The Path Back to Growth For Pharma Stocks

Based on estimated revenues, Roche (RHHBY), Novartis (NVS), Celgene (CELG), and Pfizer (PFE) are forecasted to be among the top oncology players in 2016. As other drug makers, such as Eli Lilly (LLY), AstraZeneca (AZN), and Merck (MRK), build their own oncology franchises in attempts to successfully supplant profits being lost to generics competitors, they ought to emulate the shared attributes of the industry leaders.

RHHBY Sales Estimates for Current and Next Fiscal Year Chart

RHHBY Sales Estimates for Current and Next Fiscal Year data by YCharts

Analysts at Oncology Business Review identified organizational, clinical development, and commercialization factors shared in common by the top oncology players, including the following:

• Multiple phase II and late-stage trials conducted in parallel. From a business perspective, increasing the number of R&D projects is more costly and involves heightened risk of failure, but also increases the probability of multiple approvals. For example, Novartis targeted more than 10 tumor types before finding initial regulatory success for Affinitor (everolimus) in renal cell carcinoma. Now approved for five different indications, including breast cancer, the protein kinase inhibitor is projected to grow annual sales from $800 million to more than $2 billion by 2018.

• Biomarker diagnostic capabilities. Genetic markers can be used to help identify and predict which cancer patients would be most likely to benefit from the treatment. Pfizer uses biomarkers in 80% - 90% of its early clinical studies. Within a small sub-set of non-small cell lung cancer patients with a chromosomal mutation (ALK), the protein kinase inhibitor Xalkori (crizotinib) achieved high response rates, leading to regulatory approval in 2011. From $100 million in annual sales, Xalkori is expected to generate peak sales of more than $1.5 billion, as potential patient populations with a similar gene alteration in other cancer types are identified.

• Sourcing external innovations. More than 70% of sales for the top oncology companies are forecasted to come from outside-sourced projects by 2016. Established oncology leaders wthat generate the bulk of sales from cancer treatments, such as Celgene, are looking outside their own R&D departments for novel, new treatments to drive growth. In recent years, the New-Jersey-based firm has signed development deals with early-stage start-ups owning promising platforms in the fields of cell signaling inhibition, epigenetics, genomics and immunomodulation.

CELG Revenue Annual Chart

CELG Revenue Annual data by YCharts

• First-to-market products. Biologics that are first-to-market tend to generate higher sales. Roche’s Avastatin (bevacizumab), the first commercially available angiogenesis inhibitor, generated almost $6 billion in revenue last year, and could hit peak sales of some $8 billion. By comparison, the next-generation Zaltrap (aflibercept), co-developed by Regeneron (REGN) and Sanofi (SNY) will earn peak-year sales of $1.0 - $2 billion – and that assumes regulatory approval beyond metastatic, colorectal cancer.

Having lost marketing exclusivity for its $4.99 billion blockbuster psychotropic Cymbalta, which accounted for 22% of the $22 billion in 2012 global product sales, Lilly will witness patent expiry of its $2.4 billion mealtime insulin Humalog and the $1.0 billion osteoporosis medication Evista next year. Generic drug competitors are also slaying sales of Merck’s erstwhile blockbuster asthma and allergic rhinitis medicine Singulair and AstraZeneca’s popular $6 billion anti-psychotic Seroquel. However, if these global pharmaceutical giants perform their due diligence, invest R&D in novel cancer treatments with companion diagnostic agents, and successfully gain regulatory approval in more than one indication, their nascent oncology franchises could reboot anemic sales and earnings.

LLY Revenue Annual Chart

LLY Revenue Annual data by YCharts

David J. Phillips, a contributing editor at YCharts, is a former equity analyst. His journalism has appeared in Bloomberg BusinessWeek, Forbes, and Kiplinger's Personal Finance. From 2008 to 2011, David was a reporter for CBS News Interactive. He can be reached at You can also request a demonstration of YCharts Platinum.

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