The biotechnology industry is entering middle age.
Generic Threat Means Opportunity for Some Biotechs
Full of adolescent hope and ambition 20 years ago, biotech is reaching a pivotal point in its lifecycle: Key drug patents are beginning to expire. And that's worrisome to some industry watchers.
In the next six years, some 18 biotech drugs with some $10 billion in aggregate 1999 sales will lose their 20-year patents and be subject to generic competition, calculates
CIBC World Markets
But the expected drop in sales that follows patent expirations has been largely ignored. In contrast, investors have been closely tracking the pitched battle mainstream pharmaceutical companies are waging against patent expirations for drugs expected to generate more than $50 billion in sales in the next five years.
The two biggest biotech products set to lose patent protection in coming years are
two blockbuster blood-building drugs, Epogen and Neupogen. Epogen, which had 1999 sales of $1.7 billion, will lose its U.S. patent in 2004. Neupogen, with $1.2 billion in 1999 sales, is scheduled to go off patent in 2006.
But a spate of smaller drugs from pioneer biotech companies, including
, are also going off patent, posing a challenge for those companies to maintain earnings and grow new products.
While most companies facing patent exposure are developing new drugs, it hasn't been easy. For instance, Biogen's multiple sclerosis drug Avonex, which accounted for 79% of the company's $794 million in 1999 sales, could face generic competition in 2003. Its nearest replacement project, a psoriasis drug called Amevive, may not reach the market before 2002, not really early enough to make up for likely lost sales of Avonex.
Others, like Amgen, may be in better shape to handle any generic onslaught. Amgen could have Aranesp, an improved version of its blockbuster anemia drug Epogen, on the market in early 2001, well before Epogen's patent expires in 2004, giving it more time to get patients and doctors to switch to the newer product. It also has several other products in earlier development.
"Amgen has done a very good job of making improved molecules, now that Epogen and Neupogen sales growth is flattening, but we're obviously concerned about Biogen," says Stefan Loren, a
biotech analyst. The house has a buy rating on Amgen and does no advising for it.
The patent expirations reflect the success of the biotech industry, which has brought some 90 drugs to the market since its inception in the early 1970s in tiny molecular biology laboratories in California, Massachusetts and England.
Today roughly 9% of all drugs on the market are based on processes developed from those discoveries, now generating $18 billion in annual revenue. As products in late-stage development hit the market, that figure could grow to nearly $50 billion by 2005, calculates
Banc of America Securities
biotech analyst Eric Ende.
Already, patent expirations have hit a handful of the first biotech drugs on the market, notably Humulin, an artificially produced human insulin for type 1 diabetes made by
, a product that generated $1 billion in 1999 sales. Further, the patent expirations of big drugs could fuel growth in the nascent generic biotech industry, though exactly how that industry will shape up isn't immediately apparent. (
See related story.)
While patent expirations are a major threat to sales, no one is predicting the demise of the biotech industry, which now comprises more than 1,200 U.S. public and private companies and hundreds more overseas. And more than a handful are becoming profitable, a milestone for an industry that has burned up untold billions of dollars in investor money since its inception.
According to the
Biotechnology Industry Association
, more than 350 biotech drugs and vaccines are now in clinical trials, with a fair proportion likely to come to market in the next five years. In addition, drug companies are just beginning to unlock the value embedded in the human genetic makeup that was mapped this year.
"The fundamentals of the biotech industry have never been better," wrote Banc of America's Ende in a recent industry report. "Last year only 15 companies were profitable, but we expect 30 profitable companies to emerge in 2001."