For the generic drug industry, 2011 is just about utopia, while for brand drug makers it marks the end of an era. With Pfizer's blockbuster statin Lipitor (atorvastatin) – the world's top-selling drug with more than $11 billion in sales – expected to go generic in the U.S. in November, it marks a symbolic shift from the blockbuster primary care glory days of the late 1990s to the highly genericized, highly fragmented market of today.

The loss of exclusivity this year for Lipitor, and some other multi-billion-dollar blockbusters, makes 2011 a big year for wringing out drug spend savings from the health care system. For the companies that market the products, however, 2011 is stacking up to be daunting.

In addition to Lipitor, other blockbusters like Eli Lilly & Co.'s atypical antipsychotic Zyprexa (olanzapine) and Bristol-Myers Squibb Co./Sanofi-Aventis SA's clot buster Plavix (clopidogrel) lose U.S. patent protection in 2011. Each is the top-seller for their respective firms (Plavix and Sanofi aside). The patent cliff, which drug industry management and investors have been warily eyeing for years, is here.

Other substantial revenue generators expected to face generic competition in 2011 include Johnson & Johnson's antibiotic Levaquin (levofloxacin) and attention deficit hyperactivity disorder medication Concerta (methylphenidate HCI), which will be available as an "authorized" generic May 1 under an agreement with Watson Pharmaceuticals, Inc. Novartis AG's hypertension drug Lotrel (amlodipine/benazepril) and breast cancer treatment Femara (letrozole) also are expected to lose exclusivity in the first half of the year (see chart).

2011/2012: The Precipice Of The Generic Cliff

A staggering $25 billion in U.S. brand sales are expected to be lost to generic drugs in 2011, according to IMS Health. The amount of brand sales lost to generic drugs last year, in comparison, was just half that amount (Also see "The Year Ahead For Generic Drugs: The Calm Before The Storm" - Pink Sheet, 25 January, 2010.).

The biggest generic drug launches won't take place, however, until late in the year, in November for Lipitor and Plavix and in October for Zyprexa. Thus, the financial wallop won't truly hit the branded industry until 2012, a year that experts say is the pinnacle of the generic cliff.

"2011 and 2012 are the two biggest years we expect ever in terms of protected sales being exposed to generic competition," said Michael Kleinrock, director, Healthcare Insights at IMS Health.

As usual, the timing of some generic launches is uncertain because of regulatory decisions, patent infringement lawsuits and the potential for last-minute legal settlements.

Plavix could maintain its brand status in the U.S. for a little longer, for example, but only if Bristol secures a six-month pediatric extension from FDA. Such a move would likely push back the launch of generics here until May 2012. Bristol has filed the application for a pediatric extension with FDA, and is awaiting word. Holding onto sales of the drug an additional six months could be worth billions of dollars to Bristol, which derived 30% of its 2009 top line of $18.81 billion from the drug. Plavix generated sales of $5.56 billion in 2009 in the U.S., where Bristol commercializes it; the drug already faces generic competition in Europe, where Sanofi sells it.

Advair Likely To Hold Brand Status For Now

GlaxoSmithKline PLC's market-leading asthma treatment Advair (fluticasone/salmeterol) could also very well avoid generic competition this year and perhaps much longer. A key patent for the drug substance combination already expired in September 2010, according to GSK, but the launch of a fully substitutable generic is unlikely to materialize in the near term. FDA hasn't developed bioequivalence standards for inhaled respiratory drugs. In addition, patent protection for the popular Diskus inhaler used with Advair extends out to 2016, which complicates the efforts of generic drug companies to develop a substitutable generic.

Teva Pharmaceuticals Ltd., Novartis' Sandoz unit and others are developing Advair copies, however. While Sandoz has been tight-lipped about its respiratory strategy, Teva outlined plans to develop an Advair-like product combing salmeterol and fluticasone with its own Spiromax dry powder inhaler in November.

But even that launch, which Teva plans to market as a brand offering and not a substitutable generic, is still years out with a filing targeted for 2014 (Also see "Teva Has Grand Ambitions In Respiratory Disease, With An Eye On Advair" - Pink Sheet, 4 November, 2010.).

