In the next few years, many blockbuster drugs will lose patent exclusivity which will result in the loss of over $100 billion in revenues across the pharmaceutical industry. After a drug’s patent expires, generic manufacturers can replicate and sell the product at much cheaper prices, leading to a steep fall in the drug’s revenues. Amongst big pharmaceuticals, Pfizer (NYSE:PFE) is most exposed to this upcoming “patent cliff,” as many of the company’s largest drugs – including Lipitor, Enbrel and Detrol – have either lost patent protection recently or will be losing it in the near future. Therefore, we find it prudent to take a look at the prospects of Pfizer’s individual divisions following the patent cliff. Below we discuss the company’s cardiovascular franchise in detail.
Our price estimate for Pfizer stands at $26, implying a premium of about 10% to the current market price.
Lipitor & Other Cardiovascular Drugs Going Through Hard Times
Pfizer’s cardiovascular division has suffered the most, as Lipitor – the world’s largest selling drug at one point – lost its patent protection in November 2011. The drug generated close to $10 billion in 2011, which has declined to about $4 billion through November of this year following the loss of patent protection, as generics penetrated the market. Another drug, Caduet, a pill combining Pfizer’s Lipitor and Norvasc for the prevention of cardiovascular events, also lost exclusivity in the U.S. in November 2011 and in other markets in 2012. Benefix also lost patent protection in 2011. Both drugs generated more than $1 billion of sales in 2011.
The pain doesn’t stop there as Revatio, which is used to treat a type of hypertension and generated more than $500 million in sales in, lost U.S. patent exclusivity for its tablets in September 2012, and Revatio intravenous injection will lose patent protection in May 2013. We expect the drug’s sales to decline significantly going forward as Mylan has already begun shipping generic versions of the drugs.
The expiry of these patents will have a substantial effect on overall revenues from the cardiovascular division in the near-term. Further, patent expiry leads to a drop in margins as cheap generic versions put pressure on the company’s pricing power.
Way Going Forward?
However there is a drug, Eliquis (Apixaban), which holds promise for this division, and we expect it to help drive growth going forward. Eliquis is a blood thinner and an antithrombotic drug, which helps prevent clotting inside the body that can restrict blood circulation to the organs. Eliquis is currently approved in many countries (outside of the U.S.) for preventing blood clots in patients who have knee or hip replacements. While the drug recently faced a setback as the U.S. FDA delayed the drug’s approval, citing the need for more data, we do think that Eliquis has a decent chance of succeeding considering the fact that it is already approved in Europe. The data from the Phase 3 AVERROES trial demonstrated that Eliquis significantly reduced the relative risk of a composite stroke or systematic embolism by 55% without a significant increase in major bleeding.
Eliquis, if approved in the U.S., will fortify Pfizer’s position in the cardiovascular drug as entry into the large U.S. market would result in substantial revenues. A possible extension of the drug to patients with atrial fibrillation and acute coronary syndrome would boost sales as atrial fibrillation and acute coronary syndrome are estimated to affect millions of patients each year. We expect the drug to contribute nearly $3 billion in revenues by the end of the Trefis forecast period.
However, any further delays in approval could have a substantial impact on the company’s value as the cardiovascular division (excluding Lipitor) contributes nearly 10% of our $26 price estimate for Pfizer.