An End to Drug Patent Woes? - Analyst Blog
2012年12月14日 - 10:14PM
Zacks
The US Supreme Court will soon hear a case which will determine
whether “pay-for-delay" agreements between drug manufacturers
violate anti-trust legislations. These “reverse payment” agreements
enable patent holders to pay generic drug manufacturers to delay
the launch of generic versions of their drugs. This runs contrary
to normal practice, where patent holders sue violators and then
seek damages, in some cases through an out of court settlement.
The companies standing to benefit in this case were
Watson Pharmaceuticals, Inc. (WPI), Paddock
Pharmaceuticals – now owned by Perrigo Co. (PRGO)
– and Par Pharmaceuticals, Inc. – which was acquired this year by
private equity firm TPG Capital. Solvay Pharmaceuticals Inc, now
owned by Abbot Laboratories (ABT), was paying them
to delay launch of a competing drug.
These companies received annual payments of between $31 million
to $42 million in order to delay launching generic versions of
AndroGel until 2015, when Solvay’s patent on the drug would expire.
Such an agreement would have helped Solvay maintain annual profits
to the tune of $125 million.
The Federal Trade Commission, which is the appellant in the
case, has said that 28 such deals concluded last year have cost
consumers and taxpayers a minimum of $3.5 billion in synthetically
inflated prices.
That pharma giants are resorting to such measures comes as no
surprise when one considers the fact that 2012 has seen an
industry-wide decline in drug sales. According to Ernst and Young,
combined sales of the leading global thirteen drug firms will
decline by nearly 4% from around $557 billion in 2011.
Expirations of drug patents are a major factor. A “patent cliff”
is characterized by a steep fall in revenues when one or more of
the firm’s best-selling products lose their patent protection. The
most grievously affected firm in terms of patent expiration has
been Pfizer Inc (PFE), whose patent on blockbuster
drug Lipitor expired in 2011. Subsequently, sales of the drug
declined 42% during the 2012’s first quarter compared with the same
period a year ago.
Eli Lilly and Company (LLY) and
AstraZeneca PLC (AZN) are among other firms to be
affected by this phenomenon. Sales have dropped by 56% and 25% for
their drugs Zyprexa and Seroquel IR during the first quarter of
this year following the expiry of their patents. The march of
generics continued through the first nine months of the year. As a
result, the industry as a whole finished with lower sales for the
year compared to 2011.
The good news is that the end of 2012 will also mean an end to
the current patent cliff, which has lasted for nearly eighteen
months. By next year, the worst will be over.
Meanwhile, despite such conditions, share prices of industry
bellwethers like Merck & Co. Inc. (MRK) and
Pfizer have risen 25% this year -- nearly twice as much as the
increase in the S&P 500. Drug-makers have delivered steady
earnings and large dividends, even while taking a hit from patent
expirations.
This is because they have spent these trying times reorienting
their focus. Historically good at marketing and distribution,
pharma companies have spent more time on cost reduction initiatives
and have invested in research in a big way. The emphasis on
research has resulted in large investments in biotechnology.
According to CLSA, a unit of French bank Credit Agricole, by
2012, six of the top twenty drugs will be biologics. This will
probably change the game in favor of patent holders, since it is
much tougher to produce “biosimilars,” the generic versions of
biologics.
Though generic manufacturers will lose many opportunities as a
result, some of them are already readying strategies to cope.
Teva Pharmaceutical Industries (TEVA) and Watson
Pharmaceuticals have resorted to inorganic growth. Teva acquired
Israel-based Cephalon for $6.5 billion last year, while Watson
purchased Actavis for $5.6 billion in October this year.
In summary, the loss of patent protection has been a major
factor which has propelled changes in the way the industry
operates. Companies have radically changed their business models
and reoriented their focus in response to the current situation.
And by now, the worst is most likely over.
ABBOTT LABS (ABT): Free Stock Analysis Report
ASTRAZENECA PLC (AZN): Free Stock Analysis Report
LILLY ELI & CO (LLY): Free Stock Analysis Report
MERCK & CO INC (MRK): Free Stock Analysis Report
PFIZER INC (PFE): Free Stock Analysis Report
PERRIGO COMPANY (PRGO): Free Stock Analysis Report
TEVA PHARM ADR (TEVA): Free Stock Analysis Report
WATSON PHARMA (WPI): Free Stock Analysis Report
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