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What is a Patent Cliff?


You’ve developed a drug or medicine. You’ve spent years developing it, spent practically all of your financial resources on it, and now have a 20-year patent on it. Imagine this scenario: Before the company generates significant income and profits, the period expires, and the monopoly of the company ends. And so, the corporation falls over the monopoly cliff and enters the phase of the competition after spending crores of rupees on research, manpower, raw materials, and procedure, not to mention the time spent on drug creation. This event is referred to as the “patent cliff.”

person standing near cliff

What is a Patent Cliff?

Cliff is a good metaphor for a looming deadline with potentially fatal repercussions. The term “patent cliff” is commonly used to describe the phenomenon that occurs when a patent expires. It denotes the loss of a number of drug patents in a short period of time. In 2021, the patents of popular drugs were set to expire. For pharmaceutical companies, it is a significant financial concern. But, how does it affect the global pharmaceutical industry?

What is the impact of the Patent Cliff on Pharmaceutical Companies?

Pharmaceutical firms suffer the loss of exclusivity that comes with patent expiration with each year. Competitors, on the other hand, are granted new chances and challenges the as generic medicines now enter the market. As a result of competition, competitors’ selling prices are lower than those of the drug’s developer.

After their patents expire, all of the big pharmaceutical companies, such as Pfizer, GlaxoSmith, AstraZeneca, and others, witness a drop in revenues. Over 70% of those sales were lost to generic producers, who seized the chance to consolidate the market. Once the time limit passes, these generic producers begin selling pharmaceuticals at nearly 20% to 80% less than the inventor company’s prices.

As a result, a cliff in the patent registration business refers to a revenue loss or decrease caused by a sharp drop. When companies that specialise in a single brand of drug lose their patent, it is difficult for them to recover. Such enterprises do not have a diverse portfolio, but large pharmaceutical corporations with a diverse portfolio will be able to handle such market slumps. Small and mid-sized businesses that invest in innovation, on the other hand, will be the hardest hit. Companies impacted by a patent cliff will not reinvest in research since pharmaceutical development is costly and dangerous.

On the other hand, patients benefit from the influx of generic drugs, which will save them a small fortune. Doctors also expect that decreased prices will minimize the number of people who put their health in jeopardy because they can’t afford the medications they require.

Strategies and Defenses for Companies

Pharmaceutical companies are now not just under enormous pressure from the patent cliff, but they are also being scrutinized in public for how they respond to these issues. The greatest technique for big firms is to start producing another drug with the profits from the previously patented one. The 4P model can also be used to create the optimum strategy: Place, promotion, product, and price are all factors to consider. Pricing should be set at higher margins to repay earlier losses and expenses before the 20-year time frame runs out. The promotion element should begin during the approval phase so that the company has a pre-approval mechanism in place before handing out orders. All of these considerations are ineffective in preventing the patent from expiring. They would, however, undoubtedly help in generating consistent revenue and profits by lowering costs and charging as large a margin as possible.

In addition, corporations are vigorously defending their drugs’ patents against potential infringement by generic-drug competitors. Inventor corporations’ elaborate legal defences can be considered as solely aimed to delay the introduction of their products. Given that a blockbuster drug generates billions of dollars in annual sales, even delaying generic drug competition by weeks represents a significant amount of money for the inventor firm from continued product sales.

While the generic medication sector will undoubtedly benefit in the short term as a result of the patent cliff, pharmaceutical companies are trying and continue to examine a range of measures to mitigate the impact of this income loss and maintain their profitability.

Author: Pranjali Mehta, Legal Intern at PA Legal.

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