Merck and Pfizer Downgrades on Patent Cliff Concerns Signal Importance of Patents to Pharma

“[T]he recent analyst downgrades for both firms are further proof of the importance of maintaining exclusivity through patent protection to pharmaceutical firms.”

Last month, business news outlets were reporting that stock prices for pharmaceutical firms Pfizer and Merck took a tumble after financial analysts downgraded the performance of both firms over concerns about impending patent cliffs or exclusivity issues – although more recent reports paint a mostly promising picture for the companies, thanks to upcoming acquisitions. A pharmaceutical analyst for UBS downgraded Pfizer from buy to neutral, citing the loss of patent protection in the 2025 to 2029 timeframe for several drugs which contributed 30 percent of Pfizer’s total revenue in 2015. For Merck, although patent expiry wasn’t cited in a note from a pharmaceutical analyst from BMO, that analyst dropped Merck’s rating from outperform to market perform based on the expectation that the company’s blockbuster cancer drug Keytruda would face increased competition in the immuno-oncology field during 2019. As of January 30, stock prices for both firms were down by at least a dollar per share from their closing price on January 23.

On the Edge

Although patent expirations affect corporate revenues regardless of industry, the term “patent cliff” is particularly used in the pharmaceutical realm, where billions of dollars in revenue may be tied to the sale of a single drug that is protected by only a few patents. Upon the expiration of those patents, generic drugmakers are quick to enter the fray and offer essentially the same treatment at a greatly reduced price. In 2017, patent expirations threatened about $26.5 billion in annual sales among major pharmaceutical developers. Between 2018 and 2024, patent expirations in the prescription drug industry are expected to put up to $251 billion in sales at risk.

UBS’ analyst note downgrading Pfizer specifically cited the loss of patent protection for drugs such as Xeljanz, prescribed for rheumatoid arthritis and ulcerative colitis; Ibrance, a breast cancer treatment; Xtandi, a prostate cancer treatment; Eliquis, a blood thinner prescribed for preventing strokes; and Tafamidis, a peripheral nerve treatment. Pfizer’s earning report for the fourth quarter of 2018, released on January 29, 2019, indicated that Pfizer earned $2.79 billion in total revenues from the worldwide sale of four of those five drugs during Q4 (revenues for Tafamidis weren’t reported). That total represents about 20% of the nearly $14 billion in worldwide revenues Pfizer took in during 2018’s fourth quarter.

Although Pfizer has a few years before the patent cliff starts affecting revenues from Xeljanz and the other drugs, the company is also bracing for the loss of exclusivity in the U.S. market for its major nerve pain pharmaceutical, Lyrica. The U.S. Food & Drug Administration extended the pediatric exclusivity of Lyrica last November, but that period of exclusivity only lasts until this June. Pfizer earned $1.32 billion in revenues from worldwide sales of Lyrica during the fourth quarter of 2018 and although much of those revenues were earned outside of the U.S., the loss of U.S. exclusivity will hurt this total somewhat. Pfizer also reported the beginning of operations for its Upjohn division at the start of its 2019 fiscal year; this business focuses on the sale of off-patent legacy brands including Lyrica, Lipitor, Viagra and Celebrex.

Merck’s most recent earnings report, reflecting earnings during 2018’s third quarter, shows that the company indeed is reliant on revenues from Keytruda. Merck earned $1.89 billion for worldwide sales of Keytruda during 2018’s third quarter, about 17.5% of the company’s total sales for that quarter. Merck’s dependence upon Keytruda revenues will likely only increase due to recent regulatory approvals in the U.S. for treating patients with certain forms of either cervical cancer or non-small cell lung cancer (NSCLC). Last July, Keytruda also received regulatory approval in China for treating adult patients with unresectable or metastatic melanoma following the failure of prior therapy. However, the prospect that Merck could face increased competition in the immuno-oncology field through 2019 could prove troublesome for Merck’s overall fortunes.

The Future is Still Bright

Long-term forecasts don’t seem to indicate that either of these major pharmaceutical firms are in much trouble. A pharmaceutical industry forecast report through 2024 released by EvaluatePharma predicts that Pfizer will be second only to Novartis in terms of worldwide prescription drug sales with $51.2 billion in sales expected for the NYC-based drugmaker that year. Merck trails behind in seventh place but is still expected to clear $38 billion in worldwide sales in 2024. Both companies also own valuable pipeline portfolios to help offset any reduced revenues from patent expirations, with Pfizer making forays into vaccines while Merck continues to invest in vaccines and anti-infectious drugs. Still, the recent analyst downgrades for both firms are further proof of the importance of maintaining exclusivity through patent protection to pharmaceutical firms.

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Join the Discussion

10 comments so far.

  • [Avatar for Anon]
    February 26, 2019 08:17 am


    Admittedly, I had to look up that reference, and found within my search, a proper rebuttal:

    Though his answer to Glaucon’s challenge is delayed, Socrates ultimately argues that justice does not derive from this social construct: the man who abused the power of the Ring of Gyges has in fact enslaved himself to his appetites, while the man who chose not to use it remains rationally in control of himself and is therefore happy. (Republic 10:612b)

  • [Avatar for Anon2]
    February 25, 2019 07:20 pm


    When all common men/women wear a ring of Gyges, we must then rely on the propriety of their moral and philosophical character… which each will have or will have not gained from his/her parents, teachers, and the culture of the society at large… in direct relation to the knowledge, understanding and respect they have for intellectual property rights…

  • [Avatar for Anon]
    February 25, 2019 03:27 pm


    I would suggest that we have a precursor in how the courts (and law) have treated the ability to have “digital copies” and those copies be indistinguishable from the originals.

