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Troubles Peak For The Drug Industry

Patent losses on many top-selling drugs caused declines in both sales and earnings

by Lisa M. Jarvis
March 4, 2013 | A version of this story appeared in Volume 91, Issue 9

Credit: Bristol-Myers Squibb
Bristol-Myers Squibb sees strong potential in its new blood thinner Eliquis.
Photo shows a Bristol-Myers Squibb researcher in the lab.
Credit: Bristol-Myers Squibb
Bristol-Myers Squibb sees strong potential in its new blood thinner Eliquis.

Some of the pharmaceutical industry’s biggest products stepped off the patent cliff between mid-2011 and mid-2012, and their swift replacement by generics had a major impact on companies’ earnings for the fourth quarter of 2012 and the full year.

Six of the top 10 selling drugs in 2010 faced new and significant competition starting in 2011: Pfizer’s Lipitor, Bristol-Myers Squibb (BMS) and Sanofi’s Plavix, AstraZeneca’s Seroquel, and Eli Lilly & Co.’s Zyprexa all lost patent protection in the U.S. (C&EN, Dec. 10, 2012, page 15). Nexium and Crestor, both from AstraZeneca, met new competition in other markets.

As a consequence, only three of the 11 big pharma firms tracked by C&EN saw sales and earnings grow in 2012. Overall, fourth-quarter sales were down 1.6%, and earnings decreased 4.7%. For the full year, sales dropped 2.6%, and earnings slipped 3.6%.

Of the firms experiencing major patent losses, AstraZeneca, Lilly, and BMS were the hardest hit. Each company has struggled to come up with new drugs to counter the revenue loss, and each has adopted a slightly different strategy in its attempt to return to growth.

AstraZeneca has had one of the longest periods of sales decline and thus has made the most changes to its organization. Last year brought the loss of patent protection on the antipsychotic Seroquel, sales of which were promptly decimated by generics competitors. For the year, Seroquel sales dropped 70% to $1.3 billion.

Meanwhile, loss of exclusivity in some European markets for four drugs—Seroquel, the blood pressure treatment Atacand, the heartburn pill Nexium, and the antibiotic Merrem—as well as generics competition in Canada for the cholesterol-lowering drug Crestor, added to the British firm’s overall sales decline.

Despite a major R&D overhaul, AstraZeneca failed to deliver the stream of new drugs that it expected to emerge from its pipeline and offset the loss of Seroquel. Fourth-quarter earnings were down 7.6% to $1.9 billion, based on a 15.8% decline in sales to $7.3 billion. For the year, sales fell 16.7% to $28.0 billion; earnings dropped 18.4% to $8.1 billion.

The poor performance resulted in several management changes. AstraZeneca Chief Executive Officer David Brennan stepped down in April 2012 and was replaced six months later by Pascal Soriot, a former Roche executive. Soriot is slowly forming a plan for the company. In a call with investors to discuss the annual results, he disclosed that he has spent his first months doing a deep dive into the business. That effort involved traveling to 15 sites across nine countries and holding 18 town meetings attended by 8,500 employees.

Soriot said the initial changes he has made at AstraZeneca were a direct result of those visits. “Throughout all my visits, whether with commercial or R&D colleagues, one common theme that I hear is a frustration with the complexity and bureaucracy in the organization,” Soriot told analysts. Employees complained decisions took too long to be made.

His response was to cut a top management layer, giving R&D chief Martin Mackay and commercial operations head Tony Zook their walking papers. The goal of the new structure is to close the gap between senior management and the R&D leaders who drive the science.

Later this month, Soriot will provide more details of how AstraZeneca will reinvent itself. Analysts think the company will need to make medium- to large-sized acquisitions to fill in the gaps in its portfolio.

Larger deals are less likely in the near term, Leerink Swann stock analyst Seamus Fernandez told investors in a research note, but “we continue to believe that the initial path forward on [mergers and acquisitions] for AstraZeneca should focus on rebuilding the U.S. product portfolio within the company’s current areas of strength.” At the same time, AstraZeneca should work on bolstering its specialty businesses through internal investment and small acquisitions, Fernandez argued.

