What does the loss of a patent mean to a pharmaceutical company….

purple pill, viagra, celebrexThere was an article in the NY Times that said that Pfizer profit declined 19% after loss of patent for Lipitor.  The article points out that Pfizer is racing to reinvent itself as they are scheduled to lose 19 drug patents with a potential to lose $38.5 billion in sales.  For years big drug companies have been buying up smaller companies that showed a promise of bringing a new drug to the market.  They picked up where the little company left off and brought it out to the market place under the larger companies’ name.  What is next for the big pharmaceutical companies? 

Have you ever thought of what a patent means to a pharmaceutical company in terms of revenue? That is the companies bread and butter for the length of the patent.  Generally a patent within the United States is for 20 years but this is before clinical trials are performed.  The clinical trials can take between 8-18 years to perform, so in essence the manufacturer can have a monopoly for 8-12 years once the clinical trials are concluded. 

In a world where it can take up to $800 million dollars for a block buster new drug to be brought to the market losing a patent can be significant.  The market is soon flooded with generics and before you know it you have yourself the next Tylenol/pain reliever.   The generic drugs get to coat tail on the wings of the original patent holder too and absorb the marketing and branding efforts.  It is the norm now to go to the pharmacy and have your script filled with a generic, rarely does the physician write DAW (dispense as written). 

Are we in a world now where we may not have any new blockbuster drugs coming to the market anytime soon?  The article point out that big pharma is not investing in R & D as heavily as in the past.  Pfizer has reduced its research budget from $9.4 billion in 2010 to $6-7 billion.  What is on the horizon?

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Comments

  1. A common complaint I hear is that it takes too long for a patent to expire and that these greedy pharmaceuticals are trying to hog all the profits, but patents are crucial to future drug research. Why would you invest in R&D if the competitor could immediately come behind you and steal your work? You wouldn’t and neither would anyone on Wall Street.

    You’re also right about the approach of big companies: With R&D costs being so high, bigger companies find it more profitable to buy up smaller companies with promising pipelines than to take a stab in the dark and hope to stumble upon future blockbusters themselves. A blockbuster is a drug that will generate over a billion dollars in revenue a year, and its “worthless” for these large companies to spend time developing many of the smaller drugs… mostly because the smaller drugs won’t bring in enough profit to pay the bills. I think U.S. patent laws will still protect the possibility of future blockbusters. What’s next for pharmaceuticals is going to be something similar in idea to generics: “biologics”. These will be your copy-cat cancer, arthritis, lupus, etc. treatments. There should be a lot of long-term money here, especially with an aging population. The FDA is still figuring out how to create rules around these since they’re so new to the U.S., but they’re the big buzzword in the future of drug research.
    GB @ In Budgets We Trust recently posted..April 2012 Net Worth (Up $16,202!)My Profile

    • I recently read this Fortune magazine article on the former Pfizer CEO and how the company has struggled through the last decade. If you have a half an hour, I think it’s a worthwhile read on building a team that supports you and knowing who to trust when planning the direction of your company. :)

      features.blogs.fortune.cnn.com/2011/07/28/pfizer-jeff-kindler-shakeup/
      GB @ In Budgets We Trust recently posted..April 2012 Net Worth (Up $16,202!)My Profile

    • @ GB – thanks i learned something. I will check out that article too. You are spot on and I have nothing to add :-)

  2. I admit that most of my pharmaceutical patent comes from the latest planet of the apes movie. It sounds like the generic companies are really holding back progress. If they are going to eat up so much of the patent holder’s profits, where’s the motivation to keep developing new drugs?
    Modest Money recently posted..Partying Philosophy 101: Why You Shouldn’t Be Generous, Even If You’re Filthy RichMy Profile

    • @ Jeremy – yeah i wonder that too. As you can see from the article that Pfizer is scaling back their research commitments. I wonder if they are going to go down the road of just producing generics then.

  3. I’ve never really looked much into pharmaceuticals or patents but this was rather interesting. I didn’t realize you could lock up a patent for 20 years. That’s a long time!
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    • @ Jason – it is a long time but it is a huge investment just in the R&D to just bring the drug to the market. I wonder how many drugs never make it to the shelves for every one that does make it.

  4. Pfizer is going to take huge financial hit losing 19 patents, and close to $40 billion dollars in sales. Drug patents are a very lucrative market for pharmaceutical companies, but the risk is astronomical.
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  5. Pharmaceutical companies take risks because of the potential of high rewards. If rewards decrease, and risks remain high, it does not make sense for them to invest in R&D.
    SavvyFinancialLatina recently posted..Unexpected Scholarship WindfallMy Profile

    • @ Savvy – I hear you what is the reward for taking on so much risk if your patent can be swiped away so quickly. I like the long patents as it stimulates innovation but I do not like paying a premium when I have a script filled. If I had to take one over the other I would take the innovation!

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