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Opinion: Parachuting off the Patent Cliff

As the United States edges ever closer to the dreaded fiscal cliff, the pharmaceutical industry approaches a precipice of its own.

By | December 6, 2012

WIKIMEDIA, WING-CHI POONDrugmakers are currently in survival mode as patents on existing blockbuster drugs expire, forcing Big Pharma companies to parachute off the proverbial patent cliff. This legal escarpment means the end of patent protection on various blockbuster drug products, opening the market to generic substitutes. What makes the current timing so interesting is the large quantity of hugely profitable drugs whose patents have expired in the last few years or will expire soon. Over the past few years, the patents have expired for Enbrel, Zyprexa, Plavix, Arimidex, and Lipitor. This year, Seroquel, Actos, Singulair, and Lexapro have gone or will go off patent. In the coming 2 years, drugs including Oxycontin, Cymbalta, and Nexium will expire. With the loss of patent protection on so many blockbuster drugs, Big Pharma’s financial outlook is unsteady.

With the end of market exclusivity, drug companies are faced with billion dollar revenue losses. It has been estimated that drug products earning their makers a combined $170 billion per year will go off patent by 2015. Identification of new blockbuster drugs has been slow within the industry, particularly with the growing costs of research and development coupled with the broader worldwide economic downturn and healthcare reform. This has raised questions as to how and whether Big Pharma could maintain a stake in the marketplace. The impact of the patent cliff may be widespread, but Big Pharma has been taking positive steps to adapt to the changes.

To successfully navigate the changing times, diversification is the key. Research and development efforts have been refocused outward, as one way to parachute safely off the patent cliff. Looking outward, some companies have gravitated towards specialty drugs, orphan drugs, and the biologics market. For example, the IMS Institute for Healthcare Informatics has predicted the launch of 32 to 37 New Molecular Entities (NMEs) annually over the next 5 years.  In spreading the focus beyond blockbuster drugs, companies are creating more alternatives to account for their revenue streams.

Additionally, pharma companies have actively pursued strategic mergers and acquisitions, ranging from mega-mergers to smaller partnerships. Examples of the more notable mega-mergers include Pfizer’s merger with Wyeth and Merck’s merger with Schering Plough. Such mergers allow companies to combine their revenues and consolidate costs and expenses. Mergers with smaller or medium size companies are attractive in that they may have drug targets where preclinical tests or early stage clinical trials have been completed.

Companies are also shifting their focus to emerging markets in India, Brazil, Russia, or China. For example, Novartis is targeting sales of its successful blood pressure medication Diovan in emerging markets in Latin America and parts of Asia in order to maintain a third of its sales. Last year, 80 percent of GlaxoSmithKline’s vaccine distribution took place in emerging markets. 

Some companies are also looking inward towards intellectual property strategies as ways to avoid the patent cliff. With a need for additional patent protection, companies have been investigating options to extend patents by revisiting technologies for further improvements or next generation products. Additionally, strategic filings for accelerated or modified examinations may be sought.

With many strategic options available to a pharmaceutical industry edging closer to the patent cliff, the outlook remains encouraging. After all, the approach of the patent cliff is not an unexpected event. Companies have been well-informed of when their drug products are projected to go off patent. With the inevitable end to exclusivities, opportunities for strategic change have offered a positive outlook. The vast options that have been available to adapt with these changes have shed light on that fact that Big Pharma will continue to flourish after the patent cliff.

Sandra S. Lee is a partner in the Life Sciences practice at international law firm Baker Botts. Prior to her legal career, Lee was in biomedical research at the Brigham & Women’s Hospital in Boston.

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Comments

Avatar of: StephenHales

StephenHales

Posts: 1

December 6, 2012

This outcome was inevitable as pharma invested less in innovation and more in gaming the patent system though extension of old patents through minor modifications. The balance sheet for the following quarter looked better, but the cliff in the distance has been well known for some time.

This story shows some new business directions that are being explored. I predict that those who handle it most successfully are those that retain the least of the past decades management team.

Avatar of: Paul Stein

Paul Stein

Posts: 105

December 6, 2012

Along with what Stephen Hales states regarding reduced innovation, the pharmaceutical industry is now taking a page out of the medical device industry's playbook.  Instead of investing from within, the major players now serve only as old product cash cows to gain pricy acquisitions in the hope of securing new technologies and lines of income...and new patents.  Hence, it would be best for everyone to focus their eyes on the start-ups for all new things therapeutic.  One can only wish that funding of these new leaders would open up sooner than later.

Avatar of: texjonmac

texjonmac

Posts: 1

December 6, 2012

In spite of the lack of recent innovation on the part of Big Pharma they should be able to handle the loss of patents since the Bush/Kennedy price supports enacted by the Republican house and Senate in the Dubya days gave them a huge increase in profits. 

Avatar of: Cheaptrx

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