While AstraZeneca is eyeing acquisitions, Lilly CEO John C. Lechleiter is relying on his firm’s own R&D engine to restore growth. Lilly is going through possibly the toughest period in its history, with the loss of patent protection on its top-selling drug, the antipsychotic Zyprexa, in 2011 and generics competition for its new top seller, the antidepressant Cymbalta, set for 2014.

The loss of exclusivity caused sales of Zyprexa to fall 63% to $1.7 billion last year. It also had an impact on Lilly’s bottom line: Fourth-quarter earnings dipped 2.5% to $945 million, and sales were down 1.5% to $6.0 billion. For the year, earnings fell 23.0% to $3.8 billion, based on a 6.9% drop in sales to $22.6 billion.

Lilly managed to prop up sales of several older products through price increases. Sales of Cymbalta grew 20% to $5.0 billion, an improvement the company attributed mainly to higher prices.

Another help was the strong performance of Lilly’s animal health business, which in 2012 experienced a 21% improvement in sales to $1.7 billion. Lechleiter is bullish on the prospects for animal health, which he sees as a major growth opportunity. Indeed, with Cymbalta set to face generics competition in 2014, Lechleiter has said that animal health, emerging markets, Japan, and Lilly’s diabetes franchise could together represent more than 60% of the company’s overall sales by 2016.

Of the big drug companies, Bristol-Myers Squibb saw the most dramatic consequences of generics competition on a top-selling product. The patent on the blood thinner Plavix expired in May 2012, causing sales to drop from $7.1 billion in 2011 to $2.5 billion the following year. And that contribution will virtually disappear in 2013: In the fourth quarter of 2012, Plavix sales were a mere $49 million. Overall, the company’s fourth-quarter sales fell 23.2% to $4.2 billion, while earnings decreased 14.2% to $777 million.

Meanwhile, BMS has had some setbacks to its pipeline. In January 2012, it paid $2.5 billion for Inhibitex, a biotech firm with a nucleotide polymerase inhibitor for hepatitis C in midstage studies; in August, BMS halted tests of the compound after a patient died of heart failure. By the fall, the big pharma firm had scuttled the project entirely.

The company finally got some good news in the last days of 2012: After many delays, the Food & Drug Administration approved Eliquis, a blood thinner that in studies proved more effective than the standard of care, warfarin. Discovered at BMS and codeveloped with Pfizer, the Factor Xa inhibitor was one of the most highly anticipated new drug approvals last year. During a conference call to discuss financial results, BMS executives focused on the potential for Eliquis. Analysts forecast annual sales of the drug to approach $4 billion by 2018.

Sanofi, BMS’s partner in the marketing of Plavix, was more successful in offsetting that patent loss. Having already experienced a wave of generics competition, Sanofi has in recent years diversified into areas such as over-the-counter health care products, generics, and emerging markets. That strategy helped keep fourth-quarter sales even at $11.3 billion, although earnings fell 24.3% to $2.1 billion.

Pfizer, meanwhile, managed to stave off some of the massive sales erosion following its patent cliff, which culminated in the November 2011 patent expiration for Lipitor, its cholesterol-lowering drug. Sales of Lipitor plummeted 71% in the fourth quarter to $584 million and 59% for the full year to $3.9 billion.

Between its own labs and external partnerships, Pfizer was able to gain approval for five products in 2012. In addition to Eliquis, Pfizer’s name is attached to the rheumatoid arthritis pill Xeljanz, the chronic myelogenous leukemia treatment Bosulif, the kidney cancer drug Inlyta, and the Gaucher’s disease treatment Elelyso. In 2011 the firm won approval for the lung cancer drug Xalkori.

Although the new products were a cushion, Pfizer’s results still fell. Fourth-quarter earnings dropped 7.2% to $3.5 billion on a 6.6% decrease in sales to $15.1 billion. Full-year earnings fell 7.6% to $16.5 billion, and sales were down 9.6% to $59.0 billion.


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