Pharma: study spreads heartache
Published: May 30 2011 19:16 | Last updated: May 30 2011 19:16
Everyone wants it to be causation, but it may be correlation. People with elevated high-density lipoprotein (“good”) cholesterol are less likely to die of heart disease. So, one would think, pills that raise HDL cholesterol will reduce deaths. A study released last week by the US National Institutes of Health suggests they might not. The drug studied was Niaspan, a time-release formulation of vitamin B3. Niaspan does raise HDL cholesterol, but the trial was halted because patients who took it, along with a bad-cholesterol lowering drug, did not have fewer cardiovascular problems than the control group.
Drug companies have wagered billions on good cholesterol. Abbott Labs paid $3.7 billion for Niaspan in 2006, when it bought Kos Pharma. The drug had over $900m in sales last year. Merck, Roche and Lilly have HDL drugs in development, and Pfizer invested massively in another that failed because of side effects.
More study may revive the causal link between good cholesterol and mortality. But the NIH study is another in a string of scientific disappointments for the drug industry. Bulls compare the single-digit price to earnings multiples many drug companies carry today with the twenty-plus multiples of the 1990s. There is more top-line pressure from patent expirations now, but is the correction overdone? It depends on what the normal amount of pipeline success is. The 1990s brought highly effective drugs for heart disease, depression, psychosis, allergies, hypertension, HIV, and diabetes. Since then, big successes have been rare. If the last decade represents the new normal, pharma stocks are correctly priced at best. An even partial return to the good old days turns them into bargains. The question is whether betting on the path of science makes sense. There may be drug firms worth buying; predicting a sector recovery would be hubris.
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Copyright The Financial Times Limited 2011