Paradise Lost: The Adverse Impact of Patent Loss on Big Pharma

In researching our next issue, I was looking at Value Line revenue forecasts for some of the largest pharmaceutical companies in the world. The numbers were not at all encouraging and they served as a painful reminder why our expectations are for tepid growth in this area. While the dividends are attractive, we don’t soon expect a return to 15% earnings and the sales growth era we saw over the decades.

Why the slowdown in revenues? A couple of reasons: Pricing pressure on certain drugs and competitive drugs has had an impact on revenues at many big pharma companies. But the main culprit is the loss of patents on key blockbuster drugs.

Company 2014 sales 2018 Estimated sales Estimated revenue growth to 2020-22 Key patent expirations
Pfizer $49.6 billion $54 billion 4.0% Viagra/Lyrica
Sanofi $40.9 billion $40 billion 4.0% Lantus
GlaxoSmithKline $37.9 billion $39 billion 1.5% Advair
Novartis $57.9 billion $50 billion 2.0% Gleevec/Diovan
Astra Zeneca $26.1 billion $22 billion 1.0% Crestor/Nexium
Source: Value Line Investment Survey

 

While big pharma companies do make tremendous profits, there is a substantial need to continually develop new blockbuster medications to replace the ones going off patent. For example, Astra Zeneca’s revenues over the past few years have had significant declines. Crestor, the blockbuster statin drug for lowering cholesterol and triglycerides had a sales decline of over 50% in the last couple of years. Nexium, the popular drug for acid reflux/heartburn, also went off patent a few years ago. It will take several successful hits to make back those lost revenues.

Novartis lost patent protection on two giant drugs – their blood pressure treatment, Diovan, and one of the most effective cancer drugs in recent history—Gleevec.

While sales are suffering and earnings are not exactly hitting it out of the park, many of these stocks pay handsome dividends. Look for more details on this in our August issue.

David Lerman and Jodie Warner

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