Ups and downs: Drug profits vary Credit: Istockphoto

Over the next few years, patent protection ends for so many top-selling drugs that analysts have dubbed the upcoming landscape as a 'patent cliff'. In 2008, the world's top 50 pharmaceutical companies sold $533 billion worth of prescription pharmaceuticals, according to the research firm Datamonitor. In 2014, lost sales from expiring patents will cost these pharmaceutical companies $115 billion, but the October 2009 issue of Datamonitor's PharmaVitae Explorer still predicts that annual sales for the top 50 pharmas will grow to $578 billion..

“The $115 billion sales decline is huge, but sales growth from new launches and existing products is bigger than the decline,” says Chris Phelps, Datamonitor's director of company and strategic analysis. In 2014, according to his firm's estimates, drug companies' new products will bring in $87 billion, and sales from existing products should grow by $73 billion. That $160 billion increase in sales more than offsets the $115 billion lost to expiring patents.

However, Japanese pharmaceutical companies, which make up about 15% of the top 50, face a treacherous patent cliff. By June 2012, for example, Osaka-based Takeda Pharmaceutical will lose US patent protection—held by its US subsidiary, Takeda Pharmaceuticals North America—on its drugs Actos, Bropress and Prevacid, which treat diabetes, hypertension and heartburn, respectively. These three medications alone generated an estimated $6 billion in US sales in 2008, according to Fumiyoshi Sakai, a pharmaceutical analyst at Credit Suisse in Tokyo.

“This is this first wave of patent erosion that Japanese companies face,” explains Sakai. Nonetheless, Japanese pharmaceutical companies have already been working to offset upcoming losses. In April 2008, for instance, Takeda acquired Millennium Pharmaceuticals, which specializes in oncology drugs. But Sakai expresses doubt that such mergers will completely make up for the upcoming loss of patents.

Large US pharmaceutical companies are also trying to limit their losses by merging, either to cut managerial costs or to acquire new drugs. For example, according to Bloomberg.com, Merck's Singulair for asthma and allergy generated $4.3 billion in sales in 2008, and its patent is currently set to expire in August 2012. Long before that expiration, though, Merck should merge with Schering-Plough. In fact, this business deal is expected close this year.

Still, Merck sees even more ways to handle expiring patents. “There is no doubt that innovation in pharmaceutical discovery and development is the way forward to deal with patent expiries,” Merck's chief strategy officer Mervyn Turner told Nature Medicine via email. He added that “a keen focus on life cycle management—especially in emerging markets that may not have had access to some of our medicines—is critical.”

Pharmaceutical companies that stand out in oncology, immunology, monoclonal antibodies or vaccines will sidestep much of the upcoming cliff, Phelps predicts. Consequently, he says, Swiss giants Roche and Novartis will “enjoy good growth.”