Big Pharma could take big hit as patents expire

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The pharmaceutical industry is bracing for patent-expiration dates that will mean the loss of $25 billion in sales the next three years and $550 million in yearly media buys. Worse, most of Big Pharma has little in the pipeline to offset the loss.

In 2006 alone, patents expire on $17 billion in prescription medications, including such well-known brand names as Allegra, from Aventis; Bristol-Myers Squibb's Pravachol; Merck's Zocor; and Pfizer's Zoloft. Pfizer, meanwhile, is also awaiting a U.S. court ruling that could mean a loss of patent protection for the world's top-selling drug, Lipitor, four years earlier than expected.

And those are just the so-called blockbusters, drugs that take in at least $1 billion a year in sales. IMS Health estimates the total sales loss of drugs coming off patent protection by the end of 2008 to be nearly $40 billion.

For the majority of drug makers, "there is no `little purple pill' this time around," said an executive for one top 10 pharma company, referring to Nexium from AstraZeneca, which successfully defied the expiration of its patent for Prilosec two years ago with an Rx-to-OTC switch, and by producing and marketing Nexium as a better second-generation prescription heartburn medication.

Generic growth

The loss to the pharmaceutical companies-many of whom declined to comment or did not return a call for this story-will be a boon to generic drug-makers. Generics' share of the U.S. prescription drug market grew from 33% in 1990 to 54% last year, according to IMS, which estimates that global sales will increase from $29 billion in 2003 to $49 billion in 2007 because of the patent expirations. According to the National Association of Chain Drug Stores, the average price of a brand-name drug was $84.21 last year; the average price of a generic was $30.56.

Despite the price disparity to the consumer, however, Meredith Adler, an analyst at Lehman Bros., New York, said generic drugs "garner at least $5 more in gross profit dollars [for retail pharmacies] than the branded equivalent."

Generic sales could climb if Pfizer's Lipitor comes off patent protection in 2007 instead of 2011. Lipitor, with $10 billion in sales last year, accounts for 20% of all Pfizer sales. Pfizer won a British court case last week against Indian drug-maker Ranbaxy Laboratories, but a U.S. court case brought by the Indian company remains. Ranbaxy is questioning the validity of two patents on Lipitor and believes it should be able to market a generic version as soon as 2007.

Many believe Pfizer, which also faces the loss of Norvasc to patent protection in 2007 and Zyrtec in 2008, will prevail in the eventual U.S. court ruling as in the British court case. But Pfizer also has other problems to deal with regarding its drugs and generics. Earlier this month, pharmacy-benefits manager Express Scripts pulled Lipitor, Norvasc, Caduet, Viagra and Detrol from its preferred formulary list for 2006, instead opting to go with cheaper generics.

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