The 2011 "patent cliff" is quickly approaching and many big-name pharmaceutical manufacturers face patent expiration on their largest products. As the due date approaches, many anxious companies are lining up to prepare competing generic versions of once-exclusive drugs. Staying abreast of expiring patents can put you at the forefront of investment knowledge, as companies enter new territories (think mergers, acquisitions and emerging markets) in order to safeguard their businesses(Learn how to find a healthy pharmaceutical investment in a market full of weak drugs. Check out Measuring The Medicine Makers.)
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Here are six notable patents that will expire in 2011 and the companies that stand to profit.
Pfizer - Lipitor, Xalatan
Pfizer is one of the big losers in the upcoming "cliff", losing two of its major powerhouse products in 2011: Lipitor and Xalatan.
Lipitor is the best selling cholesterol drug, accounting for more than $12.4 billion in revenue. Pfizer settled with Ranbaxy Laboratories Ltd. of India, allowing the company to sell generic versions of Lipitor in the United States beginning November 30, 2011.
This arrangement provides shareholders of both companies the certainty that generic forms of Lipitor can be expected after November, 2011. As the first generic challenger, Ranbaxy holds the rights to 180 days of marketing exclusivity in the United States.
The other 2011 Pfizer loss is Xalatan. Developed 14-years ago, it is the most prescribed eye drop for lowering eye pressure in glaucoma patients. While other companies attempted to capture a share of the market with drugs offering similar benefits, Pfizer maintained market dominance. With the drug patent nearing expiration, Pfizer has reacted by acquiring new companies, most recently, a $68 billion acquisition of Wyeth.
Eli Lilly and Company - Zyprexa
Developed to treat schizophrenia, and bipolar and treatment-resistant depression, Eli Lilly's drug, Zyprexa, is slated for patent expiration in April 2011. As a result, in 2009, the company began streamlining measures to prepare for the rush of generics to the market, including cutting 5,500 jobs and restructuring internally to speed up new drug launches. But, in light of the cost-cutting measures, analysts anticipate that earnings growth may improve over the next three to five years.
GlaxoSmithKline - Advair
Advair delivers $7.2 billion in worldwide sales and accounts for 18% of GlaxoSmithKline's sales. Used to treat asthma, Advair delivers a powder through an inhalant device. In May 2010, a German court ruled a key patent on Advair invalid and paved the way for four generic drugmakers: Mylan, Neolab, Hexal (part of Novartis' Sandoz) and Ivax (a division of Teva). However, the inhalant device that dispenses the medication is protected under GSK's patent until 2011, which presents a challenge for generic drugmakers who must find an alternate means of delivery. According to the Economic Times, while much of the attention has been focused on Advair risks in the United States, industry analysts say the threat in Europe is actually more immediate.
AstraZeneca - Seroquel
AstraZeneca is losing its second largest seller, Seroquel, an oral treatment used to treat bipolar episodes and depression. The company calls it "the number one prescribed atypical anti-psychotic drug in the U.S. market", with over $3.4 billion in sales for 2009.
In March 2010, the company agreed to pay $520 million to settle charges that it illegally marketed and promoted the schizophrenia drug for unapproved uses. In addition to the settlement, through 2009, AstraZeneca has spent $656 million on its legal defense from product liability claims (though some of that has been covered by insurance).
In its 2009 Q4 earnings report, the company indicated that it plans to partially cover the losses brought on by the patent expiration by enhancing commitment to research and development, cost-savings, cost-avoidance and the possibly eliminating 1,800 positions.
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Ortho-McNeill - Levaquin
Introduced in 1996, Levaquin has gained widespread attention for its treatment of a variety of bacterial infections. Ortho-McNeill (a subsidiary of Johnson & Johnson) has "pediatric exclusivity" (which also awards it marketing exclusivity) on the billion dollar anti-bacterial money maker until June 2011. The drug was the third top-selling pharmaceutical in the company's arsenal for 2009. The top eight drugs account for 73% of Johnson & Johnson's pharmaceutical sales.
The Bottom Line
In light of the "patent cliff" of 2011, products with sales of more than $30 billion will begin to face competition from generics. But analysts estimate that the full impact of the patent shifts will be felt in 2012. As a result, look for the Big Pharma companies to seek opportunities in emerging markets. Analysts also anticipate a positive impact for retailers like CVS and Walgreen's, as an influx of generic drugs will translate to more sales revenue in drug stores. (Perform a thorough checkup to uncover a medical stock with a clean bill of health. Check out Investing In The Healthcare Sector.)
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