Practically two years ago, I examined the pharmaceutical industry and discovered that many big pharma pipelines were living on borrowed time. Back then, I highlighted Eli Lilly , Pfizer , AstraZeneca and GlaxoSmithKline as pharma's most perilous pipelines.
Some of these companies actually managed to avoid the huge pangs often associated with generic competition, including AstraZeneca and GlaxoSmithKline.
For AstraZeneca, it saw revenue fall by double digits last year from weakness in Crestor and a loss of exclusivity on Aptium. However, the rapid growth of new cancer therapies, as well as the European approval of Forxiga -- its revolutionary SGLT-2 inhibitor for type 2 diabetes developed with Bristol-Myers Squibb -- have done well to support its share price.
Likewise, GlaxoSmithKline saw sales increase by 1% on a constant currency basis in 2012 with its respiratory blockbuster Advair steadying the charge. Glaxo also saw big gains from Benlysta -- the lupus drug it acquired full rights to when it purchased Human Genome Sciences -- and its osteoporosis treatment Prolia, which gained an additional indication last year for men who are at high risk of bone fracturing.
Still, plenty of big pharmaceutical companies remain at risk of a major revenue and earnings shortfall because of the patent cliff and shortcomings in their own pipelines.
Pfizer, the largest pharmaceutical company in the world on a revenue basis, is one such company that's been dealt a difficult hand. It lost the best-selling drug in the world, Lipitor, with $131 billion in lifetime sales, to patent expiration in 2011, suffered the loss of Geodon and Detrol last year, and will lose osteoarthritis drug Celebrex in 2014. However, Pfizer's delivered some positives lately that'll keep it off the pedestal as pharma's most miserable pipeline. These positives include the very successful spinoff of a portion of its animal health division, Zoetis, as well as the recent approval in the U.S., Canada, Europe, and Japan, of blood thinner Eliquis with Bristol-Myers Squibb. Eliquis, if you recall, was one of the drug hopefuls I was most looking forward to gaining approval in 2013 and could have multibillion-dollar potential.
Bristol-Myers Squibb is also a potential contender with its "string of pearls" strategy backfiring badly. The company's purchase of Inhibitex in January 2012 turned out to be a complete dud with BMS-096984 -- its mid-stage experimental oral hepatitis-C drug -- leading to the death of a patient and the hospitalization of others. Ultimately, BMS-096984 was discontinued, and Bristol-Myers wrote off $1.8 billion of its $2.5 billion purchase. But just like Pfizer, Bristol-Myers has been saved by the potential of Eliquis, as well as its SGLT-2, type 2 diabetes drug Forxiga. While far from replacing the lost revenue from the patent expiration of Plavix last year, the potential of these drugs is enough to keep Bristol-Myers from being pharma's most perilous pipeline.
Pharma's most perilous pipeline
The honor of being pharma's most perilous pipeline goes, without question, to Eli Lilly. For Lilly, it's been one drug coming off patent after another. In addition, some of its highly touted pipeline products have wound up as duds, further complicating matters.
When I examined Eli Lilly last summer I pointed out an article from the New York Times published in 2010 that noted that about three-quarters of Lilly's revenue was at risk of generic competition by 2017. Patents on chemotherapy drug Gemzar and schizophrenia drug Zyprexa have already expired, with all Evista patents sent to expire by 2014. This year, according to research by FiercePharma, we can expect about 31% of Lilly's revenue stream to become exposed to generics as neuropathic pain and antidepressant drug Cymbalta and diabetes drug Humalog slide from the ranks of exclusivity. These two drugs alone contribute north of $7 billion in combined annual sales.
But, it isn't so much that Lilly's been sitting on an aging pipeline -- because if that was the case I'd give Forest Laboratories the award for worst pipeline and we'd be done. It's the fact that Lilly's research and development program is failing to deliver breakthrough drugs like it once did.
For instance, Eli Lilly's Alzheimer's treatment solanezumab largely flopped in late-stage trials. A deeper dive into the results by researchers necessitated further testing that could yield some value in earlier stages of the diseases, but nothing is concrete until further studies are completed. Another example is Lilly's late-stage stomach cancer drug ramicirumab. Even though the drug met its statistical endpoint as designed by the FDA, it only extended median overall survival to 5.2 months from the 3.8 months seen in the control arm. It's an improvement, but will it be a big enough improvement for patients and physicians to pay that much extra for? I think not.
Annual revenue at Eli Lilly peaked in 2011 at $24.3 billion and is estimated to fall shy of $20 billion by 2014. Without any blockbusters on the horizon and, with little determination from management to purchase new drugs into its portfolio, Eli Lilly seems destined to keep investors floating in limbo for the next two or three years as its aging pipeline continues to crumble under the weight of generic competition.
Is Eli Lilly a buy or sell?
With two of its top three drugs poised to lose patent protection this year, is Eli Lilly a dividend stock headed nowhere fast? In a new premium report, The Motley Fool's senior pharmaceuticals analyst breaks down all of Lilly's moving parts, including an in-depth analysis of the company's must-know opportunities and reasons to buy and sell today. To find out more -- and get a full year of free updates -- click here to claim your copy today.
The article This Is, Without Question, Pharma's Most Perilous Pipeline originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.