Recently, we launched a series of articles to discuss patent cliffs of some of the pharmaceutical giants including Abbott Labs (NYSE:ABT), Pfizer (NYSE:PFE), Johnson & Johnson (NYSE:JNJ) and Merck (NYSE:MRK). A patent cliff is when a company patented product goes off-patent. After the patent expiry generic manufacturers can replicate and sell the product at much cheaper price leading to a steep fall in the company’ revenues. The term “patent cliff” could be related to any company’s patent expiry. But, usually the jargon is used for pharmaceutical company.
In our first article we focused on Abbott Labs’ major drugs Humira and Kaletra. See our note Abbott’s Pipeline Key in Advance of 2016 Patent Cliff. In this article, we will discuss Trilipix / Tricor and Niaspan. Abbott Labs is diversified healthcare major involved in the development, manufacturing and marketing of pharmaceuticals and other medical products, including nutritionals and diagnostics.
Our price estimate for Abbott Labs stands at $66, implying a premium of about 5% to the current market price.
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- What’s Abbott’s Fundamental Value Based On Expected 2016 Results?
Trilipix / TriCor: Pain Begins This Year
Abbott’s Trilipix / TriCor (generic fenofibrate) are lipid regulators that can lower cholesterol and reduce the risk of cardiovascular disease. Trilipix/ TriCor’s market share in $35 billion lipid regulator market is about 5%. It mainly competes with GSK and Pfizer in this market. Abbott’s global revenues from these drugs exceeded $1.8 billion in 2011.
We expect a steep decline in market share as TriCor will lose patent exclusivity in 2012 following a licensing agreement in November 2009 whereby world’s largest generic pharmaceutical giants Teva could launch a generic version of the drug.
To retain the market share, Abbott deployed a switching strategy and launched similar drug Trilpix sequentially. But, it faced a setback from a study by Action to Control Cardiovascular Risk in Diabetes (ACCORD), which suggested that Trilipix may not lower a patient’s risk of having a heart attack or stroke. Further, Abbott has settled its patent litigation with Impax Laboratories. Trilipix is set to face competition beginning mid-2013, when Impax may begin to manufacture a generic version of the drug. We believe that even the patent expiry of Pfizer’s lipitor, the largest drug by sales, last year will not bolster Trilipix/Tricor’s prospects.
Further, patent expiry leads to a drop in margins as cheap generic versions put pressure on the company’s pricing power.
Niaspan: Bad Days Ahead for Good Cholesterol Pill
Niaspan is a lipid regulator that increase HDL or good cholesterol in the body. It has $1 billion in revenues and a market share of 3% in 2011, increased from 2.1% in 2007. But, generic versions of Niaspan will arrive in September 2013 as part of a settlement agreement Kos (acquired by Abbott) and Barr (now part of Teva) reached earlier. We expect that the loss of patent exclusivity will have a significant negative impact on Niaspan’s market share, which we forecast declining to below 1% by the end of the Trefis forecast period.
Another reason for drop in market share is termination of an NIH study suggesting that the drug did not reduce the risk of cardiovascular events, including heart attacks and stroke. Further, there was a small unexplained rise in strokes for Niaspan and Statin treatment. This is leading to doctors avoiding prescribing the drug. Also adding to the list of worries for the drug is patent litigation recently challenged by Sun Pharmaceuticals.
In a bid to separate the parent company from patents expiry and unlock value, Abbott has been planning to split the company into two separate entities. The new entity, AbbVie, would be an independent research-based pharmaceutical company. All patented drugs including Humira and Kaltera will form part of the newer entity. The parent company, Abbott will retain its other products.
In our next article in this series, we shed light on other healthcare company Pfizer’s blockbuster drugs losing patent exclusivity in next few years.