3 Drugs Headed for the Cliff

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The pharmaceutical industry had a rough 2012 as about $35 billion worth of drugs fell off the patent cliff. This year’s cliff isn’t quite as steep, but there are still some upcoming expirations that could spell long-term trouble for their manufacturers.

Merck (NYSE: MRK) was weakened by the expiration of Singulair last year and now faces the loss of brain cancer drug Temodar. Endo Health Solutions (NASDAQ: ENDP) will lose the patent for pain patch Lidoderm after an expensive battle to delay a waiting generic from Actavis, formerly Watson. And Eli Lilly (NYSE: LLY) is going to suffer the loss of the $5 billion antidepressant Cymbalta, the same drug that helped the company survive its last patent loss.

Here’s a look at when these drugs will drop off the cliff -- and how much it'll matter.

Temodar - August

The patent for brain cancer drug Temodar technically doesn’t expire until next year. But Merck struck a deal with Teva that allows for a generic release in August. Temodar lost protection in the European Union in 2009, but worldwide sales last year were still $917 million.

Last year closed with the US expiration of migraine drug Maxalt, which had annual sales of $638 million. Maxalt loses key European patent protections next month. The Temodar and Maxalt losses wouldn’t cripple Merck on their own.

But the company’s already limping after 2012’s expiration of the $4 billion asthma drug Singulair. And the current product portfolio is a mixed bag of victories and setbacks. The first quarter report featured a revision of the 2013 earnings estimate -- now set at $3.45 to $3.55, down from the $3.60 to $3.70 predicted in February.

There’s a lot of pressure on the late-stage pipeline, which is as mixed as the portfolio. In the past two months, Merck received a complete response letter for its much-anticipated insomnia drug suvorexant and cancelled a regulatory filing for Parkinson’s candidate preladenant due to inefficacy.

But the R&D department is newly in the hands of Roger Perlmutter and restructuring is underway. It will be some time before we see the potential results and how they might help offset the company’s patent losses.  

Lidoderm - September

Takeover rumors have swirled around Endo Health Solutions since early this year. And that’s partly due to the forthcoming patent cliff loss of pain patch Lidoderm.

Lidoderm had net sales of $947.7 million in 2012, which accounted for 31% of total revenues. Endo fought an expensive battle with Actavis that pushed the generic release back to September. The Actavis generic has since received FDA approval and is ready for launch.

The Lidoderm loss isn’t Endo’s only problem. Pain pill Opana ER accounted for 10% of 2012 revenues, but Impax was allowed to start selling generics in January. Endo sued the FDA arguing that generics lacked the original’s tamper resistant formula and would be easier to abuse. The FDA has been waging a war on the safety of pain pills but surprisingly ruled against Endo.

The company still has signs of life. The generics subsidiary Qualitest had a year-over-year growth of 23% in the first quarter, which put its net sales at $178 million. And Endo’s awareness of its troubled state has led to restructuring plans that could include a 15% reduction in workforce, cost reductions of $325 million, and divesting the urologic equipment subsidiary HealthTronics.New CEO Rajiv De Silva also expressed interest in pursuing modestly sized acquisitions.

Cymbalta - December

Eli Lilly lost patent protection on atypical antipsychotic Zyprexa in October 2011, and the drug suffered a 73% sales drop by the next year’s second quarter report.. But overall sales for the quarter only dropped 10% thanks to the double-digit growth of the antidepressant Cymbalta. Now Cymbalta’s heading for the cliff.

Cymbalta had worldwide sales of $4.99 billion in 2012, which represented 22% of total revenues. The company doesn’t have another approved product with the growth strength to get over the Cymbalta bump. And the third best-selling product -- the $1.4 billion insulin Humalog -- will also hit the patent cliff this year.

The company’s pipeline is rather uneven. Lilly cancelled a number of late stage trials over the past year, including pomaglumetad methionil for schizophrenia, tabalumab for rheumatoid arthritis, and enzastaurin for lymphoma. Diabetes projects look better with the safer GLP-1 agonist and the riskier SGLT2 drug. But Eli Lilly needs more to work with -- and soon.

Foolish final thoughts

How hard will these patent losses hit their respective companies? Merck’s just etching another loss on the wall as it tries to restructure the R&D department so the pipeline looks stronger. In other words -- Merck has bigger problems. Count Eli Lilly as another passenger in that (leaky) boat.

Endo Health Solutions’ takeover rumors from early this year remain only rumors. But the company has a new leader and a modest restructuring plan. But it will require bolder actions to pull the company out of its revenue dive once Lidoderm’s sales erode.  

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