You hear a lot of talk about the "patent cliff" in the industry these days. Patent expirations you shall always have with you, but there are a number of big-selling drugs that are all coming out of patent protection in a fairly short period. The biggest single drug in this category is, of course, Lipitor, and that expiration has been looming for Pfizer (PFE) year after year.
But Eli Lilly (LLY) has even worse problems. It's not losing it single biggest seller; it's losing up to 50% of all its sales. AstraZeneca's (AZN) not in much better shape, it should be added. Jim Edwards at BNET goes into the numbers, courtesy of a Bernstein study. Here, from the analyst's work, is the estimate of "base" revenues (from currently existing drugs) normalized to 2010 (via Edwards and BNET):
Not too encouraging. And Lilly doesn't have enough coming online to offset this; who would? If you read Edwards' post, you'll find a graph that attempts to show the same group of companies, with projected revenues for new drugs factored in as well. Glaxo (GSK) and Novartis (NVS) come out looking pretty good; AZN and LLY? Well ... have a look and see what you think.
What I found very interesting was the Bernstein analyst's comments on the plan that Pfizer's CEO Ian Read has been floating, to divest everything except the core drug business. That post took off from a piece by Matthew Herper at Forbes, who spoke with an analyst who was surprised at how serious Read seemed to be. The reason he was surprised is that this is the same analyst we're talking about: Tim Anderson of Bernstein. When he runs the numbers on a "core Pfizer" strategy, it actually makes things look even worse.
So Pfizer has options, but it had better think them through carefully. Lilly and AstraZeneca, on the other hand, seem as if their backs are inexorably being pushed to the wall. The only way out, as the BNET headline has it, would seem to be to acquire someone or be acquired in turn. It's hard to see how either company makes it through in its current state.