The Myth of the “Patent Cliff”

11/29/10

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in the industry, the primary response to these upcoming patent expirations was to curtail research expenditures, cut headcount, and ramble down the other paths.

Updating old drugs with newer versions certainly juices revenues and has a high likelihood of success. However, this is only marginally helpful to patients, especially those with diseases for which there are currently no available treatments. Acquisitions will account for nearly two-thirds of Big Pharma sales growth from 1995-2014, according to Datamonitor. Of course, as companies get bigger, they require larger and larger acquisitions to provide sufficient revenue to maintain their sales growth rates. This approach is clearly unsustainable in the long run. Increasingly popular “pay for delay” agreements are lucrative for the industry; ending them would save consumers an estimated $35 billion over the next decade. As a result, the Federal Trade Commission is currently advocating legislation that will outlaw a practice that many already find unethical and anti-competitive.

As the evidence for internal research inefficiencies continues to mount, Big Pharma will move forward with an increased emphasis on acquisitions and on partnerships with academic institutions. However, abandoning internal research programs, as Morgan Stanley advocated earlier this year, is not a viable long-term solution. Molecules acquired from insufficiently funded startups should be viewed through a skeptical lens, since these potential drugs are not likely to have been thoroughly researched or vetted. Engaging academics to explore the detailed biology of diseases and drug candidates is likely to increase the probability of future success in the clinic if done properly. Drug pipeline-challenged companies have found many willing partners among academic groups strained by fewer grants, reduced government support, and shrinking endowments. It should be obvious to those in the industry that developing a clear understanding of the biological underpinnings of human diseases is the gateway to crafting new medicines. Difficult, yes, and expensive, but clearly necessary. Rushing drugs into the clinic without a mechanistic understanding of how they function is a often a prescription for failure, though even having such an understanding is no guarantee of success. Similarly, non-mechanistic side effects can spell doom for small molecules being developed against any disease. This is what’s helped lead the industry shift into biologics, as I have previously described. Big Pharma, it’s time to heed the call. Keep the primary focus on new drugs, not just new revenues. Don’t cut back on research, but narrow your disease focus if you have to. Remember that even with all of your financial resources, your internal labors will still be dwarfed by the efforts of the worldwide research community. Collaborative approaches may be the best, most cost effective way to achieve this. As Led Zeppelin affirmed in Stairway to Heaven “…there’s still time to change the road you’re on.”

Stewart Lyman is Owner and Manager of Lyman BioPharma Consulting LLC in Seattle. He provides strategic advice to clients on their research programs, collaboration management issues, as well as preclinical data reviews. Follow @

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  • http://www.xconomy.com/author/hlovy/ Howard Lovy

    ‘Patent apocalypse’ was meant to be a slightly ironic phrase, and one that I had certainly not invented.

    http://tinyurl.com/2bmgnj6

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  • steve

    The term patent cliff is not a myth as much as it is a mislabeling of real issues – some of which you detail very well. What seems to be bad karma may not be a cliff but it is just as painful and potentially devastating in the long run.

    The facts suggest the problems are real: 1) the discovery rate for new drugs is declining in total numbers and in per dollar spent as discussed 2) Financial pressure on drug costs is increasing and this will continue 3) According to BIO, the number of biotech companies closing doors is increasing and fewer exist today than just a few years ago 4) Pharma and Biotech have shed more jobs (in absolute numbers!) in the last two years than any other sector in the economy except for government and nonprofits combined. If you look at these numbers as a percentage – Pharma and biotech take first prize.

    Other trends also add to the pain 1) Perceived and real increases in FDA requirements for safety cause increased development costs 2) A reluctancy of venture capital to invest in drug discovery and development 3) The end of double digit growth in revenue for Big Pharma. According to Burrill and Co. sales growth in pharmacueticals (in US) will reach a maximum next year and then flatten or actually begin to fall (this includes M&A and new brand product launches minus patent expirations). Wall street will not like falling sales no matter how you slice it. 4) Biotech drugs are being scrutinized for cost/benefit and if a new wonder drug like Avastin doesn’t provide real benefits the FDA or Medicare will deny its use or reimbursement

    Are their any trends in the positive? A few bright spots exist. Products like Merck’s CTEP inhibitor and Amgen’s denosumab could be monster products that are really needed. Providing examples that drug discovery can still find winners. Another trend good for a few companies is the prediction of massive increases in diabetes in the US and these people will need drugs on a continuing basis.

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