By Hollister H. Hovey
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- The patent on Pfizer Inc.'s (PFE) top-selling drug, Lipitor, may not be as safe in the face of a patent challenge from an Indian generic drug maker as many on the Street say, according to Smith Barney analyst George Grofik.
After reviewing the relevant court documents and consulting the firm's patent attorney, he sees "significant risks to the Lipitor patent estate." That said, Grofik downgraded his rating on the world's largest drug maker to in-line from outperform Thursday.
Indian generic drug maker Ranbaxy initiated a so-called "Paragraph IV" patent challenge in November 2002 for all dosage strengths of the drug, which is supposed to bring in nearly $6 billion in sales for Pfizer this year, according to Grofik's estimates.
Because Ranbaxy beat its generic competitors to the punch, the company was subsequently awarded "first to file status" which gives it six months of generic market exclusivity once and if it launches its product.
Judge Joseph Farnan of the U.S. District Court in the District of Delaware is presiding over the case and a trial is scheduled for November 30 next year, Grofik wrote in his Thursday downgrade note.
This same judge ruled in Merck's (MRK) favor in its patent fight over once-daily Fosamax, a big selling osteoporosis drug.
Many on Wall Street are discounting Ranbaxy's chances, he said. First, Pfizer expresses a "high degree" of confidence in the strength of its Lipitor patents and second, Ranbaxy doesn't have a reputation for winning these kinds of patent challenges. And Ranbaxy is challenging Lipitor's composition of matter patent, which are thought to be very strong.
Pfizer officials weren't immediately available for comment.
However, Grofik does think that Ranbaxy poses a much greater threat than Wall Street is giving it credit for, though he acknowledges that many won't embrace that assessment.
"With a trial scheduled for November 2004, should Ranbaxy successfully litigate the Lipitor patents, we believe generics could launch as early as 2006," he wrote. "This would coincide with a challenging period of generic risk as other blockbuster drugs (i.e. Zoloft, Zithromax, Norvasc, Zyrtec, etc.) are slated to lose patent protection." That could potentially cut Pfizer's 2004 to 2008 earnings per share growth rate from 8% to 4%, he estimates.
"In total, Pfizer has approximately 42% of its 2003 pharma sales potentially exposed to generic cannibalization through 2007, the highest in our coverage universe," he said.
Outside of generics, Pfizer also faces heavy competition from new brand-name drugs. AstraZeneca PLC's (AZN) just-approved Crestor "is poised to become a formidable competitor to Lipitor," he said. Viagra will face competition from GlaxoSmithKline PLC (GSK) and Bayer's Levitra, which was approved Tuesday, and Eli Lilly & Co.'s (LLY) and ICOS Corp.'s (ICOS) Cialis, which is expected to receive FDA approval by the end of the year. Antidepressant drug Zoloft will also see new competition from Lilly's Cymbalta. Norvasc faces generic competition by as early as the end of this year.
Given Pfizer's "competitive threats, multiple patent expirations and the prospect of Lipitor losing exclusivity sooner-than-expected, we now believe outperformance for (Pfizer) is less likely," he said.
Grofik holds a long position in the shares of Pfizer and his firm makes a market in Pfizer stock and Citigroup (C), Smith Barney's parent, owns 1% or more of Pfizer's common stock.
By Hollister H. Hovey, Dow Jones Newswires, 201-938-5287; hollister.hovey@dowjones.com
(END) Dow Jones Newswires
August 21, 2003 10:27 ET (14:27 GMT)
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