Zyprexa loses US patent protection, opening Lilly's patent cliff

Eli Lilly's antipsychotic Zyprexa lost its US patent protection in the fall of 2011, opening the door to generic copies and starting a four-year stretch in which the Indianapolis drugmaker's sales fell by billions of dollars ^[1]. Zyprexa, approved for schizophrenia, acute mixed or manic episodes tied to bipolar I disorder, and bipolar maintenance, sat inside what was then Lilly's largest-selling product group, neuroscience ^[2].

Zyprexa was the first of four blockbusters to fall. Looking ahead from 2010 through 2014, Lilly faced patent expirations on the cancer drug Gemzar, Zyprexa, the antidepressant Cymbalta and the osteoporosis medicine Evista ^[1]. Together those four had generated $10.4 billion of Lilly's $21.8 billion in 2009 sales — close to half the company ^[1].

The damage showed up in the top line. Lilly's total sales peaked at $23.3 billion in 2011 and slid to a seven-year low of $19.6 billion in 2014 ^[1].

A company that refused to merge

Wall Street doubted Lilly could survive the cliff alone. "It's a very strange position they're taking, considering what they're facing," Standard & Poor's analyst Herman Saftlas told Reuters in 2010. "They have to do something, or the patent cliff will kill them" ^[1].

Lilly had already been burned once. On Aug. 9, 2000, a federal appeals court invalidated patent protection for the antidepressant Prozac, knocking $31 off the share price in hours; the stock had hit an all-time high of $108 the day before and eventually bottomed at $29 during the 2008 financial crisis ^[1].

CEO John Lechleiter, who took over in 2008, and Chief Financial Officer Derica Rice cut costs aggressively while pledging not to touch the company's 49-cents-per-quarter dividend, and kept funding the labs ^[1]. "Over the past five years, we delivered on our financial commitment, we advanced our pipeline, and we built what we believe is a sustainable R&D engine," Rice said on a Jan. 31 call with analysts ^[1].

Even during the trough, Lilly kept launching. Its 2011 product list included the type 2 diabetes pill Tradjenta, approved and launched that year, and the testosterone solution Axiron; Bydureon for type 2 diabetes was approved in Europe in 2011 and in the US in January 2012 ^[2]. The company said its first wave of new drug launches would come in diabetes, oncology and immunology, with a second wave in cardiovascular disease, pain and Alzheimer's ^[1].

Why it matters for patients

Patent cliffs are the main reason brand-name prices eventually come down. When exclusivity ends, generic makers can enter and compete, which is exactly the "flood of generic competition" Lilly braced for across Zyprexa, Cymbalta, Gemzar and Evista ^[1]. Patients taking those medicines saw cheaper copies; the company saw nearly $5 billion in annual revenue disappear over three years ^[1].

The episode also shows how a drugmaker's choices during a downturn shape what reaches pharmacies years later. Lilly stayed independent and kept investing in research rather than finding a merger partner, a strategy analysts called controversial at the time ^[1]. Bernstein analyst Tim Anderson later wrote that Lilly "is a pipeline-driven return to growth story which is attractive" ^[1]. Diabetes was named as part of the company's first launch wave ^[1].

One caution for anyone reading across decades: the strength of any single company's pipeline is not a guarantee of access, coverage or price for a specific medicine. None of that was settled by the patent cliff itself.

What happens next

By early 2015, Lilly's stock had climbed 45% since October 2013 to above $70, a range it had not traded in for 11 years ^[1]. J.P. Morgan forecast total sales would edge up from the 2014 low and reach $25.6 billion in 2020 ^[1]. The company also closed a $5.4 billion purchase of Novartis Animal Health ^[1].

Lechleiter said the goal was to avoid a repeat: "We've paid particular attention to putting the company in a position where we do not have to go through the boom and bust cycle that's characterized the last 10 years" ^[1].