Drug Stocks Jump on Pfizer's Lipitor Ruling

NEW YORK – Shares of Pfizer Inc. (PFE) and other drugmakers rose in premarket trade on Monday, buoyed by the company's court victory Friday blocking a threat to its largest-selling drug, cholesterol-buster Lipitor.

Analysts said the patent win over Indian drug maker Ranbaxy Laboratories Ltd. boded well not only for Pfizer, but also for the drug sector overall.

"We anticipate a relief rally for pharmaceutical stocks," Merrill Lynch analyst David Risinger wrote in a research note.

The court decision allows Pfizer to maintain patent protection on Lipitor, the world's best-selling drug with $12 billion a year in annual revenues, through June 2011. Ranbaxy vowed to appeal the ruling.

Shares of Pfizer jumped $2.58, or 11.4 percent, to $25.16 on the Inet electronic brokerage system.

Shares of Merck & Co. Inc.(MRK), Schering-Plough Corp. (SGP), and Bristol-Myers Squibb Co. (BMY) all rose at least 3 percent.

Merck and Schering-Plough jointly sell their own cholesterol treatment, Vytorin. The decision means they will not face the threat of low-cost generic copies of Lipitor soon, said JP Morgan analyst Chris Shibutani.

Bristol-Myers, meanwhile, faces a separate patent challenge to its key drug Plavix.

Investors have been anxiously awaiting the federal court decision on whether a cheaper form of Pfizer's $12 billion-a-year Lipitor can come to market.

"This is as good as it gets for Pfizer. They won a victory on both patents -- well beyond our expectations," said Deutsche Bank analyst Barbara Ryan.

One of the patents blocks generics through March 2010 and the other through June 2011.

"The court will enter judgment in favor of Pfizer and against Ranbaxy on Pfizer's claims of infringement," Judge Joseph Farnan wrote in a 66-page decision.

In October, a British high court handed Pfizer a victory by upholding the basic U.K. patent on Lipitor that runs through November 2011.

In that case, the court ruled in favor of Ranbaxy on a more specific Lipitor patent that would have run out a year earlier, but the decision kept the more important Pfizer patent intact.

The 8-year-old drug is Pfizer's pillar of strength as the company's revenue growth and earnings continue to dwindle due to a raft of problems.

The hardships, which had dragged Pfizer's share price to an eight-year low, include evaporating sales of its treatments for epilepsy, fungal infections and high blood pressure after patent expirations paved the way for cheaper drugs.

Sales of Pfizer's Celebrex arthritis drug, meanwhile, have been cut almost in half due to safety concerns, and revenue from Pfizer's newer arthritis drug Bextra vanished when it was withdrawn in April after being linked to a deadly skin condition.

But those setbacks would pale in gravity to the loss of Lipitor, the crown jewel in Pfizer's $114 billion acquisition of Warner-Lambert Co. five years ago.

"U.S. sales of Lipitor account for 15 percent of Pfizer's (global) revenue and perhaps 25 percent to 30 percent of its profit, so there were enormous stakes here," said Mehta Partners analyst Shaojing Tong.

"This should provide a catalyst for the sector to rally on Monday," said Tong, who predicted the ruling would ease concerns about the vulnerability of large drug makers to patent challenges from makers of generic medicines.