PHILADELPHIA – For most people, the drug expiration date that matters most is stamped onto their pill bottle or package, in tiny print, declaring a deadline for its use.
But for drugmakers and countless people working for and living around them, a different unseen expiration date carries even greater weight, etched in regulators’ files and account ledgers: the date the drug patent expires.
In late November, Merck & Co. Inc. announced a global cost-cutting campaign to offset next year’s decline in earnings when its top-selling product, Zocor, a popular drug for combating high cholesterol, goes off patent.
Several factors forced Merck’s cutback, including uncertainty in its discovery pipeline and the loss of sales revenue from the pain-reliever Vioxx, which it recalled a year ago because of safety issues.
But its retrenchment was triggered by the long-projected loss of its Zocor sales. In June, makers of generic drugs will start selling lower-cost copycats of Zocor and will quickly blow a $2 billion hole in Zocor’s U.S. revenue, which hit $3.6 billion in 2004, the company said.
Patent exposure in record numbers
Merck has plenty of company. A record amount of patent-protected drug sales are or soon will be evaporating for many companies, with repercussions looming for the industry and local economies. Patents run 20 years, but half the time is typically used up in development.
According to IMS Health, an industry monitoring firm in Plymouth Meeting, Pa., the value of sales disappearing each year due to patent expiration will hit $23 billion worldwide this year, the highest in at least five years. In 2001, the figure was $9 billion. U.S. sales typically account for a majority of the global sales.
While the revenue losses vary from country to country and year to year, they generally have increased over the last decade, along with the number of blockbuster drugs selling more than $1 billion a year.
“Patent exposure is definitely getting larger,” said Elio Evangelista, senior research analyst at the North Carolina-based monitoring firm Cutting Edge Inc. “A lot more blockbuster drugs are coming off (patent) this year and next year, which opens a whole source of revenues” for generic rivals. That is affecting some of the industry’s biggest names:
Pfizer Inc., based in New York City, is scheduled to lose patent-protected sales of its antidepressant Zoloft, which had $2.7 billion in U.S. sales in 2004.
Overall, Pfizer faces the loss of nearly a third of its total revenue over the next three years from the expiration of patents on Zoloft and other drugs, including its heart drug Norvasc, according to a recent report by Moody’s Investors Service.
Pfizer, which reported total revenue of $52.5 billion last year, already has announced cutbacks even deeper than Merck’s and is fighting off would-be copycats of its cholesterol drug Lipitor, an $11 billion product whose patents start expiring in 2009.
Bristol-Myers Squibb Co., based in New York, is scheduled to lose patent-protected sales this year on its cholesterol drug Pravachol, which brought in $1.4 billion in the United States in 2004. Patent expirations threaten about 31 percent of Bristol-Myers Squibb’s total earnings by 2008, Moody’s said.
GlaxoSmithKline PLC, based in London with U.S. operations split between Philadelphia and Research Triangle Park, N.C., will lose Zofran, its nausea drug for cancer patients that earned about $1 billion in U.S. sales in 2004. Moody’s did not rate GlaxoSmithKline’s overall patent exposure.
Sanofi-Aventis, the Paris-based drug giant that owns vaccine-maker Sanofi-Pasteur in Swiftwater, Pa., is scheduled to lose its exclusivity on the sleeping pill Ambien, setting off a battle among makers of generic drugs. Ambien’s U.S. sales in 2004 hit 1.4 billion euros, equal to $1.9 billion at year-end exchange rates. Moody’s did not rate its patent exposure.
Wyeth Pharmaceuticals, the Collegeville, Pa., division of New Jersey-based Wyeth, will start losing exclusivity this year on its top-selling drug, Effexor for depression, which had U.S. sales of $2.3 billion last year. Moody’s said 29 percent of Wyeth’s revenue faced patent exposure by 2008.
None of this is a surprise. Makers of brand-name drugs and generic copies alike plan for expirations years in advance and have strategies for capturing or keeping the revenue.
Extending the revenue
A favored tactic by drugmakers in recent years, analysts said, is patenting a new version to extend a drug’s marketable life, such as creating a “controlled” release version that can be taken less often.
The challenge, however, is coming up with an improvement that regulators, physicians and pharmacists will accept – an increasingly tough task under stricter safety and cost scrutiny from Food and Drug Administration and Medicare officials.
Another tactic is partnering with a generic maker to create and sell an authorized copy of the drug and fend off other challengers.
Illustrating all the tactics, Wyeth in 1997 patented Effexor XR to improve on its initial version and extend the antidepressant’s sales life until 2010. Then Israel-based generic maker Teva Pharmaceutical Industries Ltd., whose U.S. operations are in North Wales, Pa., challenged the Effexor patent in 2003.
Rather than fight to the end, Wyeth and Teva reached a settlement – pending court approval – that lets Teva market authorized generic versions of Effexor starting next year. Wyeth declined to say whether it will get a cut of Teva’s revenue or how much.
Merck, in announcing its cutbacks, acknowledged that it was exploring its options on authorized generic versions of Zocor.
“We do view them as an option but nothing is being announced,” chief financial officer Judy C. Lewent said in a conference call with equity analysts.
Making ends meet
These strategies, however, have limitations, analysts say. Courts often have to approve authorized-generic deals that may freeze out other producers. And blockbuster sales are getting harder to replace.
“Say a $4 billion product is going off-patent: It is getting harder to make another one because of competition and increasing price pressure,” said Michael Levesque, a senior credit officer at Moody’s and author of a recent report predicting volatility in the industry.
Making matters worse, companies simply may be unable to close the blockbuster gap when unforeseen events occur, such as Merck’s Vioxx troubles. Some observers also questioned Merck’s planning on the Zocor patent.
“I think they put their head in the sand a little bit,” said Richard Berman, an expert on patent strategy at the Washington-based law firm Arent Fox PLLC.
Merck’s elimination of 7,000 jobs – 11 percent of its 63,000 workers – and closing of five plants and three labs are just the first phase of a restructuring it says will be the most severe in its 114-year corporate history.
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