The effective expiration of the U.S. patent on Pfizer's (NYSE:PFE) cholesterol-treating Lipitor drug is still months away from happening. However, the planning has already begun at Pfizer - and even more so at the companies ready to step into the fray with a generic version of the drug.

TUTORIAL: The Greatest Investors

As the old saying goes, one man's loss is another man's gain. In this case though, the idea is being applied to pharmaceutical companies. Pfizer's loss could be a major one, considering that the drug translates into about $10 billion in revenue per year for the drug maker - 15% of last year's $68 billion on total revenue for the company with $5.3 billion coming from the United States alone.

Rather than lament the loss of the Lipitor monopoly though, opportunistic investors may want to look at this looming patent expiration from the other side. Who wins? To that end, a handful of details need to be laid out.

Lipitor Replacement Time Frame and Contestants
Due to a quirk in the way drug patent challenges work, a 180-day waiting period means an alternative won't be approved for sale until the end of November. That one is going to be sold by India's Ranbaxy, assuming approval. Ranbaxy would then have another six months of exclusivity to sell its version (the end of May, 2012), and after that, it's game on for anybody who can convince the FDA their version is an acceptable alternative.

Ranbaxy isn't viewed as the long-term generic favorite, though. That honor belongs to a company called Watson Pharmaceutical (NYSE:WPI), which has actually been authorized (not that it needed it) by Pfizer to start selling a generic Lipitor made by Pfizer beginning in June of next year, after Ranbaxy's exclusivity phase ends. In fact, there's even a slim chance that mis-steps from Ranbaxy could open the sales window sooner for Watson.

That said, it's not like patent-loss pain and generic competition hasn't already been felt by Pfizer. The privately-held Canadian company Apotex has already launched an alternative to Lipitor in that country, where Lipitor sales totaled $1.1 billion last year. Merck's (NYSE:MRK) Zocor is very comparable to Lipitor as well. In fact, it's the 2006 loss of the patent on Zocor that may offer the best template for what's about to happen with the patent expiration in Lipitor.

Shape of Things to Come
Though it never really rivaled Lipitor, which has been the best-selling drug of all time, Merck's Zocor was selling at an annual pace of $4.4 billion (globally) before that patent expired. Half a year later, quarterly sales of Zocor had fallen by 65%. The generic version called Simvastatin, manufactured by Teva Pharmaceuticals (Nasdaq:TEVA) through its Ivax subsidiary, had driven sales of Zocor down to $876 million by 2007.

That's clearly good news for Watson, which has done $3.6 billion in sales over the last twelve months. Even at a lower price point, generic Lipitor stands to be a big coup for the company.

On the flip side, Pfizer has even commented that they "expect multi-source generics to arrive on the U.S. markets 180 days after November 30, 2011." So, don't assume Watson, or even Ranbaxy, has the inside track. Indeed, one of the names that has been quietly brought up as a potential manufacturer of generic Lipitor is Teva.

The Bottom Line
The battle for top spot in generic Lipitor sales likely won't get or stay much bigger than a two-horse race, but even splitting a multi-billion-dollar purse between Teva and Watson is a good deal. (For related reading, also check out 6 Drug Companies With Expiring Patents In 2011.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Stock Analysis

    The Top 5 Micro Cap Biotechnology Stocks for 2016 (BSTC, OSIR)

    Discover some of the most promising micro-cap biotechnology stocks that investors can consider for their 2016 investment portfolio.
  7. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  8. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  9. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  10. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center