5 Blockbuster Drugs Going Off Patent in 2014

Over the past decade, drug companies have become increasingly dependent on blockbuster drugs -- patented specialty drugs that generate more than $1 billion in sales annually.

However, when a major blockbuster loses patent protection, generic competition leaves a gaping hole in the top line, abruptly changing a company's greatest strength into its greatest liability. Let's take a closer look at five blockbuster drugs that will lose patent protection in 2014, and how four companies -- Teva Pharmaceutical (NYSE: TEVA  ) , Eli Lilly (NYSE: LLY  ) , Novartis (NYSE: NVS  ) , and AstraZeneca (NYSE: AZN  ) -- will be affected.

Terrible days ahead for Teva
Teva Pharmaceutical is best known for its generics business, but also owns a sizable large specialty pharmaceuticals business that accounts for 42% of its revenue.

Teva's biggest drug in its specialty portfolio is Copaxone, a blockbuster multiple sclerosis drug that generated $1.05 billion in sales last quarter -- half of the specialty pharma segment's revenue and 20% of Teva's total top line. Over the past four years, sales of Copaxone have steadily risen as the primary pillar of growth for Teva's top line.

 

2009

2010

2011

2012

Copaxone Sales

$2.8 billion

$3.3 billion

$3.6 billion

$4.0 billion

Growth (YOY)

35%

18%

9%

11%

Source: Company annual reports.

However, Teva's key patent for Copaxone will expire in May 2014, opening the doors for generic competition. Mylan and Momenta Pharmaceuticals have already stated that their intent to release generic versions the moment Teva's patent expires. Generic Copaxone would be an excellent development for MS patients, who pay $40,000 for the drug annually, but it could be devastating to Teva's top line.

In addition, Copaxone, which is injected, faces rising competition from newer oral MS treatments, such as Novartis' Gilenya, Sanofi's Aubagio, and Biogen Idec's Tecfidera, which could reduce Teva's market share dramatically in 2014.

More trouble ahead for Eli Lilly
Eli Lilly investors spent most of 2013 fretting about two things -- its failed Alzheimer's efforts and the patent expiration of its top-selling antidepressant drug, Cymbalta, which accounted for 22% of its 2012 revenue.

Looking ahead to 2014, Lilly shareholders face another major patent expiration. Evista, its blockbuster treatment for osteoporosis, will expire in March 2014. Since Evista regulates estrogen receptors, it is also approved for reducing the risk of invasive breast cancer in postmenopausal women.

 

2009

2010

2011

2012

Evista Sales

$1.03 billion

$1.02 billion

$1.07 billion

$1.01 billion

Growth (YOY)

(4%)

(1%)

4%

(5%)

Source: Company annual reports.

Evista sales have remained fairly flat over the past four years. However, the drug still accounted for 4% of Lilly's top line in 2012. The combined loss of exclusivity for Cymbalta and Evista is forecast to reduce Lilly's 2014 global revenue by 20% -- leading to pay freezes and thousands of job cuts to preserve its bottom line.

However, Lilly's loss could be Teva's gain, since Teva has tried for several years to launch a generic version of Evista.

Novartis faces a pair of patent expirations
Meanwhile, Novartis will lose patent exclusivity for Sandostatin LAR and Exforge, which generated combined global sales of $2.9 billion in 2012.

Sandostatin, a treatment for a rare endocrine disorder known as acromegaly, generated $1.5 billion in global sales for Novartis in 2012. However, the drug already faces competition in many global markets, where its patents expired three years ago.

When Sandostatin's U.S. patent runs out in June 2014, Novartis is expected to fill that gap with a newer treatment, Signifor, which was approved by the FDA last December to treat Cushing's disease, another rare endocrine disorder, which is also expected to be approved as a treatment for acromegaly. Approximately 43% of Sandostatin's sales come from the U.S.

Exforge, on the other hand, is a hypertension drug that generated $1.35 billion in sales for Novartis in 2012. Exforge's U.S. patent expires in October 2014, but it will remain under patent in most international markets -- good news considering that only 26% of Exforge's sales comes from the U.S.

Both Sandostatin and Exforge have been the subject of improper marketing. In August, a Novartis sales representative in China claims that her manager pressured her to bribe doctors to increase the usage of the drug. In 2010, Novartis paid a $422 million settlement to the U.S. Department of Justice for allegedly paying doctors illegal kickbacks to prescribe Exforge, along with blood pressure drugs Diovan and Tekturna.

AstraZeneca's trilogy of patent expirations
Last but not least, we should discuss AstraZeneca's Nexium, the blockbuster heartburn and acid reflux medication which generated $4.0 billion in global sales in 2012.

The expiration of Nexium in May 2014 will be the second chapter in a dreaded trilogy of blockbuster patent expirations for the British drugmaker -- the first being its antipsychotic drug Seroquel, which lost patent protection last year, and the third being the expiration of its cholesterol drug Crestor in 2016.

 

2009

2010

2011

2012

Nexium Sales

$5.0 billion

$5.0 billion

$4.4 billion

$3.9 billion

Growth (YOY)

(5%)

0%

(11%)

(10%)

Source: Company annual reports.

Nexium sales have been slipping away over the past three years, so its patent expiration will only exacerbate the decline. When Nexium loses patent protection, AstraZeneca will not release an over-the-counter version of the drug. Instead, it has already sold the OTC rights to Pfizer for a $250 million upfront payment and future milestone and royalty payments.

After all three of AstraZeneca's blockbuster drugs, which together accounted for 46% of the company's 2012 revenue, lose patent protection, the company will face a murky future.

Three places to look for growth are AstraZeneca's respiratory drug Symbicort, which generated $3.2 billion in sales last year; its blood thinner Brilinta/Brilique, which is expected to eventually generate peak sales of $2 billion; and its diabetes franchise, where it is partnered with Bristol-Myers Squibb in the marketing of Byetta/Bydureon, a GLP-1 analog that helps diabetes type 2 patients naturally produce more insulin.

The Foolish takeaway
In closing, investors in Teva, Eli Lilly, Novartis, and AstraZeneca should be aware of how these upcoming patent expirations will impact their top line growth.

All four companies will likely implement more cost-cutting strategies to preserve their bottom line growth, but over time, heavy expense reductions could choke the innovation out of these companies. Therefore, investors should keep a close eye on their new and upcoming drugs, and if any of them can fill in the holes left by these expiring blockbuster drugs.

Another big catalyst hitting health care stocks
Now that we've discussed the upcoming patent expirations for these five blockbuster drugs, we should also focus on an issue closer to home -- Obamacare. Obamacare seems complex, but it doesn't have to be. In only minutes, you can learn the critical facts you need to know in a special free report called Everything You Need to Know About Obamacare. But don't hesitate; because it's not often that we release a FREE guide containing this much information and money-making advice. Please click here to access your free copy.


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