Pfizer Edges Toward Lipitor Patent Cliff as Exclusivity Extensions Near End

Company is banking on pipeline for future growth, but in the near term, R&D investment will drop drastically.

Pfizer lost its basic product patent protection for Lipitor (atorvastatin) in Canada, Spain, Brazil, and Mexico last year. Next month the U.S. joins that group of nations. Like the rest of big pharma, Pfizer is scrambling to restructure its operations to reflect the upcoming patent cliff.

The pharma giant maintains rights to Lipitor’s crystalline and amorphous patents, which expire respectively in 2016 and 2017. Pfizer has also worked to extend basic patent rights for Lipitor, albeit through short-term fixes. The November end of patent protection reflects extensions of Pfizer’s patent, originally set to end last year, then expire in June. In July Pfizer won a six-month extension from the EU of a chewable pediatric version of Lipitor for children ages 10 and older. EU patent protection for the new chewable Lipitor expires in May 2012.

Pfizer has even gone to court against rivals. Most recently in August Pfizer filed suit against Merck to stop the rival from marketing a pill combining a generic version of Lipitor with Zetia (ezetimibe). Merck’s Zetia blocks absorption of cholesterol within the digestive tract, as opposed to statins like Lipitor that work within the liver. The Merck drug cannot be approved by the FDA for at least 30 months, according to federal laws that govern generic drugs.

While Pfizer has defended the suit as necessary to protect intellectual property, it seems as much designed to reduce anticipated losses on Lipitor this year. To be sure, Lipitor sales have been on the downswing in recent years, from a peak of $12.9 billion in 2006, accounting for 27% of total biopharmaceutical revenues, to $11.4 billion in ’09. Yet at $10.7 billion in worldwide sales last year—with about half of that, or $5.3 billion, coming from the U.S. alone—Lipitor remained Pfizer’s biggest-selling product, indeed the biggest selling prescription drug in the world. The drug still accounted for about 18% of total 2010 biopharmaceutical revenues.

The Challengers

On November 30, Ranbaxy Laboratories plans to start selling a generic version of Lipitor. India’s largest generic drug maker had to settle years of litigation against Pfizer back in 2008 and won six months of exclusive marketing rights to sell the drug.

By next summer, Ranbaxy’s Lipitor will be joined by an “authorized” generic version of Lipitor to be sold by Watson Pharmaceuticals. Watson has an exclusive supply agreement with Pfizer, which has agreed to manufacture and sell generic tablets to Watson for five years.

In the years since settling with Ranbaxy, Pfizer has also resolved lawsuits with several other generic drug companies looking to get in on the action. They include Mylan, Teva Pharmacetical, and most recently, Dr. Reddy’s Laboratories.

While Teva settled with Pfizer in the U.S., the two companies clashed for some time about the selling of generic Lipitor in the UK. On October 7, the companies agreed that Teva would keep generic Lipitor off the U.K. market until Pfizer’s patent in that country expired in May 2012.

“More generic company settlements and by extension, more generics, mean more competition and less sales. Pfizer will preserve some profits via the settlement on its 2016 patent with several generic companies, but this pales in comparison to its current profitability,” Seamus Fernandez, a managing director with Leerink Swann specializing in major and specialty pharmaceuticals, told GEN.

Financial Impact

Pfizer reports third-quarter results on November 1. During the second quarter Pfizer saw earnings rise 5% over the year-ago quarter to $2.6 billion on revenues of $17.1 billion; revenues dropped 1% from 2Q 2010. Pfizer maintains that the company will finish 2011 with revenues of $65.2 billion to $67.2 billion. This would be between 1% and 4% under the $67.8 billion in revenues recorded last year.

Pfizer’s EPS guidance has investors losing as much as 3%, or gaining up to 1%, over last year’s $2.23. In 2011, the company said, it expects EPS to fall somewhere between $2.16 and $2.26. Pfizer expects to lower R&D spending this year to between $8 billion and $8.5 billion from $9.4 billion in 2010. R&D expenses between Pfizer and Wyeth before the companies completed their $68 billion merger in 2009 was $11 billion.

