Patent Cliff Losses Mean Eli Lilly Must Acquire or Be Acquired

Last Updated Jun 22, 2011 8:58 AM EDT

Eli Lilly (LLY) will lose the most revenue from its pharmaceuticals during the "patent cliff," waving goodbye to more than 50 percent of its sales through 2020 as its brand name drugs lose their market exclusivity, according to estimates by Bernstein Research analyst Tim Anderson. AstraZeneca (AZN) and Pfizer (PFE) will fare almost as badly, Anderson predicts.

The industry as a whole faces $100 billion in losses as brand names face competition from cheap generic alternatives through 2015.

Lilly got $21.7 billion in sales from its drugs in 2010, but that could sink to just $9.7 billion by 2020 if a worst-case scenario occurs in which the company fails to get any new drugs approved. Even if everything goes right for Lilly, and you include revenue from its non-prescription brands, then Lilly's annual revenues still sink from a total of $23 billion across all its divisions to $14 billion in 2020, Anderson estimates.

The numbers suggest that Lilly must either acquire another company or be acquired. Here's Anderson's chart showing percentage revenue declines for companies' existing drug portfolios (click to enlarge):

AstraZeneca seems similarly threatened. Its $32.5 billion in current annual revenues could sink to $23.5 billion in 2020 even under a best-case scenario. Only $18 billion of that would come from drugs.

Pfizer is in a slightly different position because it is so much larger and has a number of non-prescription brand units. Its Rx revenue could sink from $58.5 billion a year to $38.7 billion if its pipeline fails completely, Anderson says. But if everything goes right, its total sales will glide down from $68 billion to $62 billion over the next 10 years, Anderson forecasts.

That puts into perspective Pfizer CEO Ian Read's strategic review of the company, in which he is considering selling off all Pfizer's non-Rx divisions such as consumer products, animal drugs and generics. Under that scenario, the numbers crunched by Anderson suggest that Pfizer's problems would be accelerated by such a breakup, not ameliorated.

Here is Anderson's revenue scenario counting current products, yet-to-launch products in the pipeline, and non-drug revenues:

It's worth noting that under each scenario, Novartis (NVS) becomes the biggest drug company of them all by total dollar sales, with total revenues hitting up to $70.8 billion in 2020.


Image by Flickr user yohoo de bacs a sable, CC.