The “patent cliff”: pharmaceutical industry is undergoing major changes

© Shutterstock
© Shutterstock

In 2013, pharmaceutical market’s turnover reached 640 billion $. The leader pharmaceutical groups are now facing important changes as many of their patents are successively expiring. In fact, this industry in now experiencing the vastest period of patent loss of all pharmaceutical history: the phenomenon has been metaphorically called the “patent cliff” and is changing the face of pharmaceutical industry.


The “patent cliff” started in 2011 when Pfizer’s biggest anti-cholesterol blockbuster, Lipitor®, went off patent. It was soon followed by Sanofi’s best-seller anticoagulant Plavix® in 2012. This phenomenon led to a 135 billion $ loss for the pharmaceutical industry in 2013 which represents nearly 20% of its turnover. In 2014, many pharmaceuticals will lose patents, which highly threaten their revenues, since blockbuster drugs lose 80% of their turnover when going off-patent. Indeed, when a patent expires, other smaller companies are free to develop a generic replication of the product. They are much cheaper and favoured by social security (especially in France with compulsory substitution in retail pharmacies), and governments who are constantly increasing demand pressure for cost-control among pharmaceuticals. Since a few years, generic companies have been flooding the market with generics in response to the “patent cliff”. This difficult economic situation for pharmaceutical companies is due to their relying on very few blockbuster drugs to generate enough income to cover R&D costs and ensure the company’s revenue. Pharmaceutical industries experience a sudden and steep decrease of income once they lose their exclusivity on the market.


However, some visionary firms have anticipated these changes and managed to minimise the consequences of the “patent cliff” by restructuring and diversifying themselves. Some big pharmaceutical companies have undertaken changes like merging with other laboratories to avoid infrastructure costs, or buying biotechnology and generic companies … It is particularly the case of Sanofi. In 2008, former Sanofi CEO Chris Viehbacher begins the company’s diversification strategy in order to avoid a potential brutal “patent cliff”. In fact, at his arrival, 12 drugs marketed by Sanofi were bound to go off-patent before 2012, including the blockbuster Plavix®. As a response, a redefinition of 6 growth sectors for the company has been decided: vaccines, emerging markets, diabetes, animal health, consumer health (OTC) and innovative biotechnology drugs. Sanofi also acquired Genzyme in 2011, a biotechnology company, for 20 billion $. However the “patent cliff” will still affect the company with the expected loss of 5 patents in 2015, including Lantus®’, long-acting insulin and Sanofi Diabetes’ largest revenue generator. The company’s loss is estimated to be close to 8,1 billion $ in consequence. In addition, this phenomenon has also caused many unavoidable downsizing measures.


Indeed this recent “patent cliff” has led to many changes among Big Pharmaceutical firms, forcing them to redefine their strategy and innovate.


Annual sales of drugs losing patent protection in 2014

9 leader pharmaceutical companies’ annual sales for drugs losing their patent protection in 2014