Pfizer Seeks Pricing Perfection

Part 1 of 2

Pfizer ( PFE) is about to find out if people who rely on insulin, and the medical insurers who pay for their care, are prepared to spend more for what the drug giant has billed as a significant advance in treating diabetes.

Next month, Exubera, an inhalation form of insulin, will hit the market. Pfizer hasn't said how much it will cost, though SG Cowen says its list price -- the average price that wholesalers charge doctors, pharmacies and managed-care firms -- will be 33% to 40% higher than that of injectable insulin.

Even so, prices in that range would be lower than expected, says Cowen's Ian Sanderson, citing interviews with several managed-care drug buyers. While many managed-care firms will charge a high copayment to patients and impose restrictions, "we expect Exubera adoption to be rapid despite the early prescribing hurdles," Sanderson says in a June 22 research report.

The list price for Exubera, a fast-acting insulin, is $3.73 to $4.67 a day, on the basis of a one-month supply, depending on the dose required by the patient, Cowen says. By comparison, the list price for fast-acting insulin injections is $2.67 to $2.83 a day. Sanderson says that most payers he interviewed were expecting a list price of $5.50 to $6.50 for Exubera.

"Bears forecast a slow market launch and limited long-term success" for Exubera because the drug's efficacy is only equal to injectable insulin while its price is higher, Sanderson says. Skeptics also contend that the insulin-inhaler device is "cumbersome," and that there are concerns about Exubera's effect on the lungs.

Indeed, the Food and Drug Administration says Exubera can't be used by everyone who needs insulin, including smokers or those who have quit smoking within six months of starting the drug, along with people who have asthma, bronchitis or emphysema.

The Two-Year Question

Although the FDA approved the drug on the basis of two years of studies, the agency says Pfizer will conduct long-term safety trials after the drug reaches the market to examine its effectiveness and safety in patients with underlying lung disease.

Still, the bulls, including Sanderson, "believe that patient dissatisfaction with current diabetes therapies has created pent-up demand" for Exubera. Sanderson predicts the drug will have worldwide sales of $1.9 billion in 2010, thanks, in part, to Pfizer's decision to price it below what his managed-care sources had anticipated.

Sanderson has an outperform rating on Nektar Therapeutics ( NKTR), the developer of the inhaler and a partner of Pfizer. He doesn't own shares of Nektar, which also developed the dry-powder insulin formulation, as well as other Exubera technologies. His firm has had a recent investment-banking relationship with the company. Another Cowen analyst follows Pfizer and has an underperform rating on the stock.

Other analysts are more cautious. Morgan Stanley's Jami Rubin attended the recent American Diabetes Association annual scientific session in Washington, and told clients afterward that her informal poll indicated that "many physicians felt that two years of lung-safety data was not enough data to feel comfortable" about Exubera.

On the basis of her conversations with Pfizer sales representatives, Rubin says Exubera's launch "will be tempered by the large amount of education required" for both diabetes specialists and general practitioners. She frets that Exubera could be affected by "a tough reimbursement environment, which means that patients may not be so excited, presuming they have to pay out of pocket or pay a high co-payment."

She predicts that Exubera will record a little more than $1.1 billion in sales in 2010. Rubin has an underweight rating on Nektar and an overweight rating on Pfizer. Her firm has had investment-banking relationships with both companies, and Rubin owns shares of Pfizer.

Selling Convenience

Analysts and doctors will be watching how patients and insurers respond, because Pfizer is heavily promoting Exubera for its convenience.

"We believe that Exubera will improve patients' acceptance of insulin and thereby reduce the risk for serious complications in the future," said Dr. Jack Watters, vice president for medical affairs at Pfizer. Watters made his comments after the company issued surveys earlier this month showing that many patients delay taking insulin because they don't like injections.

Some of Pfizer's patient-preference research has been criticized by regulators in the U.K. where the National Health Service is deciding whether to pay for Exubera. Previously, some drug companies, and their stockholders, have been disappointed when enthusiastic market-research findings weren't matched by patient and physician acceptance.

"It's not just about needles," said Dr. Julio Rosenstock in a speech at the recent ADA meeting. "It's about improving compliance." Rosenstock, a clinical professor of medicine at the University of Texas Southwestern Medical Center, has received research support from many drug companies, including Pfizer. He was lead investigator of a recent Pfizer study showing that Exubera was as effective as injectable insulin but caused less weight gain.

In the pharmaceutical business, convenience means compliance. Assuming there's no difference in efficacy or side effects, patients are more likely to take their medicine faithfully if it's a once-a-day pill vs. a three-times-a-day pill, or if it's a pill instead of an injection.

Exubera stretches the concept of compliance, offering a new way of taking a drug that has been injected ever since 14-year old Leonard Thompson became the first human to receive insulin extracts in 1922. A year earlier, insulin was discovered by scientists at the University of Toronto.

Injectable and inhalable insulin replaces or supplements the body's natural insulin, a hormone produced in the pancreas to help turn sugar into fuel for the body's cells. Type 2 diabetes, the vast majority of all cases, occurs when the pancreas can't produce enough insulin or when the body isn't able to adequately process the natural hormone. Type 1 diabetics can't produce insulin.

Pfizer says Type 1 diabetics must take long-acting, injectable insulin as well as fast-acting Exubera. For some Type 2 diabetics, Pfizer says Exubera can be used by itself. For others, the drug can be used with blood-sugar control pills or long-acting injected insulin.

"At this juncture, we believe there are valid arguments both in favor and against a successful Exubera launch," says Corey Kasimov, of Oppenheimer, in a June 27 report to clients about Nektar. He doesn't own shares, and his firm doesn't have an investment-banking relationship.

Kasimov initiated coverage with a buy rating, saying his exuberance is based on recent clinical data, Pfizer's pricing strategy and the belief that the inhaler "could boost patient satisfaction, quality of life and compliance."

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