    While certainly not a precise analogy, the “digital copy” scenarios is actually upon us, while the “home 3-d printer” situation has not yet matured to that state.

    There IS a very real question given the current dual paths of attempting to make “software” per se a non-protectable item (for utility aspects, under patent law), AND the (impossible to avoid?) collision with a manner of untraceable infringement at a personal level.

  • [Avatar for Ternary]
    February 25, 2019 12:30 pm

    A “drug” printer (if it can be made, and I guess it will eventually, but probably in a form different than I imagine) shifts the power from the “manufacturer” to the “distributor” and to the developer of drugs. Rather than the “hard” material stuff, the design and software expression become more important. And we should have an IP system that protects the inventor/developer.

    It is like radio and tv wherein the power shifted from the device manufacturers to the distributor of content and (unfortunately less so) to the content producers. I have no illusion that a dominating corporation (perhaps an insurer or an Amazon-type) will not practically own a future “print your own drug” business.

    Indeed, it will bring some interesting challenges in protecting the IP. There are of course other inventions that can help reducing development cost of drugs. For instance a reliable computerized “human model” may reduce development cost (but probably not drug prices).

    Increasingly, when you can articulate something, (in mathematics, in a structural or a chemical formula) you can realize it physically with a computer and an adequate conversion device (a screen for a movie, a loudspeaker for sound, a D/A converter for a digital filter, a CNC machine or a 3D printer for a shaped article). The critical part of an invention is thus its “implementable” description. This is different from a book, for instance, which is mere text. Software executable on a processor on the other hand, which is by many wrongly considered to be equivalent to text, is thus increasingly at the core of an invention.

    This shift in what an invention is, has been going on for a while now. The opinion of SCOTUS to make a distinction between a patentable invention and an abstract idea reflects an outdated vision of what science and technology are and indicates an effort to force current technology into old concepts.

    The (still) fictitious idea of a “drug printer” indicates how inadequate our patent system is in protecting and stimulating completely novel technology.

  • [Avatar for Anon]
    February 25, 2019 12:14 pm

    …to add to my prior post (and to touch upon the known science fiction leanings of the editors here); think: Star Trek and the larger scale implications of their economic system BASED ON non-limited material possession (replicator technology pretty much being to give anybody most anything).

  • [Avatar for Anon]
    February 25, 2019 10:07 am

    The only way to solve the issue of drug prices is technology, like a “protein printer” that produce drugs on demand at home.


    I wonder if you realize that your answer sounds in mass (and easy) infringement, and any such advance of being able to so easily “print at home” leads down a VERY slippery path to being able to infringe anything by “printing at home.”

  • [Avatar for xtian]
    February 25, 2019 09:42 am

    @ternary “The only way to solve the issue of drug prices is technology, like a “protein printer” that produce drugs on demand at home.”

    But who will spend the R&D for this technology when it cannot be protected by a patent?

  • [Avatar for Ternary]
    February 24, 2019 07:02 pm

    Not much of a financial cliff for Pfizer. In 2018 the company was said to buy back $ 12 Billion in stock, while spending just short of $8 billion on R&D for filling their drug pipeline. They will buy a new patent protected product if needed.

    They may as well have a money printing press in their facilities. Pharma is a business wherein normal laws of physics do not apply it seems.

    The only way to solve the issue of drug prices is technology, like a “protein printer” that produce drugs on demand at home.

  • [Avatar for CR]
    February 24, 2019 11:53 am

    The importance of patents in the pharma sector has long been overtaken by other forms of IP, namely market exclusivity through regulatory affairs, proprietary data sets, branding and more. Many, many things affect an analyst’s upgrade or downgrade (especially for large pharma), and patents just don’t weigh nearly as heavily or be that important anymore. It’s pretty much the same story in essentially every field now; just look at how Tesla/Musk recently announced they’d allow anyone to use their patents in an effort to accelerate the field’s advance; and not a single resulting downgrade. Patents in the pharma world continue to be particularly endangered because they’ve long been used to justify absurdly high prices charged to American taxpayers. (We all know there are many other far more substantive reasons beyond patents that account for that sad fact.)

    I kept thinking that the decades-long pendulum that has been decimating patent value, particularly in the medical sector, has got to swing back, but actually not sure anymore due to the international aspects of modern commerce and the flagrant stealing of IP from the world’s 2nd largest economy. Viewed broadly, IP remains critical to pharma companies, it’s just that patents have a much reduced footprint in the area.

  • [Avatar for Anon2]
    February 24, 2019 09:25 am

    With prominent republican Statists (including Mr. T) repeating the Leftist mantra that Government needs to do something to reduce drug prices… which are “too high”, at present there is no reason to hope that free markets, property, and patent rights will have an ice cube’s hope in Hades …

    The “need” of people who want drugs is now becoming a mortgage on the time, money, and life of those who were always willing to produce the same in the free market and for a voluntarily free market reached price. As the health professions and medicine itself becomes a slave to the State, and as true free markets and private practice become illegal, (socialist medicare IS coming … precisely because the culture IS moving towards the Regressive Left) so too Pharma itself will fall.. and those gifted few who would have or could have gone into the field of LIFE SAVING DRUGS will turn to unoppressed industries like electronics and computing.