A Reshuffle in a $27 Billion Market

According to a report by Transparency Market Research, the global drug market for asthma and chronic obstructive pulmonary disease, or COPD, is expected to reach $27 billion in 2017. The U.S. market is dominated by GlaxoSmithKline's Advair, which raked in 2.5 billion pounds ($3.9 billion) in U.S. sales, despite losing the patent for the drug in 2010. Advair brings in 5 billion pounds ($7.5 billion) globally. The secret to its success has been its patent-protected Diskus device, which has shielded the drug's patent loss until 2016. In addition, regulatory hurdles were considered too high for competitors to join the market. However, the Food and Drug Administration is looking to change this and has issued draft guidelines, which include a checklist of requirements for an inhalant delivery device that opens the door to competing products.

In response to the FDA development, GlaxoSmithKline's CEO, Sir Andrew Witty, in the second-quarter earnings call didn't comment on the impact that the FDA decision may have on Advair sales in the U.S., and held to his view that "a fully substitutable generic is extremely difficult, and I remain of the view that it's unlikely that we're going to see anything in the next several years." However, analysts have suggested that a rival could reach the market in late 2014 or early 2015.

Help is at hand
However, the news isn't all bad for GlaxoSmithKline. A partnership with Theravance is developing the next generation of inhaler. The Ellipta dry powder inhaler under development was preferred over currently used inhalers by a majority of COPD and asthma sufferers in a phase 3 study. The first treatment to use this new inhaler will be Breo Ellipta. Breo Ellipta is multi-drug treatment for COPD and is a combination of coricosteroid, fluticasone furoate, and long acting Beta2 agonist vilanterol. Because it delivers multiple treatments in a single dose, it only needs to be taken once a day.

Breo Ellipta was approved by the FDA in May, and Theravance was hoping to launch in the third quarter. Although in its recent earnings conference call, the company suggested that this could push to the fourth quarter as GlaxoSmithKline is running behind schedule. However, this new treatment will likely hit the market before the end of year, and it will be interesting to see how it competes against Advair.

Rivals
The asthma and COPD market has a number of companies working the field. Novartis is set to release Ultibro Breezhaler. Like Breo Ellipta, it's a once-daily treatment for COPD. Its INSIGHT clinical trial using pooled analysis of 4,891 COPD patients showed sustained improvements in lung function, a significant reduction in shortness of breath compared to a placebo, and a range of once-daily and twice-daily treatment alternatives. Ultibro Breezhaler is approved for use in Europe, with a U.S. filing expected at end of 2014.

Symbicort is AstraZeneca's asthma and COPD treatment and is the third biggest earner for the company, contributing $3.2 billion in 2012, a 5% gain on 2011 sales (2011 sales were up 11% on 2010). However, AstraZeneca will face a U.S. patent expiration for the combination treatment in 2014, although the formulation patent runs to 2023 (and the delivery device patent until 2026). Global sales form the larger chunk of Symbicort revenue, and formulation patents for the drug in the E.U., Canada, and Japan don't expire until 2018. The company is working with Pulmagen Therapeutics to combine bronchodilators with anti-inflammatory compounds, currently under development with Bayer Schering Pharma AG.

Teva Pharmaceutical is a relatively minor player in the field. It markets two branded products for asthma and COPD: ProAir and Qvar, but collectively these brought in just over $600 million in 2012, a small fraction of the overall market.

Growth market
Japan is seen as the golden chalice for respiratory treatments. Respiratory problems are a major concern in the elderly, and Japan's aging population will force geriatric health to the forefront of national health policy. The incidence of COPD in Japan is about 8.6% -- typical of Western nations, but ranges from 8.6% to 10.3% in those over 40, and rises to 22% if they are smokers.

GlaxoSmithKline and Theravance had recently received approval for Relvar Ellipta in Japan for the treatment of bronchial asthma, although not for COPD. Novartis' Ultibro Breezhaler recently obtained approval in Japan for the treatment of COPD. This will place it directly against AstraZeneca's Symbicort, which enjoyed a 12% rise in Japanese sales last year.

Summary
The next couple of years could see a dramatic shift in the asthma/COPD market. GlaxoSmithKline will probably be satisfied if Advair sales are cannibalized by increased market share from Breo Ellipta. Theravance has perhaps the most to benefit from the GlaxoSmithKline collaboration, given that the company's quarterly revenues barely scrape past $1 million. Luckily, it has $533 million in cash and cash equivalents, with a burn rate of around $125 million a year, so it can afford to be patient. Novartis will be looking to Japan for revenue guidance as it seeks U.S. approval next year. While for AstraZeneca, it's a wait-and-see on how competition will impact on Symbicort's current strong growth.

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