Pharma: The 10 Most Promising New Drugs

S&P Ratings compiles its list of the most promising late-stage drugs due out over the next two years

By Arthur Wong From Standard & Poor's RatingsDirect

The pharmaceutical industry continues to march toward the patent cliff in 2010-2012, when a record amount of drug sales will lose patent protection in the U.S. This means some of the best-selling drugs, including Pfizer's (PFE) Lipitor, Bristol-Myers Squibb's (BMY) Plavix and Avapro, Eli Lilly's (LLY) Zyprexa, Wyeth's (WYE) Effexor, and Merck's (MRK) Cozaar/Hyzaar and Singulair will be exposed to generic competition.

The industry has gone through previous waves of patent expirations over the past 10 years, and it has largely been able to generate sales and earnings growth via a combination of volume growth, pricing increases, and new product launches. However, research-and-development productivity has fallen off, and as each successive wave of patent expirations washes over the industry, the pressure mounts on the industry's R&D pipelines to produce new, significant products.

Our selection criteria for the top 10 prospects is pretty straightforward—promising late-stage drugs due out over the next two years, where a lack of commercial success may have negative rating implications for the parent company. The failure of a drug prospect to perform up to commercial expectations, or even to reach the market, does not alone necessarily lead to a negative rating action. If a high-profile, high-potential, late-stage drug prospect at a Big Pharma company fails in development, it does not automatically mean that we lower the rating or revise the outlook to negative, if the company still has robust cash flows and a modest financial risk profile. However, the failure may lead the company to adopt a more aggressive financial policy (e.g., acquisitions or share repurchases) to drive future sales and earnings growth and counter negative shareholder sentiment.

The prospects we selected are from a wide range of companies, from top-rated Big Pharma and biotechnology companies to smaller speculative-grade specialty pharmaceutical players.

Denosumab (Osteoporosis)

Amgen (S&P credit rating, A+)

Why it's important: Amgen (AMGN) is facing several years of low sales growth, because its core product portfolio of large molecule drugs is highly mature. The company's top products—Aranesp, Epogen, Neulasta/Neupogen, and Enbrel—contribute more than 90% of sales and are not expected to grow materially (and may even decline slightly) over the next five years because of several factors.

Status: Amgen submitted its request for approval of denosumab to the U.S. Food & Drug Administration in December 2008. If Amgen receives FDA approval in the standard timeframe, we expect denosumab to come to market in late 2009.

Profile: Denosumab is a human monoclonal antibody to Receptor Activator for Nuclear Factor k B Ligand (RANKL), an important molecule in bone metabolism that acts as the primary signal in bone resorption. Amgen has completed Phase III clinical trials for the treatment and prevention of osteoporosis in post menopausal women and in the treatment of treatment-induced bone loss in breast and prostate cancer patients and received positive results. Data from Phase III clinical trials for the prevention of bone metastases in prostate cancer patients and skeletal-related events in breast cancer, prostate cancer, and solid tumors will be available in late 2009 and in 2010. The twice-yearly dosing for the prevention of fractures in patients with osteoporosis makes it likely that the compliance rate would be higher than the current daily or weekly forms of treatment.

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