Going the Way of Blockbuster: Part 2

In the second part to our examination into what kind of impacts blockbuster drugs have on large pharmaceutical and biotechnology companies, more support comes in figure 3 which shows the index of total revenue and stock price for the period.

Figure 3

Revenue for these companies continues to remain steady despite large drop offs in revenue from Lipitor, Plavix, Seroquel and Singulair. While revenues remained steady, stock prices soared. The patent cliff was and still is a major concern for these large companies, perhaps revenues remaining steady and not dropping contributed to more investor confidence and the built in cushion for the stock price was initially a bit of an overestimation and prices corrected up.

To assess the loss of patent on a company level we took a look at Pfizer and one of the best selling drugs of all time, Lipitor, we see a major decline in sales but an increase in stock price.

Figure 31

It seems that these drugs aren’t as big a part of the total portfolio as originally thought since they don’t seem to influence stock price on their descent as much as they drove the price higher in their ascent.

Table 2 shows what percentage of total revenue these drugs had of their respective companies during Q1 2011.

Table 2

With the exception of Bristol-Myers Squibb and Amgen where Plavix and Enbrel made up 33% and 22% of their revenue, respectively, most drugs only made up less than 20% of total revenue. Singulair only accounted for 9% of Merck’s total revenues and Remicade was a drop in the bucket at 5%.

Our main conclusion from the research seems to be that if a company has a solid pipeline they should not be too worried about a blockbuster losing market share to a generic as the market seems to have priced this in. Companies need to be reinvesting their profits when they have a block buster in order to prepare for the future.

Data Sources

Sales data was provided by IMS Health via Drugs.com. Company fundamental data was provided by Charles Schwab & Co. Historical stock prices are adjusted closing prices provided by Yahoo! Finance.

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