Well, today’s subject isn’t a cheerful data set, but it certainly deserves some thought. Over at Pharmalot, Ed Silverman has some data from consulting firm AVOS Life Sciences, which has sat down to estimate how well various drug companies will do with revenue from new drugs over the next few years.
As of 2007, they have the industry average at about 77 cents coming from new products (defined as those launched within the previous five years) for every dollar lost from patent-expiring older ones. That doesn’t sound very good, but the average is a bit misleading, since it runs from the highs of Eli Lilly (NYSE:LLY) ($6.64/1), Amgen (NASDAQ:AMGN) ($4.50/1) and Roche (OTCQX:RHHBY) ($4.03/1), down to Sanofi-Aventis (NYSE:SNY) (11 cents new per dollar loss on the old). But it’s true that most everyone else is well under a dollar. It would be a lot of work, but it would be interesting to know (calculating by the same methods) how that ratio has changed over the last twenty years – that would give us some perspective on where we stand now.
But AVOS has gone out to estimate the picture in 2012, and it makes today’s numbers seem like a free buffet. Of the fourteen drug makers on their list, only Schering-Plough (SGP) shows a robust increase in terms of how much it’s expected to make from new products versus its declining ones. GSK (NYSE:GSK) shows a modest improvement – and everyone else goes down.
That’s as in down, dooby doo, down down. The hardest-hit in terms of the actual numbers are Pfizer (NYSE:PFE), AstraZeneca (NYSE:AZN), Roche, and Sanofi-Aventis, all of whom are projected to be making pennies (or, gulp, nothing at all) from new products compared to what’s heading down the chute for them by then. In percentage terms, Roche and Eli Lilly are worst off – they look good now, as mentioned above, but the eventual losses of things like Zyprexa kick the ratios over good and hard. (Sanofi-Aventis goes down to zero, but only from that $0.11 figure, so it’s at least not going to be such an adjustment for them!)
As I say, I don’t have access to the underlying data, but the broad picture seems about right. There are a lot of big patent expirations coming up in the next few years, and not enough promising products coming on to replace them. According to AVOS, Roche and Sanofi-Aventis aren’t projected to have any new product launches at all between now and 2012, which can’t be good.
It’s worth remembering that figures like these are likely to show big swings even under normal conditions. Imagine a company with a big product that it launches, which gradually turns into a blockbuster. Near the end of its patent life, it launches another winner of the same type, which grows into another big seller. Everything’s fine! But the ratio of new revenue/expiring revenue is going to swing around a lot as you follow those sales numbers, sort of like derivatives in calculus, veering from too-high to too-low, although the company itself is sailing along pretty well. Let’s hope that this is some of the background for these numbers as well. The problem is, I don’t think that can explain all of them. . .