The Myth of the “Patent Cliff”
Doctors, patients, and investors who follow the biopharmaceutical business all recognize that the industry is exceedingly complex and in the midst of change. Companies struggle daily with a multifaceted mix of scientific, clinical, and business unknowns. Will a drug be medically effective and make it through clinical trials? Will it get the thumbs up from the FDA? Will insurance companies pay for it? Will side effects turn out to be a major problem? Will manufacturing ramp up without a hitch? Will drug sales meet expectations?
All of these things are unknown in the early days of a research project. One can make informed predictions, some better, some worse, but uncertainties abound at virtually every stage of the drug development process.
Unfortunately, many predictions turn out to be nothing more than wishful thinking. There is only one dead-on, absolutely predictable element within the industry that companies can determine with certainty: the date on which their drug patents will expire. They can put it on the corporate calendar as soon as the patent is awarded. So how can patent expirations be considered a surprise, and why do drug company executives fail to adequately plan for them?
The current big bugaboo in BioPharma is the “patent cliff.” This phrase has become a neologism, which Wikipedia defines as “a newly coined word or phrase ….. that has not yet been accepted into the mainstream language.” “Patent cliff” certainly fits the bill. I have a sense that the word “cliff” was picked by whoever coined the phrase to give it a sense of danger and foreboding. Picture Indiana Jones dangling by his fingertips over crocodile-filled waters. For some, this phrase wasn’t sufficiently scary, so “patent apocalypse” was fashioned to further invoke fear and terror. Thankfully, “patent armageddon” has already been used in a different tech setting, so we won’t have to read about this one in the biopharma field.
So what, exactly, is the “patent cliff?” It is most often described as an industry-wide expiration of the patents of a number of blockbuster drugs, resulting in their replacement with generics and the emergence of a large hole in the collective financial pocket of the industry. Some define it as being in a single year (2010), while others point to a multi-year drop off ending in 2015. The “patent cliff” casts a long shadow over the bestselling new drugs (that is, those still protected by patents) on the market. Of the 50 top selling medicines in 2006, only six of them were approved for sale before 1993.
During the current five-year period 2010-2014, the sales revenues of drugs having patents that will expire are about $89.5 billion, according to data compiled by IMS Health Midas. The focus of the patent expirations is on small molecules, not biologics, since the FDA is still developing a clearly defined pathway for the approval of biosimilars in the US. At first glance, the $89.5 billion figure quoted above would seem to be a pretty big cavity to fill in the industry’s collective revenue pipeline. However, to truly judge this figure, we should have a comparator number, something we can gauge this against. The value of drugs having patents that expired during the preceding five-year period (2005-2009) was actually slightly higher at about $90.5 billion. On a five-year basis, there is no patent cliff. Not even a patent incline, patent slope, or patent slant. It looks more like a patent plateau. Yes, there are individual drug companies where a significant portion of drugs generating sales revenue will go off patent in the near future. However, as an industry this is not the large problem that some would have you believe. A graph illustrating drug industry revenues at risk due to patent expirations from 2001-2015 resembles the Rocky Mountains, with lots of ups and downs, but no cliff. In fact, despite this loss of patent protection, IMS Health is forecasting that the industry will grow some $300 billion in revenue during the 2010-2014 time frame, with global drug sales topping $1.1 trillion in 2014.
The “patent cliff” is a red herring that distracts us … Next Page »