Zyprexa patent loss in 2011 opened Eli Lilly's four-drug patent cliff

Zyprexa, Eli Lilly's antipsychotic for schizophrenia and bipolar disorder ^[2], lost U.S. patent protection in October 2011 — the first of four big-selling Lilly medicines to face generic competition in a stretch the company had spent years bracing for ^[1].

By the end of that stretch, Lilly's top line had shrunk. J.P. Morgan figures cited by the Indianapolis Business Journal put company sales at a peak of $23.3 billion in 2011, sliding to a seven-year low of $19.6 billion in 2014 ^[1]. The four drugs at risk — Zyprexa, the antidepressant Cymbalta, the cancer drug Gemzar and the osteoporosis medicine Evista — had together produced $10.4 billion of Lilly's $21.8 billion in 2009 sales ^[1].

John Lechleiter took over as chief executive in 2008 with the expirations already visible. Lilly executives still remembered Aug. 9, 2000, when an appeals court invalidated Prozac's patent and the shares fell $31 in hours; the stock had reached an all-time high of $108 the day before and bottomed at $29 during the 2008 financial crisis ^[1].

Lechleiter and chief financial officer Derica Rice "were a calming influence on jittery investors — expressing confidence but not overpromising, while also aggressively cutting costs and pledging they wouldn't cut Lilly's rich, 49-cents-per-quarter dividend," the IBJ reported ^[1].

Not everyone was convinced. "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]

By early 2015 the mood had shifted. In a Jan. 31 report, UBS analyst Marc Goodman wrote that management "has done a nice job getting through the difficult patent expiry period" and forecast low-to-mid teens earnings-per-share growth over the next five years ^[1]. Bernstein's Tim Anderson called Lilly "a pipeline-driven return to growth story" ^[1]. The shares had climbed 45 percent since October 2013, to above $70 ^[1].

Lilly also completed a $5.4 billion purchase of Novartis's animal health business ^[1]. J.P. Morgan expected total sales to inch up in 2015 and reach $25.6 billion in 2020 ^[1].

Why it matters for patients

Patent expirations open the door to generic competition ^[1], which is usually when lower-cost versions of a brand-name medicine reach the market. What patients actually paid for Zyprexa, Cymbalta, Gemzar or Evista before and after those changes has not been reported in the accounts of the period, so the size of any individual savings is not known.

The other side of the story is what a manufacturer does with the money it keeps by staying independent. Lilly kept its dividend and kept funding research ^[1]. Its 2011 annual report, filed as Zyprexa was losing exclusivity, lists diabetes as one of its main product areas, including Byetta and Bydureon for type 2 diabetes ^[2]. Management said the first wave of new drug launches would be in diabetes, oncology and immunology, with cardiovascular disease, pain and Alzheimer's coming later ^[1].

How directly that period shaped the GLP-1 medicines Lilly sells today has not been reported.

What happens next

Lechleiter told analysts 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," he said ^[1].

The forecasts attached to that plan were for sales to grow slowly in 2015 and reach $25.6 billion by 2020 ^[1], with earnings-per-share growth in the low-to-mid teens over five years ^[1]. Alzheimer's was described as the biggest wild card, with a high chance of failure and a large payoff if a compound reached the market ^[1].