research is supporting additional benefits—including the ability to fight arthritis, improve brain function, support eye health, and relieve depression—yielding major opportunities for new supplement types. A U.S. Senate committee reported in July 2003 that “learning disabilities and behavioral disorders have been linked to low serum levels of Omega-3 fatty acids” and that, therefore, “particular attention should be paid to developing food choices that are high in Omega-3 fatty acids.” More recently, on September 15, 2003, the FDA decided to allow food companies to make qualified health claims about the heart-healthy benefits of certain Omega-3s on their packages. Although this ruling does not pertain to nutritional supplements made with Omega-3s, it seems certain to give them an additional shot in the arm. Companies already pushing the health claims of Omega-3s in new directions include Natural Factors, whose Learning Factors supplements are made with the essential fatty acids and promoted as “ideal for children as well as adults who want to enhance their mental focus naturally and safely”; and Nordic Naturals, whose Omega Woman supplement is claimed to assist in maintaining hormonal balance.

For more information on the U.S market for nutritional supplements, check out the following Packaged Facts report:

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