Warning: Patent cliff approaching

With the fearsome "patent cliff" year of 2011 approaching fast, drugmakers are working feverishly to replace the billions in revenue that could disappear overnight when big drugs like Lipitor go off patent. And while 2009 won’t be as big a year for blockbuster patent expirations, more than a few brands will lose protection this year.

So while the R&D sides of the business look for new drugs that might replace the sales lost to copycat competitors, the legal department is fighting patent challenges and management is making deals. In one of the biggest developments of 2008--one that will likely continue into 2009--Big Pharma has adopted an if-you-can’t-beat-'em-join-'em strategy. Several drugmakers are beefing up their generics operations, either by taking over smaller companies in new markets--think Sanofi-Aventis and the Czech drugmaker Zentiva [1]--or devoting more resources to in-house copycat divisions. And they’re making arrangements with their erstwhile challengers, allowing copycat meds onto the market in return for various concessions, sometimes even a piece of the action.

Case in point: Lipitor. Settling a long-running patent dispute [2], Pfizer and Ranbaxy Laboratories came up with a mutual back-scratching deal under which Ranbaxy will be able to launch its generic version of the cholesterol med in the U.S. in November 2011 and can sell its copycat form in seven other countries. Plus, it can continue to sell Lipitor copies in Malaysia, Brunei, Peru and Vietnam in the meantime. Pfizer, for its part, gets protection from generic Lipitor for a little longer than it might have, had it pressed its case in court. And where Lipitor is concerned, "a little longer" equals billions of dollars.

Or take Fosamax. Merck inked a deal early in 2008 to work with a generics firm on a copycat version of its own bone-strengthening drug. Two generics makers were getting ready to launch their versions of the product, and Merck figured that if it sold Fosamax copies, too, then it at least would recoup some of that lost brand-name revenue.

Then there are the "authorized generics" deals, typified by a couple of agreements that went through as the year drew to a close. Novartis agreed to let Mylan sell copycat Femara, a breast cancer treatment, before the patents expire in 2011. And Medicis Pharmaceutical cut a deal with Impax Laboratories for a generic version of the acne drug Solodyn; Impax can sell the copycat by November 2011, and will pay royalties to Medicis. But the deal also includes a development pact under which the two companies will co-develop five dermatology products.

With that aforementioned cliff nearing, we can expect more of this sort of wheeling-and-dealing on generics. Whether drugmakers launch their own authorized copycats or work deals with generics makers, the general idea is the same: Cut those losses. These deals will probably get even more creative as time goes on and generics makers have more leverage.