The term “patent cliff” isn’t one investors see thrown around as much as it was a couple of years ago, but make no mistake — pharmaceutical companies are still falling off it. And for Pfizer (PFE), the tumble over the edge of the cliff seems to be unfurling at maximum velocity.
Granted, it doesn’t seem to have impacted the value of Pfizer stock much, if at all; PFE shares are up 180% since 2009’s low and are still going strong, as the company has largely managed to buy its way out of trouble so far.
Another dose of alarming news was dished out today, though, once again highlighting the patent cliff problem that should sooner or later prove to be a drag for PFE.
PFE’s Lyrica Suffers a Patent-Based Blow
The latest setback dealt to owners of Pfizer stock didn’t originate in the United States, but from the similarly important United Kingdom market, where patent protection and time frames can differ from the U.S. patent system.
That blow? Multifaceted drug Lyrica effectively no longer has any meaningful patent protection in the U.K.
It’s a rather complicated story.
Though initially intended to be a treatment for epilepsy, Lyrica was also found to be an effective means of treating pain, as well as a good treatment for general anxiety. Most countries’ patent laws award a patent for each particular use of a drug, even though the drug itself is the same.
That mattered in the United Kingdom this week … or perhaps it would be more accurate to say it didn’t matter.
While Lyrica’s U.K. patents as a therapy for epilepsy and anxiety have expired, the patent on the drug as a treatment for pain doesn’t expire until 2017. But the generic alternatives to the drug as a treatment for anxiety and epilepsy, made by Actavis, Mylan (MYL) and Allergan (AGN), are in pharmacies.
It took little time for the medical community to realize they could use the low-cost generic treatment for epilepsy and anxiety to treat pain, even though the pain-killing version of the pill — and bear in mind, it’s the exact same molecule — was still patent-protected and therefore still (theoretically and legally) supposed to sell at the higher, nongeneric price.
Pfizer contested the off-label use of the generic drug as a pain therapy. A judge disagreed with Pfizer’s argument though, effectively saying the country’s doctors could continue to prescribe the lower-cost, generic version of the drug for off-label use, thus circumventing the higher-cost version … which, again, is the exact same drug as the generic.
It is a bit of a gray area. Justice Richard David Arnold did acknowledge certain specific types of pain remained covered under the patent. With no real means of determining the prescribing doctor’s intent, though, Pfizer was largely declawed on this particular front.
It matters to owners of Pfizer stock, as the company sold £250 million ($385 million) worth of Lyrica in the U.K. last year, most of which was for the treatment of pain.
Bottom Line
While frustrating to shareholders, those who own Pfizer stock should know — and likely do recognize — that the U.K. court’s decision has been and will continue to be the new shape of things. Generics are coming on all fronts, and a frugal market and cost-conscious governments are leaning in favor of affordability and against big pharma.
The irony? Pfizer itself is looking to become one of the world’s biggest — if not the biggest — generic drug player, and may soon find itself on the other side of the courtroom.
The recently completed acquisition of Hospira is Pfizer’s biggest advance toward that end zone yet.
Spending $15 billion on it, with Hospira’s product line under its umbrella (and even with the forced divestiture of four of Hospira’s drugs to Alvogen), Pfizer is much better positioned in the injectable and biosimilar (think “high-end generics”) markets than it was just a few months ago.
And just for the record, yes, biosimilars are finally a reality in the important U.S. market. Last week, Novartis (NVS) finally launched a biosimilar version of Neupogen, which is a drug designed to maintain a strong white blood cell count in cancer patients. That drug is presumed to pave the way for more biosimilars in the U.S., which has thus far lagged behind the rest of the world in terms of the drug category’s acceptance.
If Pfizer wanted to pick a fight, the advent of biosimilars in the U.S. would be one worth picking … not some penny-ante argument over a moot cause in the U.K.
It may all be a sign that Pfizer knows what’s inevitably coming, which is an era of low-priced, low-margin generics and biosimilars.
The company can’t acquire and synergize its way around this headwind forever.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
