Bristol-Myers Squibb and Eli Lilly: The Patent Cliff Strikes Back

The third-quarter earnings reports released Wednesday by Eli Lilly (NYSE:LLY) and Bristol-Myers Squibb (NYSE:BMY) not only missed analysts’ expectations, but showed the degree to which these pharmaceutical companies rely on top selling treatments.

Bristol-Myers reported sales and earnings that were lower than estimated because increasing generic competition drew revenue away from its top selling medicine Plavix.

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For the third quarter, the pharmaceutical company’s net loss was $711 million, or 43 cents per share. Excluding the $1.83 billion charge the company received for the failure of its hepatitis C drug, profits were 41 cents per share, one penny below the average analyst estimates compiled by Bloomberg.

Sales were depleted by the expiration of the patent on Plavix in May. The anti-stroke medication generated sales of $7.09 billion last year. In the most recent quarter, which was the first full quarter of generic competition, sales of the drug dropped 96 percent to $64 million.

Over the past year, Bristol-Myers has worked to offset Plavix losses by acquiring and developing new drugs to diversify its portfolio. However, the company’s efforts were hampered when trials of its potential hepatitis C treatment were suspended in August. The drug, BMS-986094, was obtained as part of a $2.5 billion acquisition of Inhibitex earlier in the year. Bristol-Myers was further setback when regulators delayed the approval of Eliquis, a blood thinner the company developed in conjunction with Pfizer (NYSE:PFE).

As Bloomberg reported, Bristol-Myers is the only drugmaker among the top twelve companies to decline in trading this year. Shares fell 2.2 percent to $32.50 after earnings were reported, and shares have dropped more than 5 percent this year through Tuesday.

For Eli Lilly, third quarter earnings rose 7 percent over last quarter. However, the rise in earnings could not completely offset the 11 percent decrease in revenue the company reported Wednesday.

Lilly is struggling with one the steepest patent cliffs in the pharmaceutical industry. The company’s revenue has fallen since it lost patent protection last year on its top-selling antipsychotic drug Zyprexa. At one time, the drug generated more than $5 billion in sales annually, but over the past quarter sales fell 68 percent to $374.5 million. The antidepressant Cymbalta and the insulin Humalog will lose protection next year.

The company reported earnings of $1.33 billion, or $1.18 per share, in the third quarter. In comparison, the company earned $1.24 billion, or $1.11 per share, in the same quarter last year. Although the company reiterated its forecast of adjusted earnings for the full year in the earnings statement, the results were less than Wall Street’s expectations.

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