Pharmacology - Generic Adderall XR "by the end of next year"

[GForce]

I haven't heard anything lately about the delays Shire has been putting on the expiration of their Adderall XR patent, so I decided to do a bit of digging. Found a very interesting article that should be of use to a vast amount of people paying ridiculous prices for name brand XR.

The Squeeze on Shire
By BILL ALPERT
June 16, 2008

Shire's dependence on a drug for attention-deficit disorder that's scheduled to lose patent protection in April is tough a enough for pill for the British drug maker's holders to swallow. FDA decisions could inflict even more pain on the stock – or provide much-needed relief.

HEALTH-CARE INVESTORS ARE obsessed with shire's "post-patent" period. This non-Gregorian Calendar scheme measures the British drug maker by the day that Adderall XR goes off patent: April 1, 2009. The "Before/After XR" reckoning is understandable, given that $1 billion of Shire's $2.4 billion in revenue last year came from XR. It is the most-prescribed drug for attention-deficit hyperactivity disorder, or ADHD.

Shire's dependence on ADHD drugs has led investors to knock 40% off its American depositary shares (ticker: SHPGY) since September, dropping them to $47. Its new ADHD drug, called Vyvanse, has patents running through 2023, but sales haven't taken off fast enough to prove that Vyvanse can sustain Shire's ADHD franchise. Two XR generics are certain to arrive by the end of next year. Others could follow and crush XR's price if the U.S. Food and Drug Administration denies a pending petition from Shire that calls for would-be generics to undergo clinical trials.

Although Shire shares have given up a lot of their valuation premium in the past nine months, the company's $8.8 billion stock-market capitalization is still 15 times the consensus forecast for next year's earnings.

If the FDA opens the gates to XR generics and Vyvanse can't defend the franchise, then Shire wouldn't merit its 25% premium to the 12 times multiple carried by most pharmaceutical stocks. An industry multiple would pull Shire shares down to a level equivalent to about 40 on the depositary shares.

Shire executives and admirers think investors are unduly worried about the XR patent expiration. Some 60% of Shire revenues come from other products, notes Mike Cola, president of its specialty pharma business. He's confident that Vyvanse will become the best-seller for ADHD. And Adderall XR could end up thriving beyond next year, if the FDA concurs with Shire's petition and raises testing hurdles for XR generics. "If I look at the ADHD business unit," says Cola, "I think it's really well- positioned for the next five years."(Barron's Online recently presented Shire's bull case: "The Light at the End of Shire's Earnings Woes," May 20.)




The Basingstoke, U.K.-based company does have a number of good products besides its ADHD treatments. Those include two drugs for ulcerative colitis, whose sales surpassed $225 million last year. Others treat rare genetic disorders in competition with products from Genzyme (GENZ). Last year's sales of Shire's genetic therapies totaled about $325 million.

But ADHD drugs are Shire's moneymakers. Sales of Adderall XR have grown nearly 20% a year and surely contributed most of last year's cash earnings of $540 million, or $2.74 per depositary share (using an earnings computation that omits option expenses and other non-cash charges required under Generally Accepted Accounting Principles, often ignored by drug stock analysts).

Adderall XR uses a slowly dissolving coating to control the release of amphetamines, the brain stimulants long used to treat ADHD in children, teens and adults. Vyvanse takes a chemical precursor of amphetamine and links it to an amino acid. That combination was originally invented to foil drug abusers who convert amphetamine medicines into a form they can shoot up or snort. But the design also gives Vyvanse a smoother and longer-lasting effect than Adderall XR or other ADHD drugs like Concerta from Johnson & Johnson (JNJ).

AFTER 11 MONTHS ON THE MARKET, however, Vyvanse has garnered about 7.5% of the market, compared with around 23% for Adderall XR and 20% for Concerta. Cola says the launch trajectory of Vyvanse has been about average for a new psychiatric drug. He notes that the FDA only recently approved the product for marketing as a treatment for adults, the fastest-growing patient segment for ADHD drugs. But on the conference call for Shire's March 2008 results, analysts were clearly disappointed when Shire maintained its conservative guidance for Vyvanse sales of $350 million-to-$400 million this year.

There are bulls betting that Shire could become a takeover target for an industry giant like Pfizer (PFE). But a drug company would have to be satisfied that the Vyvanse patents can withstand scrutiny under an important 2007 ruling of the U.S. Supreme Court. In KSR International v. Teleflex Inc., the court invalidated the patent on a gas pedal that was just a common-sense combination of previously known components. The court held that such a combination is too "obvious." This new test for obviousness under patent law doesn't worry Cola. The Vyvanse chemical combination is novel and powerful, he argues.

