The latest CSO (Central Statistics Office) external trade figures have caused a bit of a stir. Seasonally adjusted Irish merchandise exports decreased by 9% in December 2011. According to the CSO, “a substantial part of the decline in the value of exports was due to a high value product in the Chemical and Related Products Sector (pharmaceutical products) coming off patent in December”. I guess this involves Pfizer’s Lipitor anti-cholesterol product that came off patent in the first week of December 2011. A decline in exports of about €750m is substantial. It is unclear how much of this is due to the Lipitor effect, but if only half was due to Lipitor, this would translate in a decline of €4.5bn on an annual basis.
But we need to be very careful with interpreting monthly export figures. A monthly decline of 9% in (seasonally adjusted) merchandise exports is substantial, but certainly not uncommon. In fact we have seen greater fluctuations over the last five years (see Table 1). It would be interesting to see how much of the decline is accounted for by the decline in chemicals exports. Unfortunately the commodity breakdown is released with a one-month delay, so we have no insight in this yet. Whatever the fall, we must realise that pharmaceutical export data are characterised by even stronger monthly fluctuations than total merchandise exports.
Month-on-month fluctuations of between 10 and 20% are not uncommon (see Table 2 below). This is due to the production schedules of the pharmaceutical plants. Plants produce multiple products, often in batches. So one month a plant may produce a particularly high value blockbuster followed by a low value product the following month. This leads to strong fluctuations in the value of monthly chemicals export figures and total merchandise figures (because chemicals accounts for 60% of merchandise exports). It is always safer to look at the annual figures.
So, we should be reluctant to jump to conclusions. Then again, the CSO have the advantage of insight into the detailed data. If a substantial part of the 9% drop is indeed due to Lipitor coming off patent, this is worrying. Particularly because it would only reflect the first effects of Lipitor coming off patent and because a larger patent cliff cloud is hanging over us.
Lipitor came off patent in December 2011. However, for various reasons, so far we have not seen the full effect. After coming off patent, the market is not immediately fully opened for generics producers. There is a 6-month exclusivity period. Generics companies can apply to the FDA (US Food and Drugs Administration) to become the privileged first to produce a generics version of this drug. Ranbaxy was one of the successful companies. However, Ranbaxy was unable to gets its manufacturing plants through the inspections. As a result it got into a deal with Teva, another generics producer. Teva produces the drug to be sold by Ranbaxy. The company still has a small market share.
The other lucky company was Watson. However, Watson did not enter the market as a manufacturer (and therefore not as a genuine competitor to Pfizer). Pfizer created a strategic alliance with Watson whereby Pfizer produces the product and Watson is allowed to sell it at an agreed (with Pfizer) generics price.
To pre-empt, competition Pfizer already strongly reduced the price for Lipitor. So the value of the product has already fallen substantially. But most of the drug is still manufactured by Pfizer (much of it Ireland). So, we still need to see the full effect of Lipitor coming off patent. We will know more after the 180 days exclusivity period comes to an end, in four months time.
Finally, we must remember that we are talking about only one product here - the biggest blockbuster, but not the only one. Of the top-ten drugs coming of patent over the next two years, seven are currently produced in Ireland.
Check out our new subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.
It's a simple fact that in the prevailing economic climate, the provision of high quality content cannot be sustained through advertising alone.
Business executives who put a premium on time and value high quality information, should use our service.
© Copyright 2011 by Finfacts.com