GSK for its part has remained steadfast in its positive outlook for Advair. During GSK's third quarter sales and earnings call, CEO Andrew Witty emphasized his confidence that a generic will not materialize. "We are likely to have Advair as a very major product for GSK for a very long time," he said.

Maintaining sales of Advair is critical for GSK, especially given the sales slide the company has experienced with the anti-diabetic Avandia (roseglitazone). Advair is GSK's top-seller, generating more than $7 billion in sales in 2009, about half of which came from the U.S. GSK hopes to have a successor product on the market before an Advair copy is available. Relovair, a once-daily long-acting beta antagonist/corticosteroid combination, is in Phase III development.

For Lilly, Is A Merger The Answer?

The loss of Zyprexa will be a powerful blow to Lilly, one the company has had time to prepare for but has yet to take effective countermeasures. The atypical antipsychotic generated $4.92 billion in 2009, about 22% of Lilly's top-line; of the total, U.S. sales of Zyprexa were about $2.33 billion. Beyond Zyprexa, Lilly already lost Gemzar (gemcitabine) to generics in the U.S. in November, two years earlier then expected after losing a patent challenge, and the company's faces second best-seller Cymbalta (duloxetine) is expected to lose protection in 2013 [Editor's note: this story was updated to reflect changes to the generic status of Gemzar] .

Beyond Zyprexa, Lilly already lost Gemzar (gemcitabine) to generics in the U.S. in November, two years earlier then expected after losing a patent challenge, and the company’s second best-seller Cymbalta (duloxetine) is expected to lose protection in 2013.

With recent pipeline setbacks as well (the discontinuation of its novel gamma secretase inhibitor semagacestat for Alzheimer's disease, a "complete response" letter from FDA for Bydureon, a long-acting version of exenatide, and the suspension of a Phase III study for the novel biologic teplizumab for type 1 diabetes) some industry watchers and investors think Lilly needs to bite the bullet and make a major acquisition to get through the upcoming patent cliff.

CEO John Lechleiter, however, continues to claim that Lilly doesn't need a transformative M&A to see it over the cliff (Also see "On Q3 Earnings Call, Lilly Vows To Stay Its Current Course Despite Late-Stage Pipeline Setbacks" - Pink Sheet, 22 October, 2010.).

Pfizer did go the transformative M&A route, completing the $68 billion mega-merger with Wyeth in 2009, mainly as a way to ease the pain that would be coming with the loss of Lipitor.

But the overhang of that whopping patent expiry has been too great, and the stock has wilted 36% in the last four years. The company's latest attempt to bolster its trajectory was a management shakeup, with the company making the surprise announcement Dec. 5 that global biopharmaceutical head Ian Read was appointed CEO (Also see "Pfizer Turns To Insider Ian Read To See It Into Post-Lipitor Era" - Pink Sheet, 6 December, 2010.).

But with the Lipitor patent expiry now just months away and with no new drugs to make up the lost revenues in the near-term, it's still unclear what, if anything, Read can do that Kindler didn't already try.

Next Up: Biosimilars

Beyond 2012, the generic drug industry will face its own cliff of a sort, with fewer blockbuster drugs going off patent. Blockbuster drugs, such as Crestor, Singulair, Lexapro, Zetia and Vytorin, will lose protection in the years ahead, but the level of brand sales going off patent will be no match to 2011 and 2012.

Inevitably, the next frontier for reaping health care savings will be biosimilars. Some generic drug companies and even some brand manufacturers see biosimilars as a way to drive growth post-2015, with an eye on lucrative biologics like Amgen Inc. /Pfizer's Enbrel, Abbott Laboratories Inc.'s Humira and Roche's Rituxan, which have until now been off limits to competition from low-priced copies ("Opening The Door To Biosimilars In The U.S., In VIVO, September 2010).

The pharmacy benefit manager Medco, which profits by selling generics, particularly via mail order, is already eyeing the biosimilar opportunity.

"While the order of magnitude opportunity for large molecule biosimilars may not be quite as great as for small molecule generics, the opportunities are real," said Medco's Chief Financial Officer Richard Rubino. "We are very excited about a new wave of biosimilars as we get through the back half of the decade, but we think we can start to see some as early as 2013/2014."

By Jessica Merrill

Bye Bye Lipitor: 2011 Presents A Big Opportunity For Generic Drugs

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