Pfizer Is Not Worried About Viagra Losing Its U.K. Patent This Month

by Trefis Team
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Quick Take

  • Investors shouldn’t worry about Pfizer losing its patent for Viagra in the U.K. this month.
  • The drug has a well-established brand and the region accounts for a small portion of its global revenues.
  • In addition, Pfizer is planning to sell Viagra directly to patients over the Internet, which can open up new revenue opportunities and mitigate the impact of patent expiry.
  • We also expect the drug’s growth in the U.S. to continue to offset, to some extent, the decline in international markets where it is battling increased competition from generics and other branded drugs.

Pfizer‘s (NYSE:PFE) blockbuster drug Viagra will lose patent in the U.K. this month. This might seem like bad news for a company that’s already battling the impact of the loss of patent exclusivity for Lipitor and other cardiovascular drugs. However, we believe that Pfizer won’t lose much even as the generic versions of Viagra hit the U.K. market. The brand is well-known and is almost synonymous with the treatment for erectile dysfunction. Pfizer also plans to sell Viagra online directly to patients (they’ll still need to have a prescription) to tackle the issue of counterfeit sales over the Internet and increase its profits by cutting out the middlemen. This marks a significant shift from the traditional drug distribution model, and will open up a new and promising channel that could help the company in sustaining the drug’s growth.

See Full Analysis For Pfizer

Do Not Worry About The Patent Loss In The U.K.

Viagra’s sales stood at $2.05 billion in 2012, accounting for less than 3.5% of Pfizer’s overall revenues. [1] Based on our forecasts for different drugs, we estimate that alimentary drugs constitute less than 5% of Pfizer’s value. Viagra is part of this division which means its value contribution is not more than 5% either (specifically, it may be closer to 4%).  In addition, most of the drug’s sales come from the U.S. while the international business is spread across Europe and emerging markets. It is highly likely that the U.K. accounts for a very small portion of Viagra’s overall revenues. This conjecture further finds support from the fact that the U.K.’s National Health Service (NHS) spent only £40.3 million last year on this drug. [2] That’s little compared to its $2+ billion global sales and so losing the patent in the U.K. will have little effect on Pfizer’s value.

Most of Viagra’s revenues come from North America where its ‘method-of-treatment’ patent will expire in 2020. In 2012, Viagra’s global sales increased by 4% despite competitive pressures from generics and branded products in Europe and other international markets. [1] The increase in the U.S. more than compensated for the decrease in other markets, and we expect this trend to continue in the near term. In addition, direct online sales will help. The company is planning to attract customers to its online channel by offering them discounts on first two shipments.

Our price estimate for Pfizer stands at $31.50, implying a premium of about 10% to the market price.

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Notes:
  1. Pfizer’s SEC Filings [] []
  2. Viagra maker Pfizer faces competition from generic rivals as patent expires, The Telegraph, June 3 2013 []
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