Merck's Fosamax gets the ax

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Merck's osteoporosis blockbuster loses patent protection Wednesday and generic drug makers line up cheaper versions. Play video

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NEW YORK (CNNMoney.com) -- Merck & Co. bids adieu to its bone disease blockbuster drug on Wednesday, when the patent finally runs out on Fosamax.

Once the patent expires on the osteoporosis drug Fosamax, generic drugmakers Teva Pharmaceuticals (TEVA) and Barr Laboratories (BRL) will roll out their low-cost versions. That's great news for patients, but bad news for Merck (MRK, Fortune 500), because sales will plunge.

Fosamax sales totaled $3 billion in 2007, but Merck projects that 2008 sales will decline by at least half that, followed by further erosion later on.

In all, this will be a difficult year for Big Pharma, and a rich one for generic drugmakers. Some $20 billion worth of drugs are expected to lose patent protection in 2008, according to the market research firm IMS Health.

But the New Jersey-based drugmaker has had decades to prepare for this day and has found ways to plug the impending sales vacuum with a mixture of new products and cost-cutting. Analysts expect this formula to stem the tide, projecting a 2% increase in sales for 2008 and a 5% increase in earnings, according to Thomson First Call.

"[The Fosamax patent expiration] is sort of in the rear view mirror at this point," said Barbara Ryan, analyst for Deutsche Bank North America. "Everybody's known it was coming. It's baked into expectations."

Of course, Merck has had other problems to contend with, such as the 2004 withdrawal of the arthritis painkiller Vioxx, once a $2.5 billion-a-year blockbuster, as well as the ensuing $4.85 billion lawsuit settlement.

But after the Vioxx debacle, Merck launched a $5 billion cost-cutting program, shedding 7,200 jobs so far. More importantly - from a growth standpoint - the company expects sales for its respiratory drug Singulair to exceed $4.5 billion this year. And the company's newly-launched products have done well so far. Sales for the cervical cancer vaccine Gardasil, launched in 2006, grew to $1.5 billion in 2007. Also in 2007, combined sales for diabetes drugs Januvia and Janumet exceeded $700 million.

Also, Merck is awaiting decisions this year from the Food and Drug Administration on two prospective money-makers: Cordaptive, a cholesterol drug that some analysts consider a potential billion-dollar blockbuster, and taranabant, a diet drug with a more uncertain future because of possible safety issues.

"I think people are looking past Fosamax," said Michael Krensavage, analyst for Raymond James & Associates. "I think the company should be able to overcome the loss."

But going forward, the patent issue will continue to dog Big Parma. Merck faces with its next big patent expiration in 2010, when the $3 billion-a-year Cozaar/Hyzaar hypertension franchise loses protection.

Also in 2010, Pfizer's (PFE, Fortune 500) cholesterol drug Lipitor loses patent protection. Lipitor is the top-selling drug of all time, with nearly $13 billion in 2006 sales.