Revenues fall off the patent cliff, rain down on generics firms.

When patents run out, generic pharmaceutical companies reap the benefits.

When we think about the patent cliff, an image along the lines of a massive waterfall, with companies’ revenues in free fall comes to mind. What we usually forget to consider, though, is that the waterfall is nourishing a fertile, green valley below. For while big pharmaceutical companies are scrambling to bolt-on smaller biotechs with marketed drugs to protect themselves, generics manufacturers are reaping windfall profits. While the industry has been nervous about the patent cliff for years, it is turning out to be a blessing in disguise. Patients are benefitting the most by gaining access to the innovative drugs of the past few decades at generic prices. Biotech companies are benefitting from a frenzied M & A environment, and generics companies are reporting record profits. Big pharmaceutical companies, meanwhile, have been forced to respond to the challenge by refocusing their attention and honing their business strategies.

As an example of this phenomenon, it’s worth looking at the biggest loss of the edge of the cliff, Pfizer’s cholesterol drug Lipitor. The company recently released its first quarter earnings, and reported Lipitor sales of $1.4bn, a 42 per cent plunge from the same period in 2011. The drugmaker can hardly complain, though, as the drug recorded cumulative sales of $128bn for Pfizer through the end of 2011. Meanwhile, Watson Pharmaceuticals was the first to begin selling generic Lipitor in November, 2011. As a result of strong generic Lipitor sales, as well as other generic launches including generic versions of Concerta and Lovenox, Watson’s first quarter revenue increased 74 per cent to $1.5bn, compared to $877m for the corresponding period in 2011. Increased sales drove an 87 per cent increase in net income, from $112m in Q1 2011 to $209m in 2012. As a result of its newfound financial heft, Watson was able to expand its geographic reach with the purchase of the European generics firm Actavis. Watson announced the €4.25bn ($5.6bn) acquisition was announced on April 25, and should lead to 2012 pro forma revenue of $8bn for the combined company in 2012, compared to $4.6bn for Watson in 2011 and $6bn in 2012 based on annualized first quarter revenue. Mylan, another major generics company, reported an 18 per cent increase in earnings for the first quarter compared to 2011, to $0.52/share from $0.44/share. This gain was due to a 9 per cent increase in revenue from $1.45bn in Q1 2011 to $1.58bn in 2012.

Pfizer and other big pharmaceutical companies, meanwhile, appear to be on course to successfully navigate the rapids. Although Pfizer saw its earnings drop 19 per cent in the first quarter compared to 2011, there are bright lights on the horizon. The FDA is set to decide on its rheumatoid arthritis drug tofacitinib by August 20, and the drug has the potential to generate up to $1.5bn in revenue before the end of 2012. The company has another drug before the FDA for review, with a decision expected by June 28. Eliquis was co-developed with Bristol-Myers Squibb for the prevention of strokes in patients with arterial fibrillation, and also has blockbuster potential. Finally, Pfizer is flush with cash after selling its infant nutrition unit to Nestle for $11.9bn, and ready for another round of acquisitions that could range from small, bolt-on biotech purchases to another pharmaceutical mega-merger.

The biggest development regarding the patent cliff will be watching large pharmaceutical companies’ attempts to maintain growth in the face of expiring patents. But regardless of how whether Big Pharma stays atop its mountain or goes over the cliff, generics firms will continue to reap the profits of major pharmaceutical patent expirations.

Dr. Jerry Isaacson is the head of GlobalData healthcare industry dynamics. Their website can be found at www.globaldata.com.

Photograph: Getty Images

Dr. Jerry Isaacson is head of GlobalData healthcare industry dynamics.

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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