The pharmaceutical industry is a trillion dollar international market, dominated by only a few major companies that create and supply the most important prescription drugs available. The top fifteen pharmaceutical companies consist of nearly half the total revenue in the industry in 2008 , inspiring a preconceived notion that the pharmaceutical industry was an oligopoly with nearly impossible barriers to entry. However, over the last three years major pharmaceutical companies have lost tens of billions of dollars to smaller companies for one primary reason: the patent cliff – a series of patent expirations of important prescription drugs. This phenomenon has led to the mass production of generic versions of major drugs by small pharmaceutical companies, causing steep revenue losses for big pharmaceuticals. In the coming years, many prescription drugs that make up many large pharmaceutical companies’ profits, known as blockbuster drugs, are set to expire as intellectual property. This will create a gateway for small companies to flood the market with generics. With hundreds of billions of lost revenue projected, the patent cliff has the opportunity to change the face of the pharmaceutical industry in the consumer perspective, as well as the back-end research, development, and business standpoints of major pharmaceutical companies in the years to come.
The first major instance to display the severity of patent expiration came in 2011 after Pfizer lost exclusivity to their blockbuster drug Lipitor. The drug was released for prescription in 1998 and became an instant success, propelling Pfizer to become the world’s premier pharmaceutical company by the early 2000s. By 2011, Lipitor generated $115 billion in revenue since its release, and comprised about forty percent of total profits for Pfizer in 2005.  Pfizer attempted to minimize the inevitable profit loss that would follow the patent’s expiration by completing a licensing agreement with the Indian pharmaceutical company Ranbaxy, which provided the India-based generic drugs producer 180 days of exclusive production of the generic version of Lipitor. However, profit losses for Pfizer were still very steep. After the patent for Lipitor expired in 2011, Pfizer instantly suffered from losing exclusivity; by the end of the first fiscal quarter after Lipitor’s patent expiration, global sales of Lipitor fell by forty two percent and Pfizer’s total profit declined by nineteen percent.  While analysts predicted drops in revenue, nobody expected Pfizer to fall so steeply. The result from Pfizer’s loss of patent exclusivity over Lipitor was a warning sign for many other pharmaceutical companies, shareholders, competitors, payers, and consumers.
Although Lipitor was the largest blockbuster drug faced patent expiration in 2011, the patent cliff for other blockbuster drugs did not end with Pfizer. Major pharmaceutical companies like Novartis experienced losses after the patent for their blood-pressure-reducing drug Diovan expired in 2012. Merck had a similar issue with Singulair in the same year; Bristol-Myers Squibb with Plavix in 2011; and Sanofi-Aventis with Lovenox in 2012.  Even looking onwards, the patent cliff does not end for blockbuster drugs by large pharmaceutical companies. Nexium, a drug produced by AstraZenica that produced over $4.9 billion in sales in 2010, faces patent expiration in 2014. Eli Lilly’s Cymbalta, which grossed $4 billion in global sales in 2011, will face a similar fate in 2014.  Pfizer, Allergan, GlaxoSmithKline, and many other major pharmaceutical companies will have patents for many drugs expiring within the next three years. Losses in revenue for major pharmaceutical companies will be tremendous, with projections showing the pharmaceutical industry will lose upwards to $127 billion in brand spending by 2016 due to patent expiration and cheaper generics in the market (Figure 1). 
Due to the staggering losses in profits big pharmaceutical companies will face in the coming years, it is evident the patent cliff will have serious implications on the future of the pharmaceutical industry. Apart from obvious implications for the consumer, such as cheaper drug options and over-the-counter accessibility, the pharmaceutical companies will face a great deal of change from the current model of the industry. The major changes will come in the research and development (R&D) sector of companies. Innovation in drug discovery over the last decade has been considerably slower than before , and the necessity for a differentiable drug is imperative for sustained success among large pharmaceutical companies. In addition, as a result of generic destroying prescription drug dominance in various areas of treatment, pharmaceutical companies will be forced to focus research to specific areas exclusive to prescription drugs. Consequently, considerable spending will go towards R&D of specialty medicines, such as oncologics, immunostimulants, and antivirals. It is also very likely that spending will be slowed, or even decreased, over the next few years for general therapy drugs such as lipid regulators and anti-ulcerants (Figure 2).  The lack of funding and drive for innovation in these areas are primarily due to patent expirations of prescription drugs and a generics-dominated market.
Another change that pharmaceutical companies will have to face due to the patent cliff is a change in the development phase, particularly in market segmentation and brand development. The result of the patent cliff on many significant drugs in the pharmaceutical industry will lead to a decrease in blockbuster drugs, since it is clear that relying on a single drug for the majority of company revenue can lead to very sudden and steep losses after the patent expires. As a result, there will be a greater need to create a multitude of drugs that are specific and differentiable for patenting purposes and portfolio diversity for a company. Creating a much more detailed drug leads to a more specific group of consumers that the drug must be targeted to, which can lead to different techniques and marketing strategies to appeal to smaller target groups.  This was rarely the case before due to the blockbuster drugs and the resulting companies’ single-drug portfolios, which required only a single market to focus onto.
The patent cliff in the upcoming years has implications on more than just the pharmaceutical industry. Apart from drug discovery research and drug marketing, the current healthcare system will also face new challenges in coverage, while physicians and hospitals must provide adequate care with diminished specialty therapy. While these academic institutions, hospitals, and corporations operate very differently, each institution has the same underlying mission of improving the lives of people in need. With this mission statement in mind, the patent cliff provides an important opportunity for these health systems to collaborate and reinvent the current model of drug research, development, and distribution for the future.
References “Top 20 Global Corporations.” IMS Health. Web. 2013 Dec 8.  “Pfizer: Lipitor Vanishing Revenue.” SeekingAlpha. Web. 2013 Dec 8.  Loftus, Peter. “Pfizer Profit Declines 19% as Sales of Lipitor Slump.” Wall Street Journal. 2012 May 1. Web. 2013 Dec 8.  “Pharma 2020: The Vision.” Rep. PricewaterhouseCoopers, Web. 2013 Dec 7.  Stone, Kathlyn. “Which Popular Drugs Are Going Off-Patent in 2013-2016?” About.com Pharma. Web. 2013 Dec 10.  “The Global Use of Medicines: Outlook Through 2016.” IMS Institute for Healthcare Informatics. Web. 2013 Dec 8.  Greengrove, Kathryn. “Needs-based Segmentation: Principles and Practice.” International Journal of Market Research 44 (n.d.): 405-21. Web. 2013 Dec 10.
Image Credit: AskAboutValidation. http://www.askaboutvalidation.com/1848-optimizing-manufacturing-operationspharmaceutical-industry [2, 3] “The Global Use of Medicines: Outlook Through 2016.” IMS Institute for Healthcare Informatics. Web. 2013 Dec 8. http://www.imshealth.com/deployedfiles/ims/Global/Content/Insights/IMS%20Institute%20for%20Healthcare%20Informatics/Global%20Use%20of%20Meds%202011/Medicines_Outlook_Through_2016_Report.pdf
Rizwan is a junior at Wayne State University, majoring in Biological Sciences and minoring in Near Eastern Studies with a focus in Arabic. Follow The Triple Helix Online on Twitter and join us on Facebook.