Patent Medicine: Drugmakers Brewing New Uses for Expiring Blockbusters - TheStreet

Does one and one make three?

That's the question drug companies are asking themselves these days as they face huge threats to their earnings from patent expirations.

One novel solution: combining two or more successful drugs into one tablet and marketing it as a whole new product. Bingo! New product, new earnings stream. And at a fraction of the cost of a new drug.

Opportunity Knocks

"It's a huge opportunity," says Jack Wyszomierski, finance director of

Schering-Plough

(SGP)

, which is looking to extend its giant franchise in its allergy drug Claritin by combining it with Singulair, an asthma drug from

Merck

(MRK) - Get Report

.

Besides offering a possibly easy-to-use treatment for people suffering from both allergies and asthma, a Claritin-Singulair combo could both boost Singulair sales and extend Claritin's patent life.

And for Schering-Plough, that franchise is worth protecting: The drug generated a whopping $2.67 billion in 1999 sales, making it by far the company's biggest product, and it faces patent expiration in 2002. That usually means generic drugmakers will rush to bring identical versions of the drug to market and cause prices to fall by up to 80%.

Lining Up

Schering-Plough isn't alone.

Eli Lilly

(LLY) - Get Report

,

Pfizer

(PFE) - Get Report

and

Warner-Lambert

(WLA)

are all looking to create new combinations of drugs to bolster earnings and sustain growth. Analysts say the move could actually benefit patients who don't like taking multiple pills.

New earnings streams are crucial for drug companies these days. Many top companies, including

AstraZeneca

(AZN) - Get Report

, Merck,

Bristol-Myers Squibb

(BMY) - Get Report

and Lilly, face major patent expirations in the next five years. New-product development is a risky, time-consuming and expensive process.

Worries over expiring patents, declining earnings and government price controls drove the

S&P Drug Index

down some 40% between April 1999 and March 2000, though the index has since recovered somewhat as concern over federal action has receded. While analysts don't generally expect combo drugs to be blockbusters, they say they could be important sources of revenue.

'More Creative'

"Companies are getting a lot more creative in ways to sustain the product lifespan of drugs," says Carl Seiden, an analyst with

J.P. Morgan

. He says that while it may help patient compliance with drug regimes, doctors aren't always amenable. "The medical community looks at it as a kind of cookbook medicine. They have an aversion to combination drugs."

Nonetheless, it's a strategy that's proved successful for some drugmakers. Britain's

Glaxo Wellcome

(GLX)

, for instance, reversed declining sales of the world's first AIDS drug, Retrovir, by combining it with the more successful Epivir into a new drug called Combivir, a drug that that's become a cornerstone in the now widely used combination drug therapy for AIDS patients.

And others are piling into the game. Eli Lilly, for instance, is in late-stage clinical trials combining Prozac, the biggest-selling depression drug, with Zyprexa, a top-selling psychosis drug, into a new drug aimed at difficult-to-treat depression patients.

While it may seem bizarre to combine a depression drug with another to treat schizophrenics and other psychotics, analysts say it could feed a market for the estimated one-third of depression patients who don't respond to SSRIs, the biggest category of depression drugs that includes Prozac, Pfizer's Zoloft,

SmithKline Beecham's

(SBH) - Get Report

Paxil and Celexa from

Forest Labs

(FRX)

.

Furthermore, it could boost slipping sales of Prozac, particularly after its patent expires next year. Prozac, Lilly's biggest drug, had sales of $2.6 billion last year, a 7% decline from the previous year.

What's Useful?

Other combinations seem more natural, as in combining two cholesterol-lowering drugs for a broader "hit," which Schering-Plough is doing with its drug in development called Ezetimibe and Zocor, Merck's top-selling lipid-lowering drug. Ezetimibe is in late-stage clinical trials, both as a single drug and also combined with Zocor.

"Clinical studies suggest a combination product could be a very substantial product for us," Schering-Plough's Wysznmierski told investors at last week's

PaineWebber Growth and Technology

conference in New York.

And Pfizer and Warner-Lambert, which are in the final stages of completing their merger, have been working since last year to develop a single pill combining Pfizer's blockbuster hypertension drug Norvasc with Warner-Lambert's Lipitor, a top-selling cholesterol-lowering drug.

But no matter how hard companies market their combination drugs, it will ultimately be up to doctors and patients to decide whether they are useful.

Says Jeffrey Kraws, analyst with

Gruntal

, "If they are not better than existing treatments, they won't be used."