The Myth of the “Patent Cliff”


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from the real problem for the industry: the rate of new drug approvals wasn’t just flat; it actually declined during the last decade. Data compiled by CMR International and IMS Health show that while drug sales increased nearly 2.5 fold from 1997 to 2007, the number of new drug approvals dropped nearly by half. The increase in drug sales paralleled the nearly 300 percent increase in direct-to-consumer prescription drug advertising from 1997-2005, according to the Government Accountability Office. Prescription drug advertising dollars, once unshackled for television in 1997, went primarily to promote new drugs with the longest patent lives. Unfortunately, pharma R & D spending from 1996 to 2007 looks to be inversely proportional to the combined number of new molecular entities plus new biologics approved. The equations here are pretty simple. More spending on direct-to-consumer prescription advertising has generated more sales. More spending on research and development has generated fewer drugs. To paraphrase Bob Dylan, you don’t need to be a weatherman to see where this wind is blowing.

So if Big Pharma company executives knew that they faced major patent expirations that would be accompanied by large revenue losses, how did they deal with this? There were six basic approaches they could take to fill the revenue hole:

1) Increase their investment in research and development (or revamp their efforts) and come up with new drugs.

2) Update existing drugs with slightly different (often longer lasting) versions protected by new patents.

3) Acquire other companies and their pipelines for additional revenue growth.

4) Pay generic drug makers not to enter the market (so-called “pay for delay” agreements) to protect their revenue streams.

5) Ramp up selling existing drugs in newly expanding consumer markets, like India and China.

6) Diversify their core business by adding over-the-counter drugs, veterinary medicines, and diagnostics.

Note that only one of these approaches (the increased (or revamped) investment in research) actually leads to new (as compared to newly acquired or modified) drugs. I recognize that drugs acquired from other companies that are still in clinical trials are often new. However, the other paths merely lead to new revenues, or to block a loss of revenues. Given the lack of research productivity … Next Page »

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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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5 responses to “The Myth of the “Patent Cliff””

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

  2. steve says:

    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.