Most investors know most of the major pharma names like Pfizer (NYSE:PFE), Merck (NYSE:MRK) and AstraZeneca (NYSE:AZN) — just to name a few — are in the midst of falling off the so-called patent expirations cliff. And, most investors know these stocks have been struggling for a couple of years now, reflective of all those expiring patents.
What investors might not realize is just how much market share those now-unpatented drugs can lose to generic versions once the patent expires.
Let’s just say these drug companies might have more of a toll to pay than the market has already presumed.
Lipitor Case Study
What better case study could there be for generics taking over a previously patent-protected drug’s market than the best-selling drug of all time?
That’s Lipitor, Pfizer’s anti-cholesterol drug that racked up sales of $10.7 billion in 2010, but hit its U.S. patent wall in November of last year. There still was a semi-protected period for six months after the drug’s patent expired, during which only Watson Pharmaceuticals (NYSE:WPI) and Ranbaxy could market a generic version. At the beginning of this month, though, it became a free-for-all as the market opened to other manufacturers.
The initial November reaction, though, pretty much says it all.
Bluntly, it’s odd that the data is even recorded, but within the first week of generic versions of Lipitor being unveiled, sales of the original Pfizer drug were cut in half … yes, you heard me: half in one week. The first two generic versions weren’t even that much cheaper than Lipitor, but sales got hit — hard.
And while the speed with which Lipitor’s sales got crushed might not be typical, as it turns out, the size of the impact of generics wasn’t unusual.
As was said, Pfizer’s Lipitor fiasco isn’t an unusual situation. And, there’s nowhere to hide for most drugs teetering on the edge of the patent cliff. Here are a few more troubling tidbits:
- Generic versions of a drug can cost between 30% and 80% less than the original drug
- In 2010, generics captured 80% of a brand’s volume within six months of patent loss. The pace and market share has grown since then.
- In 2011, generics made up 80% of prescription drug sales in the United States and sales increased $5.6 billion from the year before.
- Globally, the generic drug market is worth an estimated $225 billion; the figure will be $358 billion within five years as more key patents expire, according to a BCC Research report.
- In 2010 alone, generic drugs saved the U.S. more than $158 billion in prescription costs.
Investors have been understandably concerned, but given those numbers, maybe the concerns weren’t strong enough. It’s already meant bad news for Pfizer, but Pfizer is hardly alone.
So which other outfits are poised to lose big market share soon?
Sanofi SA (NYSE:SNY) and Bristol-Myers Squibb (NYSE:BMY) just drove off the patent cliff in May, with Plavix (which both companies have a hand in). The blood clotting drug generated $8.9 in global sales last year ($6.6 billion in the United States alone). It hurts both companies quite a bit, as it was one of the biggest cash cows for each. Sanofi did $44.7 billion in business last year, and Bristol Myers did $21.2 billion in 2011 full-year sales. If the initial estimates are any indication, it’s going to be a Lipitor-like problem — the drug’s sales are expected to fall by 60% within a year.
And that’s not all of Bristol-Myers Squibb’s problems. Its blood pressure medication Avapro, which generates more than $1 billion in sales per year, is losing patent protection this year as well.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.