They call it the patent cliff. Brand-name drug makers have feared it for years. And now the makers of generic drugs fear it, too.
This year, more than 40 brand-name drugs — valued at $35 billion in annual sales — lost their patent protection, meaning that generic companies were permitted to make their own lower-priced versions of well-known drugs like Plavix, Lexapro and Seroquel — and share in the profits that had exclusively belonged to the brands.
Next year, the value of drugs scheduled to lose their patents and be sold as generics is expected to decline by more than half, to about $17 billion, according to an analysis by Crédit Agricole Securities.“The patent cliff is over,” said Kim Vukhac, an analyst for Crédit Agricole.
In response, many generic drug makers are scrambling to redefine themselves, whether by specialising in hard-to-make drugs, selling branded products or making large acquisitions. The large generics company Watson acquired a European competitor, Actavis, in October, vaulting it from the fifth- to the third-largest generic drug maker worldwide.
As one consequence of the approaching cliff, executives for generic drug companies say, they will no longer be able to rely as much on the lucrative six-month exclusivity periods that follow the patent expirations of many drugs. During those periods, companies that are the first to file an application with the Food and Drug Administration, successfully challenge a patent and show they can make the drug win the right to sell their version exclusively or with limited competition.
The exclusivity windows can give a quick jolt to companies. During the first nine months of 2012, sales of generic drugs increased by 19% over the same period in 2011, to $39.1 billion from $32.8 billion, according to Michael Faerm, an analyst for Credit Suisse. Sales of branded drugs, by contrast, fell 4% during the same period, to $174.2 billion from $181.3 billion.
But those exclusive periods also make generic drug makers vulnerable to the fickle cycle of patent expiration. “The only issue is it’s a bubble, too,” said Kleinrock. He said next year, the generic industry would enter a drought that was expected to