Regardless of whether Vyvanse proves to be a breakthrough, earnings for the foreseeable future depend on Adderall XR. Shire settled patent challenges by Barr Pharmaceuticals (BRL) and Impax Laboratories by agreeing that those companies could sell "authorized" generic versions of XR next year. Under those deals, Shire will do the manufacturing and its royalties will tame price-cutting. True generic competition would have to await the FDA ruling on Shire's "citizen's petition" urging the agency to require stringent proof that generic XRs exactly match the Shire drug's time-release profile.

Cola happily notes that the agency has sat for four years on a similar petition that J&J filed for Concerta. But the FDA has approved many generic versions of controlled-release drugs. And it has rejected more drug-company petitions than it has accepted. Its decision on Adderall XR, or even J&J's Concerta, could be a sudden thumbs-up, or thumbs-down, for Shire.

The Bottom Line:
Although Shire shares have already dropped, they could fall another 15%-20% if the drug maker can't keep it's grip on the attention-deficit hyperactivity disorder market.


Source: Barron's Online

[staples]

Interesting, I was wondering about this just the other day. Unfortunately, I doubt Vyvanse will ever completely make up for the profits from XR...

Why the Pharmacology prefix though?

[GForce]

I was tired while looking through the list and this seemed like the closest prefix to "pharmaceutical news." I didn't see a news prefix or anything. And I guess to professional pharmacologists this would be news because they need to know this kind of stuff.

[Hollow Hippie]

I get 30 Adderall XR for around $30 cause of my health plan so it isn't all bad. Though I guess some of you people pay ridiculous prices, so this is some good news. Shire is fucking greedy, they are the real drug dealers pushing kids.

[GForce]

Well your insurance company doesn't like paying Shire. Either way its more money in people's pockets, even if it isn't yours, which can't be bad during a recession. I have insurance as well, but I get generics because they're like $5 for a prescription (instant release). There are people out there who don't have insurance though, and Adderall XR has always been one of the drugs at the top of the unaffordable list.

[Hollow Hippie]

Yeah, seriously $5 for generic IR? Fucking shire.

[staples]

? They have to make up for costs spent on developing the drug and running all the appropriate tests to gain FDA approval....

[GForce]

Shire's net income after taxes was $82.4 million in 2007 and $56.2 million in 2006. They more than made up their costs.

[staples]

Originally Posted by GForce

Shire's net income after taxes was $82.4 million in 2007 and $56.2 million in 2006. They more than made up their costs.

What was the cost?

Edit: We also shouldn't ignore that Shire makes more than just ADHD medication, and so to be fair we can at most consider the income generated from Adderall XR sales. It's also important to realize that the ROI cannot be unrealistically low.

[fizzle]

Originally Posted by GForce

Shire's net income after taxes was $82.4 million in 2007 and $56.2 million in 2006. They more than made up their costs.

We live in a capitalistic society. I don't like paying ridiculous prices for prescriptions either, but playing devil's advocate here, can you blame em?

[GForce]

I don't blame them at all. I'm studying Sociology and Business, specifically social stratification right now. Despite everything I've learned I am still a strong advocate of free markets and non Keynesian economic policies, for the most part.

[cyndi]

I currenly have no insurance and my son's meds are $149 for 30!!! That is crazy.

[GForce]

That's exactly what I was talking about. The price Shire charges for Adderall XR is pretty ridiculous, and its already been lowered due to such criticism. $150 for 30 pills is like street price without a break. If Shire is getting black-market value for their pharmaceuticals than they're making a killing off of them.

And to tie this into my support of free markets, just like I don't blame them for trying to make money, I do blame them for using technicalities to delay their patent expiration. Not only is this a monopoly, but the patent effectively guarantees a monopoly. It prevents anyone from creating a generic version of slow-released Adderall, which is simply amphetamines, a very well researched drug. Shire has been effectively using the beurocracy of patent laws to protect their monopoly over both a patent and their production of a commodity. I don't necessarily believe government intervention is the answer to these Marxist-like monopolies on production, but perhaps the complete opposite, less government intervention. That is, less strict regulations on patent laws so that a competitive, free-market can exist rather than what Shire dominates right now.

[staples]

Originally Posted by GForce

That's exactly what I was talking about. The price Shire charges for Adderall XR is pretty ridiculous, and its already been lowered due to such criticism. $150 for 30 pills is like street price without a break. If Shire is getting black-market value for their pharmaceuticals than they're making a killing off of them.

You act as if Shire is the only company that aims to increase profits? In fact, I believe Cymbalta by Eli Lilly costs around $250 for a 30 day supply.

You still don't know how much it costs to produce Adderall XR, nor how much the appropriate research set Shire back.

Originally Posted by GForce

Shire has been effectively using the beurocracy of patent laws to protect their monopoly over both a patent and their production of a commodity. I don't necessarily believe government intervention is the answer to these Marxist-like monopolies on production, but perhaps the complete opposite, less government intervention. That is, less strict regulations on patent laws so that a competitive, free-market can exist rather than what Shire dominates right now.

