Pfizer (PFE) investors are breathing easier. On Oct. 12, a British court handed the drugmaker a big victory, rejecting an effort by generic-drug maker Ranbaxy Laboratories to launch a generic version of Lipitor, Pfizer's $12.5 billion blockbuster cholesterol-lowering drug.
The court ruled Ranbaxy's generic would infringe on Pfizer's primary patent on Lipitor. Although the court did strike down a second patent on Lipitor, that loss won't shorten its protected life in Britain. As a result, the drug will be free of generic competition in the country through November, 2011. The two companies are fighting a similar battle in the U.S., where a decision could come by yearend.
Ranbaxy says it will appeal the loss on the primary patent. And Pfizer is planning to appeal the rejection of its secondary patent.
Certainly, investors expected Pfizer to win the British case. The stock is up a modest 2.5%, to $25, on the news. And while a loss would have been a disappointment, the British market pales compared to what Lipitor gets in the U.S. This year about 60% of its expected $12.5 billion in total sales will come from the U.S., according to Lehman Brothers. Britain accounts for only about 6% to 7%.
So, does the British victory mean Pfizer will also win in its fight against Ranbaxy in U.S. courts? Not exactly. While the two patents at issue cover the same discoveries in the U.S. and Britain, patent laws in the two countries are different. Still, expectations among some analysts are that Pfizer will succeed in defending its basic patent in the U.S. as it did in Britain and may also lose on the second patent -- but for different reasons than in Britain. If Pfizer fails on that second patent in the States, a generic Lipitor could hit in March, 2010, more than a year earlier than Pfizer is expecting.
That could pose a real problem. Pfizer is developing a drug called torcetrapib, which will raise good cholesterol. Pfizer will combine that compound in one pill with Lipitor. If that combo is shown to reduce the risk of heart attacks more than Lipitor does alone, analysts expect the company to switch as many people as possible to the new combination drug before cheap generic versions of Lipitor hit the market.
"DOWN A RAT HOLE"?
But the timing of the combo's launch is unclear. If the Food & Drug Administration demands longer-term studies on the combination pill, it may not hit the market until 2009 or 2010. And big insurance companies may try to block a lot of that patient switching if a cheap generic Lipitor is already on the market or about to become available.
If torcetrapib is a dud, Pfizer's growth will be severely compromised. As it is, Lloyd S. Kurtz, portfolio manager at Nelson Capital Management, which is a Pfizer investor, expects the drugmaker's earnings to grow only in the mid-single digits for the next few years. He says that's partially a result of weak output from Pfizer's massive R&D operation, which last year had a budget of $7.7 billion.
That R&D productivity problem is an industrywide headache. Regardless, Kurtz says unless Pfizer can remedy that problem, it will need to consider cutting R&D spending and passing some of that money back to shareholders instead of "dumping it down a rat hole."
BOOST FOR A DARK HORSE?
If Pfizer prevails in the U.S. Lipitor case as it did in Britain, that could also influence the succession battle at the company. Last February, it gave its three top executives the title of vice-chairman, setting up a horse race to succeed current Chairman and CEO Henry A. McKinnell, who's expected to retire in two-and-a-half years when he turns 65. Most observers say the job will likely go to either Karen Katen, vice-chairman and head of Pfizer's human health business, or David Shedlarz, vice-chairman and former chief financial officer.
For now, most analysts see General Counsel and Vice-Chairman Jeffrey B. Kindler as a dark horse. But a big win in the U.S. on the Lipitor case will certainly burnish his reputation and improve his odds of landing the top job. Another reason investors will be watching the ongoing patent battle closely.