New Delhi: There is, in Big Pharma’s near future, a distinct echo of the recent past.
In June 2003, Pfizer Inc., the world’s biggest drug maker, was threatened by a generic drugs firm that was fast taking on the giants of the industry. Ranbaxy Laboratories Ltd had challenged Pfizer’s patented, profitable monopoly on the world’s largest selling drug, Lipitor.
Also See Patent Cliff (Graphic)
After a five-year battle, Pfizer and Ranbaxy agreed to settle all their patent litigation worldwide involving Lipitor—the world’s most-prescribed cholesterol-lowering medicine, its sales worth $13.2 billion (Rs61,644 crore now) in September 2008-09 alone. But that seems only to have been a precursor to the challenges of 2010.
In what is referred to as the “patent cliff”, starting in 2010 and running up to 2012, innovator pharmaceutical companies are set to lose billions of dollars from patent expiries of some of their hottest drugs. One estimate pegs the total loss in revenue at more than $100 billion.
“Most of the top 20 companies will be affected by the patent cliff,” says Alan Sheppard, principal (global generics) at market research firm IMS Health. “Many of the products that go off-patent now are blockbusters, which means that most generics companies will develop them... leading to heavy price erosion.”
Dreaded by innovator firms, the patent cliff is an opportunity for which generics manufacturers have been preparing for the last seven years. Hard-won patent struggles will lose meaning only a few years after the victories. In 2005, Dr Reddy’s Laboratories Ltd lost a patent case against Eli Lilly & Co. over the latter’s schizophrenia drug Zyprexa, worth $2.2 billion in sales; its patent expires in 2010.
Agreements painstakingly entered into, such as that between Pfizer and Ranbaxy, will also lapse. Pfizer’s basic patent on Lipitor expires in 2010, while all other patents on the product expire in 2018.
In court, Pfizer had pushed for its 2018 patent to be held valid; Ranbaxy, however, had desired a 2006 launch of its generic version of Lipitor. The companies finally settled for launching the generic on 30 November 2011—a win-win situation for both. While Ranbaxy gets exclusive marketing rights for 180 days, other firms such as Lupin Ltd will wait in the wings, poised to launch their versions on Day 181.
As their fingers are pried off their patents, innovator firms have often been forced to consider realignments that are nothing short of tectonic.
“This patent cliff...has propelled all the innovator firms to re-evaluate their long-term growth strategy,” admits a spokesperson for Sun Pharmaceutical Industries Ltd. “Branded generic ambitions have germinated from this evaluation.”
In September, for instance, Eli Lilly unveiled its new operating model. “While our financial performance during the past few years has been strong, we will soon enter the most challenging period in our company’s history,” said John C. Lechleiter, chairman and chief executive of Eli Lilly, in a press release. Lechleiter explained that this called for strong measures.
Eli Lilly, which faces its own patent expirations for key products beginning late this year, will aim to reduce the time taken to get new medicines to patients to reduce its cost structure by $1 billion and lower its global headcount to 35,000 by the end of 2011.
In 2008, Pfizer announced its own strategy to address the Lipitor challenge, founding its established products and emerging markets business units to tap a huge market for its off-patent products. “We already have a powerful portfolio of 380 products and more than $10 billion in annual sales in established products,” says Kelvin Cooper, senior vice-president of portfolio development in established products at Pfizer. Referring to Pfizer’s acquisition of Wyeth Ltd last year, Cooper says it will “enable us to apply science and global resources to improve health and well-being at every stage of life.”
Significantly, Big Pharma has begun to enter the arena of generics, through mergers and acquisitions, or partnerships, or even alone.
“All the patent extension and out-of-court settlement practices are being challenged by antitrust enforcement agencies,” observes Anand Pathak, an advocate with P&A Law Offices. “So many companies have started tying up with generics firms. But this has another aspect—if you tie up with too many generics, they will have no independent presence in the market...competition will start drying up.”
Many of these generics firms are, happily, in emerging, potentially attractive markets. Nilesh Gupta, group president and executive director of Lupin cites a GlaxoSmithKline Plc deal with Dr Reddy’s “to take and distribute its products in emerging markets”.
Ajit Mahadevan, a partner in Ernst and Young’s health science practice, also notes that innovators “get into authorized generics by authorizing a generics company to make their product”.
While this flood of new generics will lead to heavy price erosion, experts in the industry are optimistic about the opportunities that lie ahead. The biggest thrust for innovator firms will come in biologics—blockbuster medicinal products that are biological rather than purely chemical in nature. Generics firms can then produce biosimilars, molecules that are similar to novel biologics.
“Now we are looking at opportunities in diseases where there is still an unmet need and these tend to be in areas of biotechnology,” Sheppard says. “So biotech and biological is (our) next focus.”
Graphic by Rahul Awasthi / Mint