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Bitter pill for multinationals as top drug patents expire

Increasingly look to M&As and emerging markets

The medicine Lipitor used to lower cholesterol was the world's most popular drug in 2010 with $11.8 billion in sales for its developer, New York-based pharmaceutical giant Pfizer.

Yet the golden revenue days for Lipitor will soon be gone as its 20-year patent expires this year.

Such a fate is part of the business cycle, but as high costs make it increasingly difficult to bring new drugs to market, renowned pharmaceutical companies are turning to China.

"Patented medicines lose their exclusiveness on expiry and a flock of generic versions will go on the market, surely affecting sales of the original," Guo Fanli, a medical product researcher at CI Consulting, told the industry journal Enterprise News.

While sales of medicine grew around 5 percent in developed countries in 2009, growth in emerging markets was as high as 16 percent.

With sales estimated at $46 billion this year, China is expected to become the world's third-largest medicine market following the United States and Japan.

All the top 20

All the top 20 multinational medicine makers now have operations in the country, including R&D facilities, joint ventures and wholly owned companies.

Their business in China has doubled over the past five years.

Global sales by Eli Lilly and Co surpassed 23 billion yuan ($3.5 billion) in 2010, with emerging markets including China contributing 10 percent of the total.

Multinationals have also teamed with domestic medicine producers to expand scale.

A local company's market share and distribution network are the attraction, insiders said.

Eli Lilly will increase investment in China, with the nation a priority in the company's long-term development strategy, said John C. Lechleiter, board chairman of the company.

Becoming generic

Pfizer's Lipitor formula is not the only one that is facing the transformation into a generic drug.

The patent on Plavix Clopidogrel used to treat blood clots, which was jointly developed by Sanofi-Aventis and Bristol-Myers Squibb, will expire in November.

That medicine brought about $9 billion in annual sales in the last two years to the two companies.

Such high-profile aging patents join a long list of medicines by multinationals that have expired over the past decade - with more, worth about $77 billion, to come between 2011 and 2015.

Popular medicines that generated nearly $50 billion in annual sales will lose patent protection this year alone.

After patents expire, generic versions will take 50 percent of the market in the first year, said Luo Xi, a researcher at China Securities Co Ltd, who closely watches the industry.

By the second year, 70 to 80 percent of sales will be the generic version, he added.

In response, Europe's largest pharmaceutical company Sanofi-Aventis is restructuring to close 20 of its 30 labs on the continent, a move expected to save 2 billion euros ($2.8 billion) this year.

Pfizer announced in early February it will slash about 1,100 R&D jobs in the United States in the next 18 months and close down its research center with 2,400 employees in Britain before 2013.

Its R&D spending for 2012 is projected at $6.5 billion to $7 billion, much less than the $9.4 billion in 2010.

London-based AstraZeneca recently unveiled a plan to further cut labor costs after 12,600 employees were let go over the past two years.

And Merk & Co Ltd has announced it will reduce its staff by 15 percent, a total of about 16,000 lost jobs across the globe.

On the rise

At the same time acquisitions of generic medicine manufacturers are on the rise

Pfizer's recent acquisition of King Pharmaceuticals is an example of the trend.

Though Pfizer President Ian Read cited "King's talented colleagues and innovative products and technology" as reasons for the move, industry insiders say King's expertise in making generic medicine is the big attraction to Pfizer.

Earlier this month Eli Lilly announced plans to buy Janssen Pharmaceutica in a bid to enhance its R&D capacity.

Source: China IP

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