In guidance for 2012, Pfizer has warned investors to expect lower numbers, namely a revenue range of between $62.2 billion and $64.7 billion, down nearly 5% year-over-year at the low end of the ranges but only 3% less at the high end. R&D would fall again to between $6.5 and $7 billion, down around 20% at each end of the guidance. Pfizer expects its EPS, however, to bounce back to between $2.25 and $2.35, up 4% at both ends of the guidance.

Pfizer has little expectation that it can fully replace Lipitor, Fernandez said. Without a blockbuster like Lipitor, he added, hitting the numbers Pfizer has presented to investors will be challenging, but not impossible.

Pfizer’s Pipeline

“As the largest pharmaceutical product ever, Lipitor is one-of-a-kind, but products like tofacitinib, apixaban, crizotinib, and Prevnar 13 and the company’s emerging markets growth along with substantial cost cuts and share repurchase activity should allow the company to grow earnings in the low-to-mid-single-digits following introduction of Lipitor generics,” Fernandez predicted.

Tofacitinib, a drug for rheumatoid arthritis, in particular has been touted as a new blockbuster, especially after promising Phase III results published last year. Catherine Arnold, an analyst at Credit Suisse, told Bloomberg that the new drug is game-changing and projected it could conservatively generate as much as $2.6 billion a year. That’s comparable to the $3 billion racked up in sales last year by Pfizer’s second-best selling drug, the arthritis treatment Enbrel acquired in the Wyeth merger, but not as strong as the Abbott Laboratories arthritis drug Humira, which brought in $6.5 billion in sales last year.

Earlier this year, a study published clinical trial results for tofacitinib linking the drug to four deaths and four patient reports of opportunistic infections; Pfizer said only one of the deaths was related to use of the drug. A study published last month showed tofacitinib to be as effective as Abbott’s self-injectable Humira, with no significantly higher instances of patient side effects.

Pfizer has another proverbial silver lining in the clouds surrounding Lipitor’s future. The company has reported successful results from epilepsy trials with a currently marketed drug, Lyrica (pregabalin). The $3 billion-a-year medication is now marketed for diabetic nerve pain as well as pain after shingles and partial onset seizures in adults with epilepsy who take one or more drugs for seizures.

Targeting Generics

Lipitor accounts for a sizeable share of the $250 billion in aggregate sales estimated by EvaluatePharma for the prescription drugs heading over the patent cliff over the next five years. Studies done by the Tufts Center for Drug Discovery have shown that the industry has relied in recent years on only three out of 10 compounds in its portfolio to generate average, or greater than average, R&D costs.

“In other words, seven out of 10 products in their portfolio actually don’t earn the cost of developing a new drug. And a lot of the top selling drugs, the ones that sustain the pipelines—the three out of 10 products—are the ones that are going off patent in this five-year window right now,” Kenneth I. Kaitin, Ph.D., director of the Tufts center, told GEN.

He said pharma giants like Pfizer have responded in two ways to the dawning of generic competition: by hammering out agreements, company by company; and by tying up generic drugmakers in lawsuits.

“With having a number of generic companies producing their product, if they got agreements with those companies and they get some sort of percentage or royalty on the sale of that, then in essence, Pfizer will be benefiting from all of these companies,” Dr. Kaitin explained. “If it’s keeping the drug off the market, then ultimately the longer the drug can be delayed, it’s probably worth it when you consider a drug that earns as much money as Lipitor does.”

The patent cliff presents an opportunity for Pfizer to build generic capabilities through mergers and agreements with generic drug makers. Pfizer began going down this road in 2008, when it indicated it wanted to start selling generic versions of rivals’ off-patent drugs.

Amid the turmoil of the restructuring it announced in July, Pfizer said it would hold on to its generics, or Established Products, unit. It said that generic drugs are the fastest growing segment of fast-growing markets in emerging nations: “Given these dynamics and the company’s footprint and asset base, the company believes that the Established Products business is well positioned to capture the opportunities being created by the demographics and rising economic power within these markets,” Pfizer said at the time.

How much Established Products can bring to market, and how well, will decide in no small part how far Pfizer will get in recouping the billions of dollars in sales it will lose once Lipitor begins to go off-patent.


Alex Philippidis is senior news editor at Genetic Engineering & Biotechnology News.