|Source: CSO Statbank
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
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
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.
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