Generic Drugs Will Hit Pharmaceuticals Hard in 2013

On Wednesday, Spectrum Pharmaceuticals SPPI dropped 37 percent after releasing its Q1 and full year revenue guidance.

The company said it expects sales of its colorectal cancer drug, Fusilev, to total $80 to $90 million in 2013 compared to $204 million in 2012. Seem like a huge drop for the company’s flagship drug? It is and it has to do with a familiar and financially deadly culprit: generics.

Every drug company knows that it’s in a race against time. Patents run out 20 years from the date of filing according to the FDA. Drug companies sometimes file for a patent on another chemical or delivery method of a drug to extend it but eventually the patent will run out.

Because a patent doesn’t bar a company like Teva Pharmaceutical Industries TEVA from developing the generic before it expires, once it expires the generics hit the market almost instantly.

Take Pfizer’s wonder drug, Lipitor, used to lower cholesterol. In 2010, it amassed sales of $10.7 billion. In November of 2011, the drug went off patent. For the first six months only two companies, Actavis ACT (formerly Watson Pharmaceuticals) and Ranbaxy were permitted to market a generic version of the drug.

In the first week of generics hitting the market, the sales of the branded drug were cut in half. Not only was it only two companies manufacturing the drug but the prices of those first generation generics weren’t much less than the brand name.

In 2010, the IMS Institute for Healthcare informatics reported that generics captured 80 percent of the branded drug’s volume within six months of the patent loss. In 2011, generics comprised 80 percent of all prescription drug sales.

One of the most notable drugs losing patent protection in 2013 is the popular pain killer Oxycontin. The drug, made by Purdue Pharma had sales of $2.8 billion in 2011. The company wants an extension until 2025, according to the Wall Street Journal.

Zometa, used to treat some of the side effects of cancer and had 2010 sales of $1.5 billion, lost patent protection this month. Maker Novartis NVS failed to show that the drug could slow the progression of breast cancer—an attempt to extend the patent. Another of its drugs, Reclast, is now off patent. Patent expiration is a big blow to any company but in the case of Novartis, these two drugs make up only about 3 percent of its revenue stream.

Among others in 2013, Amgen AMGN will lose its drug Neupogen, Johnson & Johnson JNJ will lose Procrit and Aciphex, Merck MRK will lose Temodar and Maxalt, and Eli Lilly LLY will lose Cymbalta and Humalog.