Aren't patent laws country-specific?

And isn't that like saying Honda has a monopoly on Civics? There are plenty of other options; I don't see why a doctor wouldn't understand insurance problems and prescribe either Dexedrine Spansules or Adderall IR.

[GForce]

First of all, the number I cited was their net profit for a single year after deducting costs and taxes. Shire wasn't the first pharmaceutical company to get their hands into amphetamines and there had already been a lot of research on the drug before they even developed their pharmaceutical. I'm not acting as if Shire is the only company looking to increase profits, but on the same token pharmaceutical companies are often cited as an example of companies that put profit over morals. I'm not here to pass any moral judgement on Shire, especially because Adderall isn't a necessity like some other drugs that are monopolized in the global market. But there is no doubt in my mind that they're using patent bureaucracy to extend the length of their patent. All I'm saying is that this is an interference with free markets, rather than fair, competitive capitalism. I'm not implying anything else about companies trying to make profit. Profiting is a good thing, not a bad thing, but at what point do you start to trade profits for altruism and species being?

And comparing pharmaceuticals to cars is hardly a good analogy. You have different options out there for cars, each with different features, prices, fuel economy, etc. In a developed country like the United States, most people own cars, but what car to own is really based on your own subjectivity. Pharmaceuticals, however, are governed by a professional organization, specifically the AMA. That is, they're the only people with the authority to prescribe you medication. What they choose for you to take is what you take, and theoretically if you didn't like their choice, they don't have to listen to you because of the authority intrinsic in all professional organizations. But even further is the fact that most doctors work with patients to find a medication that works well. If Adderall XR happens to be the drug that works best, why would a patient opt for something that isn't as effective?

One option is to opt for Adderall IR, a particular option I took. I have health insurance, but the co-pay between Adderall XR and Adderal IR generic is $40 and $5 respectively. So yes, using adderall IR to cope with prices is an option, one afforded to you by some competition in the market. However when it comes to the case of children, specifically, doctors have an affinity for Adderall XR. The come-up and come-down is "smoother" and it allows, most importantly, children to take one pill and have it last for an entire school day. My doctor also suggested it to me so that I wouldn't have to worry about re-dosing (which I declined). It really all comes down to you and your doctor's plan to treat whatever it is that needs treating. Doctors have abstract, specialized knowledge on medicine, and the vast majority of patients will use their doctor as their primary source of information on medicine. That is, if a doctor tells their patient that "this drug would be best," the patient isn't going to contend because more often than not they don't know anything about pharmaceuticals. That is why doctors are paid so much; because their opinion is highly valued as they're access to specialized knowledge is assumed to foster good decision making on their part.

[staples]

Originally Posted by GForce

First of all, the number I cited was their net profit for a single year after deducting costs and taxes.

Yes, using it as evidence that Shire must've made up for the cost of producing Adderall and passing it through the proper protocol to have it FDA approved. This effectively ignores anything else Shire is doing.

Originally Posted by GForce

Shire wasn't the first pharmaceutical company to get their hands into amphetamines and there had already been a lot of research on the drug before they even developed their pharmaceutical.

Their patent isn't even on amphetamines...

Originally Posted by GForce

I'm not acting as if Shire is the only company looking to increase profits, but on the same token pharmaceutical companies are often cited as an example of companies that put profit over morals.

As far as I know, that's because of the necessity to test new drugs sometimes has unfortunate consequences. This is required not by the pharmaceutical companies but by organizations like the FDA. It is indeed a necessary evil.

Originally Posted by GForce

But there is no doubt in my mind that they're using patent bureaucracy to extend the length of their patent.

Which company doesn't? At least it WILL expire. How do you know that they are meeting all of the numbers they need to for whatever research they plan to do?

Originally Posted by GForce

Profiting is a good thing, not a bad thing, but at what point do you start to trade profits for altruism and species being?

What do you think the money Shire makes is going to? Sure, I bet the CEO, CFO, COO, etc all have nice cars and houses, but meanwhile Shire is looking for more effective or simply new drug treatments...

Originally Posted by GForce

And comparing pharmaceuticals to cars is hardly a good analogy. You have different options out there for cars, each with different features, prices, fuel economy, etc.

You claimed that Shire effectively has a monopoly over it's own product, the analogy fits insofar as it serves to demonstrate that this is not a sensible thing to complain about.

Originally Posted by GForce

In a developed country like the United States, most people own cars, but what car to own is really based on your own subjectivity. Pharmaceuticals, however, are governed by a professional organization, specifically the AMA. That is, they're the only people with the authority to prescribe you medication. What they choose for you to take is what you take, and theoretically if you didn't like their choice, they don't have to listen to you because of the authority intrinsic in all professional organizations.

