Company Analysis - Mergers & Acquisitions
Patent pressure
So what is stimulating this paradigm shift in pharma company growth models? A major element in the revised approach by big pharma to deal-making stems from upcoming expirations of many key blockbuster patents, representing a vast loss of revenue which will not be easily replaced. A prime example is atorvastatin (Lipitor), Pfizer’s US$12bn/year cholesterol-reducing agent. Historically, atorvastatin is one of the most successful drugs ever produced, and was the first to attain US$10bn in annual sales. It faces patent expiry in March 2010, but so far Pfizer’s legal attempts to extend this coverage have proved fruitless. Meanwhile, with specialty generic companies such as the Indian outfit Ranbaxy waiting in the wings with their own versions of the drug, Pfizer can expect around an 80% decrease in revenue from atorvastatin when such generics reach the market.
With the time taken to bring a drug to market being so long, the period of patent-protected exclusivity can be relatively short. As such, companies face ever-increasing pressure from generic firms muscling in on their profit margins. One way of tackling this has been through patent extensions. The 1984 Drug Price Competition and Patent Term Restoration Act allows up to five years to be added to the life of the patent, provided it was marketed under exclusivity for less than 14 years. A similar paediatric extension was introduced in 1997, granting an additional 6 months exclusivity and in total the US FDA has granted this extension to over 140 drugs.
Similarly, the Orphan Drug Act of 1983 was intended to stimulate drug development in rare disease areas. Sponsors are granted seven years of marketing exclusivity after approval and can also obtain grants and tax incentives for clinical research. Some of the best-selling biological drugs in recent years have benefited from this, including Epogen, Enbrel, Remicade, Rituxan and Avastin, which were all in the top 40 drugs in 2006. According to our data, of the 777 drugs launched since 1998, 77 (10%) were orphan drugs.
The demise of the old blockbuster business model and its replacement by the focus on personalised therapeutics and niche drugs is another major factor in the trend toward biological and biotech drug development. According to our data, of the 3221 products launched at present, only 487 are biological in origin (Graph 1), and 215 classed as biotech products. This trend is reflected in the flurry of recent purchases of biotech companies, such as Merck KGaA’s buyout of Serono and its subsequent launch of a merged venture at the start of 2007, in a bid to branch out into this up-andcoming field. Further examples include the acquisition of CoGenysis by Teva for US$400m, to add CoGenysis’ promising albumin technology to its biologics portfolio. Bristol-Myers Squibb (BMS) purchased Adnexus, a biotechnology firm that is developing Adnexins, a type of targeted biologics with huge potential to fit into the BMS pipeline. Relatively recently Pfizer completed the acquisition of Coley, a company that produces vaccine adjuvants, holding a great potential synergy with Pfizer’s vaccine pipeline, itself acquired from PowderMed.
