Shire's Big Gamble on ADHD Drug Vyvanse
One of the recent unheralded successes of the drug world was Shire Pharmaceuticals' launch of Vyvanse, a new, long-acting treatment for attention deficit and hyperactivity disorder. The fact that so little attention has been paid to Vyvanse is a shame because the take-up of this drug has been impressive -- it appears to be well on its way to supplanting Adderall XR as the king of the ADHD drugs.
But Shire's Vyvanse launch is also a huge gamble. The company has essentially bet all the money it spent developing and launching the drug in the hope that just two and a half years' worth of revenues will be worth the payback. (Companies usually want their drugs get about 10 years of revenue before they lose their exclusive patent revenue rights.) Of course, the company believes that Vyvanse's revenue life will be a lot longer than 30 months -- but history suggests that Shire's management are being overly optimistic.
Shire launched Vyvanse in February 2007. According to a recent Rodman & Renshaw analysts' note, Vyvanse now commands just under 10% market share, and that share is rising. (Unfortunately I cannot share the note with you because it is not online.) That's a key point, because shares for all other brands in the category -- Adderall, Strattera, Focalin et al -- are either treading water or in decline. In the last quarter, Shire booked $65 million in revenue from the product. Even Vyvance's marketing chief, Mike Boken, is impressive -- he's seven feet tall!
So things look good for Vyvanse ... until April 2009, when Adderall (also owned by Shire) goes generic.
Shire's official position is that not only will generic Adderall have no effect on sales of Vyvanse, but that Vyvanse will continue to grow after the deadline. Here's what former CEO Matthew Emmens told analysts back in November of last year:
Vyvanse has a tremendous growth potential beyond 2009. We do not believe that the absence of Adderall XR in this setting, albeit at a lower price, a generic price, is going to have a significant impact on the growth of this product.That's a bold statement, because history suggests that the opposite will happen: Cheap generic competitors tend to eat expensive branded franchises for breakfast. If you imagine market-share lines charted on a graph, you will see in category after category that the lines form a dramatic "X" shape at the very moment a dominant drug goes generic. The generic goes from zero up toward 40 and 50 percent of the market, and the branded drug plummets from its height down to zero.
Take Sanofi-Aventis' Ambien, which was one of the best-managed generic collapses of recent years. In its heyday, Ambien was 40 percent of scrips written. It is now close to zero. At the same time, generic zolpidem went from zero to more than 50 percent of the market -- more dominant than Ambien was in its prime. Sanofi's branded replacement, Ambien CR, is 10-20 percent -- which looks to be just about the best a company can hope for when its star performer loses exclusivity.
The same pattern can be seen in proton pump inhibitors when Wyeth's Protonix went generic; and in beta blockers when GlaxoSmithKline's Coreg went generic.
Even the massive cholesterol category is not immune: Merck's Zocor has close to a zero percent share of scrips written, replaced by its generic at 35-40 percent of all scrips, according to R&R. All other brands' shares are declining, including Pfizer's mighty Lipitor, even though Zocor and Lipitor aren't the same drug.
Nonetheless, Shire seems to believe that Vyvanse alone can defy gravity. It argues that the category is still growing. Indeed, prescriptions are up about 4% every four weeks, per R&R. And Shire also believes that the market for adult ADHD is untapped. Pages 33 and 34 of this Shire slideshow indicate that while kids are fully dosed up with ADHD pills, the company thinks that Vyvanse will grow into adults who are not yet on meds. Shire is launching a DTC campaign later this year to that effect. Lastly, Shire believes that increased use in Europe will shore up the brand.
But already, doubts are growing that Shire can pull it all off. Here's a telling exchange from Shires Q2 2008 conference call, in which Peter Verdult, an analyst a Citigroup, alleged that new Shire CEO Angus Russell was downgrading his estimate for total annual sales of Vyvanse, which had been $350-400 million.
Verdult: Sorry, I'm going to say hello to the elephant in the room. In the Vyvanse guidance the first quarter, there was very much a very strong defense of the wording and how that wasn't a downgrade in the guidance.
Russell: I don't know. I have had everybody give a different interpretation to that. I'm not sure what the purpose is of going back to Q1 and nailing us on whether this was a downgrade or not. It was in the range. As far as I'm concerned, it was in the range that was previously being stated. We indicated that based on trends at that time, we thought we were at the lower end.(The transcript quote came from Factiva, which is thus not available without a subscription, so you'll have to take my word for it.) We'll find out how destructive that elephant will be in spring of next year.