The panic about the expected loss of revenues from products losing patent protection appears almost as large as the revenue drop itself! 

Here at Sociable Pharma, we expect articles, reports and commentary analyzing the issue to increase in frequency in the run-up to Lipitor’s patent expiry in November, seen by many in the industry as the high-water mark for patent expiry problems.  

Another story about the problems facing the industry appeared in the New York Times on March 6th and outlined the problems facing pharmaceutical companies very succinctly: 

• Rising R&D costs
• Fewer new drug approvals
• Tightening cost constraints
• Greater regulatory scrutiny 
• Unparalleled loss of revenues from patent expiry

It doesn’t make for pretty reading! 

The loss of these revenues has been referred to with increasing levels of hyperbole in the media as a patent ‘shelf’, a patent ‘cliff’, and now even as a patent ‘abyss’. This feeling of doom and gloom was perpetuated by in the article by Kenneth I. Kaitin, director of the Center for the Study of Drug Development at Tufts University. 

He stated, “This is panic time, this is truly panic time for the industry.”

But we’ve know about these impending problems for over a decade so it shouldn’t be a surprise to anybody. And we’ve also heard same message being used to explain how companies will fix the situation, a version of which was quoted in the article:

“We have to fix our innovative core” said Ian Read, Pfizer’s new president.

Pharma have been tackling their fundamental innovation problems for many years now and these initiatives are going to take considerably more time to bed in. 

In the meantime, what are Pharmas really going to do to maintain profitability and shareholder value? 

They are going to save money for a start. We’ve seen cuts in budgets and headcount in sales and marketing functions, and increasingly in R&D, the life-blood of the industry. We will also see a focus on productivity across all functions for sure.

But essentially, the main message will be ‘Keep Calm & Carry On’. 

We fully expect Pharma to continue with the broad strategies they have already adopted for the foreseeable future:

• M&A: merging with rivals to gain economies of scale, and using cash-piles to acquire innovation, with a premium placed on biotechs with track records
• Niche areas: focusing on niche therapy areas typically with fewer cost constraints and lower sales & marketing costs
• Emerging markets: replace low growth in large, mature markets with higher growth from rapidly expanding immature markets
• Branded Generics & Consumer Health: diversify into lower margin sectors that are less reliant on innovation and less vulnerable to patent expiry

This is not ground-breaking strategy but it is tried and tested and Pharma know how to implement these plans. 

And there will likely be casualties along the way; the size and composition of the industry landscape will be very different in 4-5 years time but it’s also likely that we will still be talking about how to improve the industry’s innovative core.