(Observer (UK) Via Acquire Media NewsEdge) On an industrial park next to Liverpool's John Lennon airport, drugs companies are involved in research that is driving a new frenzy of multibillion-dollar takeover deals. The focus on this Merseyside site is on creating what could be the next big thing for the sector: biological medicines, derived from living organisms.
In laboratories here and around the world, the quest for the latest blockbuster drug has sparked another flurry of deal activity. Last week saw GlaxoSmithKline of the UK and Swiss rival Novartis agree a multibillion dollar swap of assets, while it emerged that another British firm, AstraZeneca, has been the subject of a pounds 60bn approach from US group Pfizer. And every participant is seeking a deal that will yield a clutch of medical bestsellers.
The site in Speke, Liverpool, is Britain's biggest biologics cluster and the place where, in the 1980s, US company Eli Lilly came up with the world's first biological drugs: biosynthetic insulin and the human growth hormone.
Three of the companies at the heart of last week's activity - GSK, AstraZeneca and Novartis - make flu vaccines and other biological drugs here. Over the road, Dublin-based Actavis, which produces one in 10 drugs prescribed on the NHS, has its global headquarters for biosimilars - low-cost versions of biological drugs, known as generics.
Biological medicines are a hot properties, in particular as treatments for cancer and auto-immune diseases such as psoriasis and rheumatoid arthritis.
Crawford Brown, who co-founded Actavis's biologics arm in 2000, says Liverpool is the only place in Britain where the "brand-new science" of biological medicines dominates: "We are good at discovering things in Britain, but not at taking them to patients." He adds that the industry is working with government to change that, and GSK has moved some manufacturing back to Britain.
Actavis Biologics' lead product is rFSH, a biosimilar treatment for female infertility, which is in late-stage clinical trials. Women will be able to inject it themselves with a newly developed pen cartridge device. The drug is based on Merck Serono's Gonal-f product and, if it passes the trials and gets regulatory approval, could tap into a global market worth $1.5bn.
The mergers and acquisitions debate continued last week. AstraZeneca chief executive Pascal Soriot declared his preference for a deal similar to the multibillion dollar GSK-Novartis asset swap, which he and others described as a win-win for both companies. Tidying up its portfolio to focus on four areas, GSK will get Novartis's vaccines unit, cementing its position as world leader, while the Swiss firm becomes an even bigger cancer heavyweight with the acquisition of GSK's oncology division. The companies will also create a joint consumer healthcare division, bringing together brands such as Aquafresh and Beechams.
Chris Stirling, head of life sciences at KPMG, says the asset swap could be a game-changer for the industry: "We are seeing companies learn the lessons of the past. The wave of 'mega-mergers' we saw a decade ago sparked criticism that they didn't deliver significant shareholder value."
GSK is the result of two mega mergers, between Glaxo and Wellcome in 1995 and with SmithKline Beecham in 2000. AstraZeneca formed when Sweden's Astra and Britain's Zeneca (spun off from ICI) joined forces in 1999. Pfizer has also grown through acquisition.
Some drugmakers went the other way and split themselves up to become more nimble: AbbVie, known for multi-use blockbuster anti-inflammatory Humira, split from Abbot of Chicago just over a year ago. (Humira, currently the world's top-selling medicine, with annual sales over $10bn, was developed by Cambridge Antibody Technology, but wound up in Chicago after the firm was sold.)
Pharmaceutical companies are faced with declining revenues from best-selling mass-market drugs as they come off patent, and growing price pressure from health authorities around the world. They have reacted by slimming down their massive salesforces, pushing into emerging markets, opting for collaborations with rivals and academics, or buying in promising experimental treatments from biotech firms.
Jens Lindqvist of Singer Capital Markets says: "Big Pharma as a whole is stuck with monstrous sales and marketing departments and R&D productivity is pretty low. It is a big challenge."
According to KPMG, the sector's return on R&D spending has halved over the past two decades from an industry average of around 20%. Blockbusters still come to market, but rarely. Last week a new hepatitis C pill with a hefty price tag became the biggest drug launch ever. Sovaldi, which costs $1,000 a pill and $84,000 for a 12-week course, made $2.3bn for San Francisco-based Gilead Sciences between January and March - half the company's total quarterly revenue. While its price tag has attracted criticism, Sovaldi boasts a cure rate of 90% and could end up being the biggest-selling medicine of all time - eclipsing Pfizer's cholesterol pill Lipitor, which made it an estimated $141bn.
Other potential new blockbusters include asthma drugs Anoro from GSK and Ultribro from Novartis. GSK, which makes $8bn a year from its top-selling Advair/Seretide asthma treatment, is trying to broaden its respiratory portfolio to become less dependent on one product.
However, treatments for brain diseases Alzheimer's and Parkinson's, which are still not well understood, are the most desired breakthrough. AstraZeneca is fast-tracking an experimental Alzheimer's treatment, which Soriot regards as a "hidden gem", into late-stage trials this year.
The new generation of biological drugs targets smaller groups of patients - personalised healthcare is a buzzword - but because of their complexity they cost far more than conventional tablets. Warwick Smith, director general of the British Generic Manufacturers Association (BGMA), believes biological medicines could make up half the market by value as soon as next year; they are worth 15% now. "They are not just a white tablet you take again and again. Some of the new products cure patients."
The main question is affordability. Herceptin, for breast cancer, costs up to pounds 28,000 a year per patient, while Crohn's disease drug Remicade costs pounds 12,500 a year. Smith believes biosimilars - cut-price versions of the original biological medicines - are the answer. The BGMA estimates that by 2020 biosimilars could shave up to euros 33bn off drug bills in eight EU countries.
KPMG's Stirling says the drug industry needs to move from pushing products to providing services to patients, and holds up Danish diabetes specialist Novo Nordisk as an example. A recent pilot offered treatments that went beyond doses of insulin by including text alert reminders for patients and treatments for other aspects of the disease, such as eye tests. He adds: "Healthcare systems are in crisis in many parts of the world. If you are seeking reimbursement for very expensive drugs, you've got to demonstrate a significant benefit."
Germany recently adopted more stringent regulations on approving treatments, and other countries could follow. This week the UK's National Institute for Health and Care Excellence turned down a new breast cancer drug because it costs more than pounds 90,000 per patient.
IHS analyst Gustav Ando says: "The pharma industry is probably one of the most adaptable industries out there. Very few industries are forced to completely reinvent themselves."
The Liverpool lab of Actavis, which makes low-cost versions of biological drugs. Photograpy by Jon Super for the Observer
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