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Drug Roundup – December 11, 2011
There have been several noteworthy developments in the drug space recently, which will likely have a material impact on the companies in this sector and the markets they serve. Companies featured in this review include Pfizer (PFE - Free Pfizer Stock Report), Merck & Co. (MRK - Free Merck Stock Report), and AstraZeneca (AZN).
Pfizer’s Looks to Extend Life of Lipitor
The world’s largest drugmaker is fighting hard to hold onto sales of its popular, cholesterol-fighting drug Lipitor. Lipitor, which is the highest-selling drug in history with more than $81 billion in sales, lost patent protection on November 30th, but it doesn’t appear that Pfizer is willing to part with its revenues quite so soon. On November 22nd, in an unheralded move, Pfizer announced intentions to sell the drug at generic prices directly to patients, a strategy designed to help mitigate a potential exodus to the generic side. In order to do so, Pfizer has partnered with Michigan-based Diplomat Specialty Pharmacy to mail the drug to patients who order pills directly through Diplomat. Health plans that have contracted with Pfizer would pay roughly a generic price for Lipitor, while plans that didn’t would pay a higher price. Essentially, Pfizer would be setting up its own pharmacy, something that has never been done by a pharmaceutical company.
Additionally, Pfizer is also starting to ramp up investments in emerging markets, such as China in order to drive Lipitor sales over the longer term. Due to the combination of a rising population, increasing household incomes, and a growing number of people being diagnosed with high cholesterol, management sees a lot of potential in this market. Pfizer is banking that consumers in China will be more willing to pay for a slightly more expensive version with the Pfizer name behind it, rather than one from an unknown manufacturer.
In conclusion, it is all part of a grand scheme to squeeze as much revenue as possible out of the aging blockbuster. Historically, branded pharmaceutical companies would abandon a product once the period of exclusivity had ended, but now it appears that the culture within the industry is changing. If Pfizer’s new strategy proves to be successful, we may well see a reshaping of the branded pharmaceuticals blueprint moving forward.
Pfizer Isn’t The Only One Betting On China
Drug-making giant, Merck & Co., announced it will be spending approximately $1.5 billion on research and development in China over the next five years. Spending will begin with the construction of an R&D headquarters in Beijing expected to support operations in drug discovery, translational research, clinical development, regulatory affairs, and external scientific research. In our view, the move should complement Merck’s existing operations in the region nicely. In regards to the long term, management noted it views China as one of its three critical markets, along with the United States and Japan.
AstraZeneca Also Turning to Emerging Markets
Sticking to the theme of this roundup, on December 8th Astra Zeneca announced it will be buying privately-held, Guangdong BeiKang Pharmaceutical, a Chinese manufacturer of generic injectable antibiotics based in China. Guangdong’s five injectable treatments for infections will be marketed under the AstraZeneca name once they are manufactured to fit company standards. Management indicated it aims to make them commercially available to the global community by mid-2013. Although financial terms of the deal were not disclosed, the purchase stands to establish the company as the number two drugmaker in the country behind Pfizer. Currently, AstraZeneca generates about 17% of its revenues from emerging markets. Given the heightened investment outlook in these regions, management sees this figure hitting 25% by 2014.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.