How a Single Patent Expiry Could Wipe Out 40% of AstraZeneca's Profits

Last Updated Feb 7, 2011 5:08 PM EST

When AstraZeneca (AZN)'s controversial antipsychotic drug Seroquel loses its marketing exclusivity in early 2012, it could wipe out almost half -- $4.3 billion -- of the company's entire pretax profit, if a recent investor note from an analyst has it right.

Although Seroquel has long been accused of triggering weight gain and diabetes in patients who use it -- and AZ has paid out more than $1.1 billion in legal claims to settle those and other charges -- the drug still earned $5.3 billion in revenues last year.

AstraZeneca as a whole earned $33.3 billion in revenues last year, so the patent expiry on Seroquel -- which should decimate the brand by unleashing a flood of competing cheap generic versions -- doesn't look like too much of a problem. Seroquel is only about 13 percent of AZ's revenues. But Seroquel is enormously profitable, Bernstein Research's Tim Anderson told investors in a note following the company's Q4 earnings call:
AZN faces many big patent expiries between 2010-2015 such as Seroquel (US expiry early 2012), product with pretax margins likely greater than 80%.
That would mean Seroquel's pretax profit is $4.3 billion (that's 80 percent of $5.3 billion). AstraZeneca's entire pretax profit for 2010 was just $10.9 billion. Put another way, Seroquel is about 40 percent of the entire's company's pretax profit.

Of course, this won't happen all at once and AZ can still make some Seroquel sales after the expiry. But still -- yikes.

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