Big Pharma's leaky pipeline

Merck, Amgen, Lilly have some of the most significant pipelines in the industry - and some of the most significant problems.

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By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- After the latest round of mixed earnings from the biggest players in pharma and biotech, companies are hampered by a frustrating dynamic: a product mix that isn't strong enough to match an exodus of blockbusters.

Most of the leading drug companies have "weak pipelines" and "huge products going off patent," said Jon LeCroy, pharma analyst for Natixis Bleichroeder. Drugs with $20 billion worth of annual sales are expected to lose patent protection in 2008, according to IMS Health, putting enormous pressure on the industry with a flood of generics.

And the companies with the most significant near-term pipelines - Merck & Co., Amgen and Eli Lilly & Co. - also have some of the most significant challenges.

Merck: Moving past Vioxx

Compared to other drugmakers, many analysts say Merck (MRK, Fortune 500) shows the most promise in the coming year. The company's $4.85 billion Vioxx settlement, announced last November, resolved most of the lawsuits associated with the discontinued arthritis painkiller. But Merck also has two experimental drugs that are awaiting decisions from the Food and Drug Administration: the cholesterol-controlling Cordaptive, and the diet drug taranabant.

Analysts tend to be bullish on Cordaptive as a potential blockbuster that could someday compete with Pfizer's (PFE, Fortune 500) Lipitor - the world's top-selling drug that will go off patent in 2010. Les Funtleyder of Miller Tabak and James McKean of Atlantic Equities both believe Cordaptive could reach $1 billion in annual sales within five years.

But taranabant's prospects are less certain, and analysts are reluctant to provide sales estimates, mainly because it's in the same drug class as Sanofi-Aventis' (SNY) rimonabant. Sanofi pulled rimonabant out of the review process after it was rejected by FDA advisors in 2006, despite its availability in Europe. Some analysts fear that taranabant awaits the same fate.

Merck and its partner, Schering-Plough (SGP, Fortune 500), also face a tough challenge with their combination cholesterol drug Vytorin. On Jan. 14, the companies released a study saying that Vytorin is no more effective at reducing arterial plaque than its cheaper generic component Zocor. Each company's stock has plunged at least 20% since Jan. 14, despite their extensive ad campaigns saying they "stand behind" the drug's safety and effectiveness.

Lilly and prasugrel

Lilly (LLY, Fortune 500) is also banking on FDA approval this year for prasugrel, an experimental anti-clotting drug. If approved, it would compete with Bristol-Myers Squibb's (BMY, Fortune 500) anti-clotting drug Plavix. But it also faces an uncertain future, and many analysts have backed away from their blockbuster projections.

In November, Lilly released a study showing that prasugrel was significantly more effective at preventing blood clots than Plavix. But it was significantly more dangerous in exacerbating bleeding - a side effect of both drugs. Lilly's stock has been up and down since the release of the study.

Amgen and d-nab

Biotech Amgen's (AMGN, Fortune 500) pipeline contains denosumab, an experimental osteoporosis drug that could someday compete with Merck's Fosamax, which loses patent protection on Feb. 6.

Amgen released study results on Jan. 24 showing that denosumab is more effective than Fosamax in treating bone disease of the hips. Bret Holley, analyst for Oppenheimer & Co., projects $2 billion in annual peak sales for the drug.

Also on Jan. 24, Amgen released an unexpectedly strong earnings report and the stock has edged up 4% since that time.

But Amgen's stock lost one-third of its value in 2007, primarily because of ongoing safety concerns over its blockbusters Aranesp and Epogen, which are used to ward off anemia, a side effect of chemotherapy. In 2007, the FDA toughened the warning labels to reflect the potentially fatal side effects of taking high doses of these drugs. The warning also applied to Johnson & Johnson's (JNJ, Fortune 500) Procrit, a member of the same drug class.

The FDA plans to hold another meeting on the safety of these drugs in the next few months. To top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.