The Pharmaceutical Patent Cliff

The Basic Premise

Like all other business ventures, pharmaceutical companies exist to make a profit. Typically, they achieve this goal by creating a useful new drug that cures or alleviates the symptoms of certain diseases and conditions.

Companies ensure that they have the exclusive right to manufacture and sell these drugs by obtaining patent protection. However, that protection doesn’t last forever. The expiration of a patent means that makers of generic drugs are able to enter the market, and that can mean a huge loss of revenue for the innovating company.

This means that it is critical for these organizations to plan for long-term growth and stability while also continuing to innovate for the future.

Patents for Pharmaceuticals

When a company creates a formula that brings about a beneficial effect in the treatment of an illness or disorder, they file for patent protection with the U.S. Patent and Trademark Office. When such a patent is granted, it provides the owner with the exclusive right to make, use and sell that drug for a period not exceeding 20 years from the date on which the patent application was filed.

When a drug is incredibly successful, it can easily earn billions of dollars for the innovating company. Unfortunately, it can take years to develop a new drug, and it may take even more years of trials before the drug is approved for use by the general public. This means that pharmaceutical companies have only a limited amount of time to financially benefit from sales of the drug. Of course, all of that research and development also is incredibly expensive.

What Is a Patent Cliff?

In recent years, the patents on many blockbuster drugs have expired. These include Pfizer’s Lipitor for lowering cholesterol, the blood thinner Plavix from Bristol-Myers and the antipsychotic drug called Zyprexa from Eli Lilly.

Each of these drugs has earned billions of dollars for their respective creators. However, as the patents come to the end of their terms, each of these companies approaches a patent cliff.

That cliff is represented by a precipitous drop in revenue as generic drug makers begin producing their own, far cheaper, versions of these drugs.

What Does the Pharmaceuticals Patent Cliff Mean Now?

The patent cliff may be good news for consumers and for the employers that provide them with health insurance. This is because the generic versions of drugs typically cost between 20 and 80 percent less than the brand-name versions did. A prescription that once cost nearly $100 per month may cost around $10 once it is available as a generic.

What is good news for consumers and employers is potentially disastrous news for innovating drug makers. Not only will they see their massive profits dissolve but also they will have less money available for researching and developing new blockbuster drugs.

With less money for research, the introduction of new drugs will dramatically slow. This means that people who could benefit from a new prescription drug will have to wait for it, perhaps for years. That can translate to the serious deterioration of the individual’s health or even their death, situations which could be avoided through the swifter availability of effective new medications.

Pharmaceutical Companies Seek to Make Generics Work for Them

Drug manufacturing companies are looking for ways to enter the generic drug market. Sometimes this means manufacturing their own generic version of the medicine. At other times, this means entering a new market somewhere else with the generic drug.

Some companies, such as Pfizer, long ago recognized the upcoming patent cliff and took steps to prepare themselves. Accordingly, Pfizer will manufacture both brand-name Lipitor and the generic atorvastatin in order to maintain as much market share as possible.

Whether your industry is pharmaceuticals or something entirely different, your valuable inventions and innovations may need to be protected with a patent. Work with qualified intellectual property counsel from Williams IP Law to plan a common-sense strategy for tomorrow and beyond.

Author: Jeff Williams

Jeff Williams is an experienced mechanical engineer and lawyer that consults closely with clients in a strait forward and clear manner.  He brings a particular set of strengths and unique perspectives to the firm.    
 Jeff received a B.S. in Mechanical Engineering from Arizona State University in 2005.  He was an engineer for a number of years at a number of large corporations before pursuing his law degree.  He graduated from Texas A&M University School of Law (formerly Texas Wesleyan University School of Law) with a J.D. in 2010.  By combining his education and prior work experience into the field of intellectual property law, Jeff has developed key skills to fully assist clients.