The upside to better patient care is unlimited. Unfortunately, from a business perspective, the upside potential of exclusively being able to marketing life-enhancing drugs is finite. 2012 turned out to be one of the biggest years in history in terms of drugs falling off patent, and 2013 looks like it'll be another tough year.
FiercePharma recently published an excellent review of some of the most prominent patent expirations that are just around the corner. In total, 120 drugs are set to lose their exclusivity totaling roughly $29 billion in annual sales, according to EvaluatePharma. Worse yet, these expirations rarely involve a graceful fall. Bristol-Myers Squibb (NYSE: BMY ) , for example, witnessed worldwide sales of Plavix collapse 96% from the year-ago quarter to $64 million from $1.79 billion.
Keep in mind that patent expirations are rarely cut-and-dried, as pharmaceutical companies often have multiple different indications for one drug and there may be only certain applications or aspects of the drug that are set to lose their exclusivity. Still, five pharmaceuticals are set to step up in front of the patent firing squad, and here they are in no particular order:
Eli Lilly (NYSE: LLY )
Key losses: Cymbalta & Humalog
Eli Lilly is probably the pharmaceutical company set to face the most pain in 2013 with the expected loss of neuropathic pain and antidepressant Cymbalta, and diabetes drug Humalog, which are expected to contribute in the neighborhood of $4.9 billion and $2.5 billion, respectively, this year. Based on Wall Street's estimates, that's 31% of Eli Lilly's revenue stream at immediate risk of generic competition by the end of next year when these two drugs come off patent. Having already lost protection on schizophrenia drug Zyprexa in 2012, Lilly is spending a fortune on developing its pipeline, but has had only tepid success along the way. Alzheimer's treatment solanezumab failed to meet its primary endpoint in late-stage trials, and many other pipeline candidates are still years away from market.
Merck (NYSE: MRK )
Key losses: Temodar & Maxalt
Following the loss of asthma drug Singulair in August and seeing sales plummet by 55% from the year-ago quarter to just $602 million from $1.34 billion, Merck is set to lose brain cancer drug Temodar (which it co-markets with Bayer) and migraine medication Maxalt next year, which are expected to contribute about $900 million and $600 million in sales this year, respectively. Merck has successfully defended its patent rights on Temodar before against Teva Pharmaceutical (NYSE: TEVA ) , but all good things must come to an end. Merck may not be hurting too badly, however, as data from its late-stage osteoporosis drug odanacatib has been extremely positive; its dynamic duo of diabetes drugs, Januvia and Janumet, are running strong; and Merck has been testing Temodar in conjunction with Roche's (NASDAQOTH: RHHBY ) Avastin on various types of brain cancer with the possibility of adding an additional curative indication to its portfolio .
Novartis (NYSE: NVS )
Key losses: Reclast & Zometa
Novartis has mostly escaped the bite of the patent cliff until recently when it lost protection on hypertension drug Diovan. Sales of Diovan dropped 32% to $969 million in its most recent quarterly earnings report. Next year, Novartis is poised to lose bone cancer drug Zometa, as well as osteoporosis treatment Reclast, which are expected to bring in $1.3 billion and $600 million, respectively, in 2012. Keeping things in perspective, we're only looking at a little more than 3% of Novartis' revenue being suddenly exposed to generic competition, but the concern is what drug(s) will step up and replace Zometa and Reclast? First-line multiple sclerosis treatment Gilenya recently doubled its sales, and kidney and pancreas cancer drug Afinitor saw revenue rise by 75%, but it may take a few quarters for Novartis to recoup from 2013's patent hiccup.
Amgen (Nasdaq: AMGN )
Key loss: Neupogen
Unlike the previous three pharmaceutical companies, Amgen only has to absorb the loss of one drug -- its white-blood-cell-enhancing drug for cancer patients, Neupogen, which is projected to bring in $1.3 billion in sales this year and accounts for about 7.5% of Amgen's total sales. With Teva Pharmaceutical already receiving approval for its generic version of the drug, known as Tbo-filgrastim, which it can begin selling in November 2013, you can be assured that sales will fall off a cliff in similar fashion to Bristol's Plavix. Rather than focus on pipeline innovation, however, Amgen has been on a shopping spree, purchasing Micromet and KAI Pharmaceuticals, as well as buying back $10 billion worth of its own shares. While the stock may appear cheaper now, it doesn't mask Amgen's lack of sales growth over the past decade. It'll really need its newer drugs -- Prolia for osterporosis, and Xgeva, which is used to prevent fracturing in bones of cancer patients -- to step up if it has any hope of recharging its pipeline.
Johnson & Johnson (NYSE: JNJ )
Key losses: Procrit & Aciphex
Yes, even pharmaceutical and medical device behemoth Johnson & Johnson is going to feel the sting of patent expirations in 2013, with anemia drug Procrit and heartburn medication Aciphex (which it co-markets with Eisai) set to lose exclusivity. These two drugs are expected to contribute about $1.4 billion and $900 million, respectively, in sales to J&J's top line in 2012, or a tad over 3% in total sales. J&J likely doesn't have much to worry about, though, as its recent $19.7 billion purchase of Synthes should allow it to focus more of its effort on medical devices and negate the negative effect generic drugs will have on Procrit and Aciphex.
With the pharmaceutical sector set for another transformational year, does Merck have a strong enough pipeline to drive growth or will generic competition get the better of this behemoth? Get the answer to this question and much more by getting your copy of our latest premium research report on Merck. Packed with in-depth analysis on the opportunities and threats facing Merck -- and complete with a year of regular updates -- this report will give you the tools necessary to make smart long-term investing decisions. Click here to learn more.