How Big of a Deal is a Patent Expiration? Just Ask Pfizer

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Countdown to Lipitor Loss of Exclusivity

How do you substitute the blockbuster sales of one of the most successfully branded prescription medications after its patent protection is lost? What unique strategies do you put into place to recoup at least some of the annual over $10 billion in worldwide sales (over $5 billion in the U.S.)? These are questions which have been nagging Pfizer (NYSE: PFE) executives for quite some time, and undoubtedly investors too.

Lipitor has been the big kahuna of all prescription drugs worldwide:  Only last year did it lose its top position in the U.S. when it was surpassed in sales ever so slightly, by Nexium, the proton pump inhibitor manufactured by AstraZeneca (NYSE: AZN) to treat Gastroesophageal Reflux Disease (GERD). Over the last decade, Lipitor accounted for over $106 billion of Pfizer sales, representing nearly 25 percent of total sales revenue.

But now that Lipitor is scheduled to lose its patent protection in the U.S. on November 30th, a lower-priced generic of Lipitor, known as Atorvastatin, will soon hit the market. While this is music to their ears for the 8.7 million (11 million at the drug's peak) of Lipitor users in the U.S., for Pfizer it can mean a progressive siphoning of profits from the generic companies approved to market the off-brand version of the cholesterol-reducing drug.

The Competitors

One such company that stands to benefit from the loss of Pfizer's Lipitor exclusivity is Ranbaxy Laboratories Limited, a public company whose stock is traded on the Bombay Stock Exchange and National Stock Exchange of India (BSE: 500359 and NSE: RANBAXY). The other is Watson Pharmaceuticals, Inc., (NYSE: ACT) who is manufacturing a generic version of Lipitor, which has been authorized under a profit-sharing agreement with Pfizer.

Both Ranbaxy Laboratories Limited and Watson Pharmaceuticals are well positioned to take advantage of the Pfizer's loss for their gain -- at least for the first six months when the law permits only a limited generic drug competition. But once Ranbaxy Laboratories and Watson Pharmaceuticals lose their exclusivity, all is fair game in the generic Lipitor wars.

Pfizer Fights Back

Getting back to the original question: What strategies are Pfizer putting in place to limit the skimming of their profits to generic competitors like Watson and Ranbaxy? Although it has been unsuccessful in finding a blockbuster prescription drug replacement, Pfizer has other marketing tactics up its sleeve.

First, Pfizer is planning to sell Lipitor directly to consumers -- at or below generic prices. Dare we say at even Walmart prescription drug prices? For starters, Pfizer has teamed up with Diplomat Specialty Pharmacy to mail Lipitor to patients who order the drug through the pharmacy -- and they'll pay at or below generic prices for the true Lipitor brand medication.

Second, Pfizer is attempting to make a few sweet deals with pharmacy benefit managers (PBMs), like Medco Health Solutions (UNKNOWN: MHS.DL) and Catalyst Rx (UNKNOWN: CHSI.DL). The goal is to offer PBMs discounts to prod patients to continue to use Lipitor instead of switching to the lower-priced generic alternative. While the details aren't readily available yet, consumers could end up paying less of a co-pay for Lipitor than they would for the generic Atorvastatin.

Another big pharma Pfizer strategy: both brand-name and generic pharmaceutical companies are looking into developing more biologic drugs, which are more difficult to replicate.

Lastly, Pfizer is looking into smaller niches. As an example, take their experimental drug Xalkori. Xalkori is targeted to treat a limited number of people with a rare form of lung cancer at a hefty price tag -- $115,000 per year per patient. While this drug sale won't likely achieve the multi-billion dollar sales figure that Lipitor dawned, Pfizer executives think it's a worthwhile market to pursue.

Are these strategies enough? Time will tell, and the clock is ticking.

Disclosure: None

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