Zocor and Zoloft face patent expiration
Merck and Pfizer both stand to lose billions of dollars in sales.
By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Two of the biggest blockbuster drugs from the two biggest drug makers in America are losing patent protection this month, setting the stage for a multi-billion dollar sales vacuum.

The two Zs - Zocor from Merck and Zoloft from Pfizer - are among the most recognizable names in Big Pharma. Merck's patent for Zocor, a cholesterol-cutting drug that totaled $4.4 billion in 2005 sales, expires on June 23. Pfizer's antidepressant Zoloft, with $3.3 billion in 2005 sales, loses patent protection on June 30.

But analysts don't expect to see a big dip in the stock price for either company. Since both Merck and Pfizer have had many years to prepare for these patent expirations, the impending loss of sales is already baked into their stocks, analysts say. To appease investors and take some of the sting out of this impending sales vacuum, Pfizer and Merck have both launched multi-billion dollar cost-cutting efforts and have begun courting biotechs in their effort to boost their new-drug pipelines.

When a brand name drug loses its patent, both the price of the drug and the dollar value of its sales each tend to drop about 80 percent over the next year, as competition opens to a host of generic drugmakers. But the original drugmakers often continue to produce the branded drugs regardless, because hundreds of millions of dollars in annual sales can still be gleaned from patients who prefer the brand name.

Some of those lost revenue will go to generic drugmakers like Teva Pharmaceuticals (down $0.08 to $36.10, Charts), the Israeli-based industry leader, Barr Laboratories (up $0.61 to $51.80, Charts), Mylan Laboratories (up $0.12 to $20.57, Charts), and Indian company Dr. Reddy's Labs (up $1.31 to $26.85, Charts). But the real winners are the patients and the insurers, who pay much lower prices.

The Food and Drug Administration insists that generics work identically to brand-names. Nonetheless, some patients will never believe that generic simvastatin is the same as Zocor, or that generic sertraline is the same as Zoloft. Direct-to-consumer advertising and brand-name recognition all play a role in this kind of product loyalty.

Also, Big Pharma can continue to make money by introducing spin-offs of their branded drugs with tweaked indications, adding suffixes like XR (like the Wyeth antidepressant EffexorXR) or XL (as in the Forest Labs' antidepressant WellbutrinXL) to the original name to reflect an improvement. In these patent-protected "extended release" versions, for instance, the new drugs can be taken less often than the original one, so they're marketed as being more convenient than their generic competitors. This allows the brand-name drugmakers to maintain some of their sales in the face of generic competition.

Jon LeCroy, analyst for Natexis Bleichroeder, said that Pfizer's Zoloft sales will be "decimated" by generic competition, but that this won't come as a surprise to investors.

With Merck, the situation is a little different. Merck has aggressively defended its waning Zocor patent in court, and might aggressively market its own generic version against the generic version that Teva is preparing. Teva is expected to be Zocor's sole generic competitor for the six months following the patent expiration, said LeCroy.

In addition, Merck spokeswoman Janet Skidmore said that its combination drug Vytorin, comprised of Zocor and Schering-Plough's (up $0.06 to $19.01, Charts) Zetia, should help it maintain a competitive edge in the cholesterol market. The two partners produce and market the drug through a separate company, Merck/Schering-Plough Pharmaceuticals.

Zocor's patent loss may also threaten sales of Pfizer's Lipitor, another cholesterol-cutting drug which could face competition from generic Zocor. Lipitor is the world's top-selling drug with $12.2 billion in 2005 sales.

"The managed care plans are already encouraging people to use Zocor over Lipitor," said LeCroy, though he added that the issue is complex and it's difficult to project what will happen with Lipitor sales.

Pfizer, and also some analysts, have insisted that Lipitor is not interchangeable with competing products like Zocor. Pfizer is also looking to defend this space by testing Lipitor, which lowers LDL or "bad" cholesterol, in combination with the experimental drug torcetrapib, which appears to raise HDL, or "good" cholesterol. According to some analysts, this combination could add billions of dollars in potential sales, if the tests are successful and the drug is FDA-approved.

LeCroy does not own shares of Pfizer or Merck stock.

To read about the latest round in the cholesterol market face-off between Pfizer and Merck, click hereTop of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.