Pharma Drug Wars: Two Winners and One Loser

Three of Europe’s largest drugmakers have followed Eli Lilly (NYSE:LLY) off the edge of the patent cliff.

Over the third quarter, AstraZeneca (NYSE:AZN), Novartis (NYSE:NVS), and Sanofi (NYSE:SNY) saw earnings decline as patents on key drugs expired and competition from cheaper generics increased.

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The Wall Street Journal reported that these European pharmaceutical firms are “seeing the worst effects of the so-called ‘patent cliff’ this quarter, where patents for drugs expire in major territories but aren’t replaced rapidly enough to replace lost revenues.”

On Thursday, AstraZeneca reported a decrease in revenue for the third consecutive quarter. For the three months ended in September, net profit fell by more than half, dropping from $3.48 billion to $1.53 billion. Revenue also fell by 19 percent to $6.68 billion. The company’s third-quarter revenue decrease was largely due to an 82 percent drop in sales of its schizophrenia drug Seroquel and a 22 percent drop in sales of its cholesterol drug Crestor. Over the next five years, AstraZeneca expects to lose patent protection on approximately 50 percent of its blockbuster drugs.

Sanofi and Novartis also felt the effects of patent losses, but not to the same extent as AstraZeneca. As Britta Hold of Fitch Ratings told Reuters, “Novartis is in an excellent position, with a full pipeline and strong diversification, and Sanofi is also on the right track.”

Based on demand for its diabetes and rare disease drugs, Sanofi revised its full-year earnings forecast, projecting earnings to fall by 12 percent instead of its previous estimate of 15 percent. However, the company’s third quarter earnings were dragged down by the expiration of patents on its cancer treatment Eloxatin and the high-blood-pressure treatment Avapro.

Novartis said third-quarter sales fell 7 percent to 13.81 billion, as the pharmaceutical manufacturer’s newer drugs failed to offset the weaker sales of its former blockbuster drug Diovan, which lost patent protection in the United States last month.

According to the Journal, where other pharmaceutical companies have diversified into consumer health care, generics and niche drug areas, AstraZeneca has focused on branded prescription drugs. This strategy has made the company more susceptible to revenue losses from patent expirations than its peers. Concerns over this issue were so acute that former CEO David Brennan left the company abruptly earlier this year.

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