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Why Loss of Viagra Patent Will Not Harm Pfizer Inc. (PFE)

Viagra changed the way below-the-belt jokes were told, and certainly, it empowered a lot of men in ways they couldn’t have imagined. Without a doubt, Pfizer Inc. (NYSE:PFE)’s Viagra is one of the most prolific drugs ever marketed and sold, as it was soon followed by Eli Lilly & Co. (NYSE:LLY)’s Cialis and Levitra, which was co-marketed by Schering-Plough, Bayer and GlaxoSmithKline plc (ADR) (NYSE:GSK).

Launched in 1998, Viagra has now lost its patent in Europe, paving the way for generic drug makers to manufacture sildenafil citrate on their own. More than 20 generic drug manufacturers are expected to start selling the erectile dysfunction drug in U.K. and Europe. Let’s discuss why Pfizer Inc. (NYSE:PFE) will not be affected by the patent loss and what the long-term outlook for the company is going to be.

Pfizer Inc. (NYSE:PFE)

The value of Viagra

When the generic drugs will be available, they will be sold for a little more than a dollar while Viagra sells at almost $15 in the U.K. The little blue tablet brought in $2 billion in revenues in 2012. Viagra is Pfizer Inc. (NYSE:PFE)’s sixth-best-selling drug and more than 30 million men are prescribed Viagra in almost 120 countries. On the flip side, even before its patent expired, Viagra was the most copied drug in the world. Counterfeit drug sales are worth more than $75 billion worldwide. With this mind, people will be wary of generic drugs that may not contain the ingredients they claim to.

Pfizer investors have nothing to worry about

Here are six reasons why Pfizer Inc. (NYSE:PFE) will not be affected significantly by the patent loss.

1). Viagra is no stranger to patent expiries. Its anti-cholesterol drug Lipitor was one of its best selling drugs. When it expired, Pfizer Inc. (NYSE:PFE) lost almost $6 billion in sales. However, the company has picked up within the last 18 months. In comparison, Viagra’s sales are worth $2 billion and steadily decreasing because of competition from Cialis and Levitra.
2). Pfizer will hold its US patent for Viagra till 2020. This will offset the losses to an extent even if generic drugs flood Europe.
3). Viagra is a household name which is easily recognizable. Its brand value will help the drug to chug along for a longer time than analysts may imagine.
4). Pfizer will begin to sell Viagra online, in order to make the tablets easily accessible. Many people are embarrassed to buy the little blue pill at their local pharmacies and may prefer to order original Viagra online. This will open new avenues to increase revenue.
5). Pfizer is working on several new drugs, including certain cancer drugs which may prove to be more lucrative than Viagra.
6). The National Health Service of U.K. (NHS) spent only $62 million on Viagra, whereas Pfizer makes $2 billion in overall sales much of which comes from the U.S.

Viagra’s competitors

On the other hand, Cialis and Levitra will not expire before 2017. Eli Lilly & Co. (NYSE:LLY)’s Cialis (tadalafil) is known as the weekend drug, because of the number of hours it remains active in the bloodstream of the user. It allows men to take a tablet of Cialis and be ready for the game for almost 36 hours. Anecdotal experiences also suggest that it is not affected as much as Viagra by alcohol consumption. PDE5 inhibitors like Cialis cause low blood pressure and people with heart diseases are advised to take them under precaution. Cialis saw sales of $1.93 billion in 2012 and will continue to be popular until the patents expire. With a profit margin of 20% and an operating margin of 22%, Eli Lilly is one of the most profitable drug makers out there.

Levitra (vardenafil) is co-marketed and sold by GlaxoSmithKline plc (ADR) (NYSE:GSK), Bayer, and Schering-Plough. An orally disintegrating form called Staxyn is sold in Canada. It is also prescribed for premature ejaculation, along with erectile dysfunction. In 2005, GlaxoSmithKline sold most of its marketing rights to Bayer as the sales were not satisfying enough. With a PEG ratio of 3.85, GlaxoSmithKline walks in the overvalued territory. Analysts at Bryan, Garnier & Cie have a neutral rating on GlaxoSmithKline and I do not see the company posing competition to either Pfizer or Eli Lilly in the department of erectile-dysfunction drugs.

Now what?

For those of you who are worried that Pfizer will lose a large chunk of its Viagra sales in the near future, you can rest assured that it will not. Moreover, Pfizer is busy developing newer drugs and they will contribute to its revenues as well. At a 4.75 PEG ratio, Pfizer is certainly in the overvalued territory, but it has very impressive profitability numbers. With a profit margin of 27% and an operating margin of 32%, this stock will prove to be a good long-term buy.

Jaiyant Cavale has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article 6 Reasons Why Loss of Viagra Patent Will Not Harm Pfizer originally appeared on Fool.com and is written by Jaiyant Cavale.

Jaiyant is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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