Big Pharma's Patent Headache

In 2008 more than 10 top-selling drugs will lose patent protection. The industry hopes to recoup the losses with authorized generics

by Catherine Arnst

Ortho McNeil's patent for Topamax, used to treat epilepsy and migraines, is due to expire Sept. 26. Getty Images

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Women with brittle bones could be in for a bit of a windfall come Feb. 6. That's when Merck's (MRK) Fosamax, the market-leading osteoporosis drug, comes off patent and patients can start buying generic versions. If history holds, prices for the generic medication, called alendronate, should run 40% to 60% less than the $90 a month Fosamax tends to cost.

Those deep discounts on generics are creating unease within the pharmaceutical industry, however. This year alone more than 10 major drugs will lose patent protection (BusinessWeek.com, 2/6/08), and there are no potential blockbusters emerging from the development pipeline to take their place. In 2010 the blockbuster, cholesterol-lowering medication Lipitor loses patent protection; the world's biggest-selling drug pulled in $13 billion for Pfizer (PFE) last year, and the company has yet to come up with a comparable replacement.

Pharmaceutical consultancy IMS Health says that, in all, by 2011 drugs worth some $60 billion will come off patent. Makers of generic drugs, which already hold 60% of the U.S. prescription market, have nowhere to go but up. "Within the first six months to a year of a brand going off patent, it loses 80% of its revenues to generic competitors," says Amanda Zuniga, a senior analyst with the market research firm Cutting Edge Information.

Generic Alternative

Big Pharma, however, is trying to stem that rush to generic makers by creating a relatively new category, authorized generics. Essentially, the original manufacturer licenses exact copies of its branded drug to a generic manufacturer, allowing it to hang onto some of the generic revenues. This approach also appeals to those patients who feel most comfortable with a name they know. Merck, for example, signed a deal on Jan. 11 to supply Fosamax to Watson Pharmaceuticals (WPI). "It's become a huge tactic for the pharmaceutical companies," says Zuniga. "It's their last chance to remain competitive."

Medical specialists advise patients to treat authorized generics just like any other drug in a category, however. "There is no advantage to a branded generic over any other generic," says Catherine Tom-Revzon, a pediatric clinical pharmacist at Montefiore Medical Center in New York. "There is no reason to remain on the brand name if a generic is available."

Arnst is a senior writer for BusinessWeek based in New York.