That is ridiculous. You are paying the doctor; the only reason he may not give you an alternative medication is in the case of a contraindication. If your doctor still refuses to give you an alternative medication, there is always another doctor who will.

Originally Posted by GForce

But even further is the fact that most doctors work with patients to find a medication that works well. If Adderall XR happens to be the drug that works best, why would a patient opt for something that isn't as effective?

Because it costs more. If a Jaguar is the most comfortable ride, why would anyone opt for something that isn't as comfortable?

Originally Posted by GForce

However when it comes to the case of children, specifically, doctors have an affinity for Adderall XR. The come-up and come-down is "smoother" and it allows, most importantly, children to take one pill and have it last for an entire school day.

And still there are other treatment options, even non-drug regimens--quite the opposite, by definition, of a monopoly.

Originally Posted by GForce

My doctor also suggested it to me so that I wouldn't have to worry about re-dosing (which I declined). It really all comes down to you and your doctor's plan to treat whatever it is that needs treating. Doctors have abstract, specialized knowledge on medicine, and the vast majority of patients will use their doctor as their primary source of information on medicine. That is, if a doctor tells their patient that "this drug would be best," the patient isn't going to contend because more often than not they don't know anything about pharmaceuticals.

But if a patient stops showing progress because they can't afford their medication, the doctor will consider that, no?

Originally Posted by GForce

That is why doctors are paid so much; because their opinion is highly valued as they're access to specialized knowledge is assumed to foster good decision making on their part.

And wouldn't a good decision for someone who cannot even afford Adderall XR be to look into alternative options?

[Hollow Hippie]

Yeah the patent is on the extended release coating on them little fucking beads (crush already will ya?)

[Dr. Awesome]

Oh wow, those prices are crazy. I get ninety 15mg XR's (I take 3 a morning) for only $20. Interestingly thats also how much my generic allegra costs as well.

Anyways I never realized how, businessy(my brain is fried from too much studying and not enough sleep) the pharmaceutical world is. Definitely an interesting read thanks for posting it. I wonder if Vyvance doesnt prove to be very popular what will happen with Shire

[GForce]

I mean it isn't like Shire doesn't have other pharmaceuticals that they manufacture and sell. If Vyvance isn't popular then their revenue will drop. Its inherent in the business cycle, peaks and troughs. Shire will have to continue to innovate if they wish to remain competitive.

staples, I'm not going to even bother to argue with you when you're going to nitpick everything based on your opinions. I do suggest you pick up a sociology book or perhaps some Marx or Weber and figure out what a monopoly is, for your own benefit. Just because you don't see the polarizing forces that are inherent in unregulated capitalism doesn't mean they aren't there. I don't want to get into an argument over semantics back and forth, but you could even apply the work of Durkheim and Alexander to a situation like this if you consider the conceptualization of our society's values, goals, and organization is viewed as a "sacred" way of conducting interactions in that society. Whenever you have a situation in which laws, essentially conceptualized morality, are being bent it isn't hard to make the argument that instead of having "sacred" values, the business has "profane" ones. Profane not necessarily in a negative way, but as a word to represent the opposite of what our country considers to be norms, especially when the norms that are being ignored are laws and regulations meant to prevent the very thing that is happening. This would be viewed as pollution of the center core of values of our society and essentially either require radical change in society's consensus on health care or some purification by society through reaffirming the importance of their values, such as senate hearings and the like. Of course apathy is always an option as well if enough of the collective society doesn't care, but affordable health care is a pretty big issue in the United States nowadays.

[staples]

Originally Posted by GForce

staples, I'm not going to even bother to argue with you when you're going to nitpick everything based on your opinions.

Where have I stated my opinion?

Originally Posted by GForce

I do suggest you pick up a sociology book or perhaps some Marx or Weber and figure out what a monopoly is, for your own benefit.

I have taken sociology classes and understand what a monopoly is. The fact that there are several other options including generic Adderall, which in most cases will produce pharamcological results close enough to Adderall XR that it is a viable option, makes it clear that Shire does not have a monopoly here.

Originally Posted by GForce

Just because you don't see the polarizing forces that are inherent in unregulated capitalism doesn't mean they aren't there.

Might you provide evidence that they are?

Originally Posted by GForce

Whenever you have a situation in which laws, essentially conceptualized morality, are being bent it isn't hard to make the argument that instead of having "sacred" values, the business has "profane" ones.

Which laws are being bent?

Originally Posted by GForce

Of course apathy is always an option as well if enough of the collective society doesn't care, but affordable health care is a pretty big issue in the United States nowadays.

I'm not sure how this falls in our discussion, or if it was meant to. Health care costs doesn't make Shire a monopoly. In fact, doesn't it make the cheaper alternatives more attractive?