Pfizer Survives Key Patent Test

This year, the U.S. number should rise to $7.5 billion while foreign sales should increase to $4.7 billion, a recent report by Prudential Equity Group LLC estimates.

Ranbaxy has challenged Lipitor in several countries, winning one battle in Austria in March. Pfizer has appealed. Austria is a very small market, and the Austria patent office ruling won't affect other countries.

The same two patents subject to the U.K. ruling are being challenged in the U.S. Schott says Pfizer has a "high likelihood" of winning at least the battle for the more important 2011 patent. If Pfizer loses both U.S. patents, the stock could drop by 20% to 25%, says Schott, who has a buy rating on Pfizer. He doesn't own shares, but his firm has an investment-banking relationship and was involved in a public offering.

Writing a research report just before the British patent decision, Prudential Equity Group's Tim Anderson says he consulted attorneys who believe Pfizer has a 65% chance of defeating a challenge to the 2011 patent in the U.S. and a 50% chance in the other patent fight. Because patent decisions are unpredictable and because the Lipitor stakes are so high, he says Pfizer should consider settling the case.

"Losing Lipitor does more than just strip out a hefty calculable chunk of earnings," says Anderson, who's neutral on Pfizer. "It would likely cause collateral damage elsewhere that would be harder to measure." His firm doesn't have an investment banking interest. His research report says Anderson, a member of his research team or a member of his household owns shares.

A defeat in the U.S. patent case would do much more than rattle Pfizer shareholders. "It is a stumbling block that mutes enthusiasm for the entire drug group ... with the premise being that if Pfizer can't protect its parents from generic challengers, nobody can," says Anderson.