The Patent Cliff

Over the past five years, the pharmaceutical industry, and in particular brand name drug conglomerates, have experienced a sea-change, the effects of which are still being felt. Starting in 2010 (and in some cases much earlier), brand name drug companies like Pfizer, Merck and Co., AstraZeneca and Eli Lilly, to name a few, began to lose the patents to some of their most prized and perhaps most importantly, highest-selling pharmaceutical drugs. Highly recognizable drugs like Singulair, Diovan, Cymbalta and arguably the most headlined drug of all, Pfizer’s cholesterol drug, Lipitor, represent just some of the medicines that have lost patent over the past half decade.

The loss in patents that big pharma has experienced – its magnitude and the fact that brand name pharmaceutical companies have experienced repeated patent losses each year since 2010 – has led the media to term this as the time of the “Patent Cliff”.

Despite the assurances of brand name drug companies and despite their regrouped efforts to replace patent-expired drugs with new drugs and new forms of revenue, the Patent Cliff has caused significant erosion in the profits of brand name pharmaceutical companies. Consider the fact that in 2012, a year with a particularly heavy number of patent expirations, big brand pharmaceutical companies lost patents to drugs that represented more than $30 billion in annual sales. Consider also that the Patent Cliff will last until 2018 and that next year, 2015, is expected to be another heavy hit for big pharma, with an estimated total revenue erosion of $33.5 billion in drug sales due to patent losses.

Brand name pharmaceutical companies have taken a large hit in the past five years, as was to be expected. As was also expected, there have been two clear and significant beneficiaries to the Patent Cliff: generic pharmaceutical companies and, most importantly, the consumer.

In 2012, as dollars spent on brand name drugs lagged, the overall spending on generic equivalents increased by $8 billion. This is a trend that’s only continued and strengthened as each year of the Patent Cliff has progressed.

Apotex, the largest Canadian-owned pharmaceutical company, a company that’s responsible for producing more than 300 generic pharmaceuticals in approximately 4,000 dosages, is an example of just how much patent loss has helped the generic drug industry. In Canada, ever since 2006, the generic share of the pharma market has steadily enjoyed growth, expanding from a percentage share of 44.8 per cent in 2006 to a 66 per cent share in 2013. Apotex, the largest player in the generic market, now enjoys filling 89 million prescriptions a year in Canada, and the company continues to bring new generic equivalents to market.

But, the generic market is not the only party to benefit from the significant patent losses over the past five years. Consumers – the very individuals who need the drugs – have also benefited. With an average retail price for brand name drugs calculated at $80.88 in 2013, compared with the average price of the generic equivalent calculated at $22.11 in the same year, the wallets of consumers and Provincial Health Drug Programs are feeling significantly less burdened.

Historically, patents on drugs are given to pharmaceutical companies to encourage further research and development efforts and to give companies a way to financially recoup the investment they put into developing their drug. But, the Patent Cliff has finally allowed generic equivalents of key drugs to be introduced to market and introduced to consumers. With that, patent losses have made a wide range of drugs more affordable for consumers.

Yes, there’s a reason for proprietary privileges on pharmaceutical medications, but as has been made abundantly clear over the past five years, there’s also a very clear reason why a time limit should be imposed on these privileges.