Lipitor: Pfizer's Loss Is Watson's Gain

By James Brumley | June 10, 2011 AAA

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.

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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.)

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