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Arindam Chaudhuri, Editor-in-Chief, 4Ps B&M Chief Consulting Editor's Desk
Rajita Chaudhuri
A.Sandeep Editor’s Desk
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Big blockbuster drug brands that once promised billions for big pharma are fast entering the generics zone. The victims are many and their brand pipelines are dry!
Issue Date - 06/05/2010
What’s it with patents in the pharmaceutical industry? You spend billions in dollars and months in time, manage to come up with a ‘protected’ branded formula that has the potential of earning you a few billion bucks, and then much before you have derived complete pleasure out of your R&D efforts, other competitors who have been eyeing your revenue basket for years together, start relishing the fruits of your risks and sweat drops. Unfair, as many say; fair enough feels the US Federal Drug Agency (USFDA).

Today, the biggest of names in the world of pharma have their back to the wall when it comes to the future of some of their best-selling patented drug brands, with a hard-fought battle against generic drug makers ahead of them. And life has already become difficult. Take Pfizer for example – during the past ten years, the acquisitions of Warner-Lambert (in 2000 for $90 billion) and Pharmacia (in 2002 for $60 billion) proved to be glorious moments (the first deal gave Pfizer a control over the world’s no.1 selling $11.4 billion-a-year drug Lipitor, while the latter helped it pocket its now third-bestseller Celebrex, which earns $2.5 billion-a-year); but CEO Jeffrey Kindler, the very same deals are now giving nightmares of a dry drug pipeline.

While its patent right over its largest revenue earning brand Lipitor patent will expire a year later, its third-largest selling drug Celebrex will go generic in 2013; combine these two, and you are talking about an erosion of $11.74 billion in the drugmaker’s annual revenues per year (as per research by Evaluate Pharmacy, the loss of revenues, post-patent expiry for a formulation, is estimated at 85%). Market reports suggest how by 2014, generic drug companies would be staging a grand stampede on 14 of Pfizer patents, representing 70% of its sales revenues; there is clear and present danger for Pfizer.

Kindler is running a hard to win race against time, and for the near future, there seems to be no new blockbuster brand that can heal Pfizer’s wounds, not even its most recent $68 billion acquisition of Wyeth. Viagra, which is the drugmaker’s $2 billion-a-year earning brand is also going off-patent in 2012. In the very first week of its launch in April 1998, Viagra had received 4.3 million prescriptions by medical practitioners. By the end of 1998, more than 200,000 doctors had written 7 million prescriptions and the brand was being marketed across 40 countries. Very few drug brands in history had attained such widespread use so quickly. Come 2012, and Viagra’s dream run will end, with generic brand makers launching cheaper versions of the formula. “Pfizer has a number of downward revenue revisions. You have to believe board members are scratching their heads,” says David S. Moskowitz, Analyst at Friedman, Billings, Ramsey Group Inc. In short – a $50 billion-a-year Pfizer to about a $15 billion-a-year skeleton; and that appears a possibility!

The case is the same with many other patented drug brands, as Luis Hector, Analyst, Credit Suisse says, “The current scenario reflects an acknowledgment that insufficient drugs have moved onto the market.” AstraZeneca’s rights over two billion dollar drugs are set to die out fast. It will lose patent rights over both the $4.5 billion-a-year earning Crestor and the $4.9 billion-a-year Seroquel brand by 2012. Eli Lilly’s Zyprexa, which garners $4.9 billion in annual revenues, will expire by 2011. The list of patent expiries of products is long, with names like Advair (owned by GSK, with annual sales of $7.8 billion), Plavix (Sanofi-Aventis & Bristol-Myers Squibb, $4.9 billion), Singulair (Merck, $4.1 billion), Cozaar (Merck, $3.3 billion), Levaquin (J&J, $1.8 billion), Zometa (Novartis $2.1 billion) and many more – all brands over which exclusive marketing rights would have been lost by 2013!

As estimated by Datamonitor (an industry research firm), about $160 billion worth of ‘patented drugs’, globally, will lose their patent protection by 2016! According to a report by Evaluate Pharma, by January 1, 2011, 15% of revenues that global pharma companies are currently earning from patented brands, will be lost to generic drugmakers. Could the situation for pharma giants get worse?

Past researches have proven that the loss of revenues, post-patent expiry, for a particular formulated brand, can reach up to 85%! Therefore Pfizer, which earned $11.4 billion from its Lipitor drug in 2009, will be able to garner only $1.7 billion per year once its patent on Lipitor expires in 2011, giving rise to competition which will kill price. And this is only the tip of the iceberg. If competition grows unhealthy, the drugmakers could earn slimmer figures.

Loss of market share is another concern. As per the research study sponsored by Merck Foundation titled, ‘Dynamic Competition in Pharmaceuticals: Patent Expiry, Generic Penetration, and Industry Structure’, drug brands typically lose 50% of their market share within a year of patent expiry.

High cost risk associated with drug discovery (which could run into billions of dollars for any formulation), is a big reason why the discoveries of new blockbuster formulations have been arrested. As per a report by E&Y, “The low probability of proceeding from the pre-clinical phase to new drug approval illustrates the high risk inherent in pharmaceutical R&D. Only 2% percent of projects in the pre-clinical phase are expected to make it to Phase I testing and, of these, only one in five are likely to be approved.” So the average success rate of a pre-clinical compound being comercially sold after finding a place as a pill in the market is just 0.4%!

A high chance of losing dollars, but the bait has to be thrown, as John Anthony, a Massachusetts-based pharma analyst says, “You can’t lead by following a dying strategy: generics are the K-Mart part of the Walmart curve. You don’t lead by following.”

Despite a consistent rise in R&D investments over time, the count of patent approvals granted by the FDA per year, have dwindled. And what was once their pride, has now become a cause to worry; and the wrinkles, despite luck and hardwork, don’t appear to be disappearing fast for big pharma. The truth is – with patents on blockbusters brands vanishing faster than ever, there is a clear and present danger.

Steven Philip Warner           
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