Assesing the Impact of Patent Loss on Overall Revenues and Stocks Price of Pharmaceutical Companies.

Abstract

With the pre-tax R&D cost of bringing a biopharmaceutical product to market estimated at $1.2 billion, revenues from blockbuster drugs may need to cover the development cost of multiple drugs. We analyzed four major blockbuster products that lost patent between 2011 and 2012 and the associated change in sales it had on the company. We identified four major products (atorvastatin, clopidogrel, quetiapine, and montelukast) that lost patent protection between 2011 and 2012. Then, we retrieved sales data for the drug, total revenue, and stock price for the company from Q1 2011 to Q4 2013. Sales data was from IMS Health via drugs. com. Total company revenue per quarter was provided by Charles Schwab & Co. and historical stock data was taken from Yahoo! Finance. During the time the drugs were under patent, they made up an average of 16.8% of total revenues per quarter. Total sales for the four drugs were down an average of 78.8% by Q4 2013 while total revenues for the companies were only down on average 11.9%. Stock prices over the same period increased an average of 72.5%. During the time the product had patent protection, the stock prices of those four companies increased at an average of 3.7% per quarter, as opposed to the 5.8% increase per quarter when the patent expired. During patent protection, average company revenue grew at an average of 1.52% per quarter; when the patent expired, revenue declined at an average of 1.9%. Overall these blockbuster drugs do not seem to significantly decrease revenues and do not influence stock prices when their patent protection is up. Large pharmaceuticals may reinvest profits to bolster their pipelines and find replacements for these large-revenue drugs. Investors seem to appropriately price in patent expiration into stock prices long before the actual event.