Dan White: Prognosis for pharmas uncertain as drug patents expire
As firms' exclusive rights to blockbuster drugs run out, mergers are on the cards – and that will mean job losses
DRUG giant Pfizer's decision announced last week – to start selling its wonder-drug Viagra online – allows the company to maximise its value before the patent expires in 2020.
With the flow of new drugs having virtually dried up and Pfizer along with most of its competitors desperately trying to squeeze extra revenue from those drugs still in patent, the outlook for the Irish pharma sector, which directly employs over 17,000 people, is very uncertain.
On Monday, Pfizer announced that it would start selling its erectile-dysfunction (ED) drug Viagra online to customers with a doctor's prescription. According to the company, the move was motivated by its desire to stamp out sales of bogus "Pfizer riser" via the internet. Pfizer estimates that 80 per cent of "Viagra" sold online is counterfeit.
That is almost certainly only part of the story.
Putting the bootleggers out of business will certainly be good news for many ED sufferers, who apart from not getting the performance which they had paid for, also found themselves being exposed to a wide range of potentially unhealthy substances including pesticides, paint and printer ink when they consumed their bogus blue pills. Internet users, many of whom have to wade through an avalanche of messages flogging online Viagra every time they switch on their email account, will also be grateful for Pfizer's move.
However, Pfizer was almost certainly primarily motivated by baser, less altruistic motives. With annual sales of almost €1.52bn, Viagra is one of the world's best-selling drugs. Even when the impact of all of those counterfeit blue pills are taken into account, Viagra remains a cash-cow for its manufacturer Pfizer, with most of the world's supply coming from Pfizer's Ringaskiddy plant in Co Cork.
One of the world's best-selling drugs and most of it is made in Ireland, so what could go wrong? Quite a lot actually. In common with all of the other large pharmaceutical manufacturers, Pfizer is facing the "patent cliff" as its best-selling drugs lose their patent protection and it is unable to develop sufficient new "blockbuster" drugs to replace them.
It has been estimated that sales of a drug eventually fall by up to 80 per cent when its patent expires and the market is opened up to cheaper generics. Pfizer's experience with its anti-cholesterol drug Lipitor, whose patent expired in late 2011, would definitely seem to bear out this estimate. Sales of Lipitor collapsed from €8.1bn in 2010, the last full year of patent protection, to just €2.9bn in 2012.
And Pfizer isn't the only major pharmaceutical company which is confronted by the prospect of seeing revenues from most of its major products evaporate as their patents expire. Sales of Merck's anti-asthma drug Singulair fell by as much as 90 per cent when its patent expired last year, while sales of Bristol-Myers Squibb's blood-thinner Plavix were down by 60 per cent in the wake of the expiry of its patent in 2012.
Pfizer can expect something similar to happen to Viagra when its patent expires in 2020. Stiff competition from generics will see Viagra sales droop dramatically.
The impact of the patent cliff is already being felt in Ireland. As big pharma loses patent protection for its existing blockbusters and fails to develop new ones, an increasingly desperate game of corporate match-making is being played out.
Unable to survive on their own, the major pharmaceutical companies are pairing off with one another. Merck paid €31.2bn for Schering-Plough in 2009 while Pfizer forked out €51.6bn for Wyeth in the same year. More mega-deals are on the cards in the years ahead.
One of the first things to happen when a major pharmaceutical company either acquires or merges with one of its rivals is that it cuts costs by closing duplicated plants and facilities.
We in Ireland have already found this out the hard way. Last March Merck announced the closure of its Rathdrum, Co Wicklow, plant with the loss of 280 jobs, while Pfizer unveiled plans for up to 785 job losses in 2010.
This contraction of the pharmaceutical sector has fed into our export performance with the value of exports having fallen in each of the past four months. Surprise, surprise the main culprit has been pharmaceutical exports, which were down by 17 per cent for the first two months of 2013.
However, it's an ill wind that blows no good. The presence of so many large pharmaceutical companies in Ireland has meant that the HSE has been at a huge disadvantage in its efforts to force price reductions in its €2bn annual drugs bill. With the implicit threat of one or more of the pharmaceutical companies leaving Ireland – if pressed too hard – lurking in the background, the HSE has been fighting with one hand tied behind its back.
A smaller pharmaceutical sector would greatly reduce the leverage which the drug companies currently enjoys in the price negotiations. This would allow the HSE to cut the de facto subsidy Irish taxpayers currently pay the pharmaceutical companies in the form of higher prices and the lower use of generic drugs.