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The Great 2028 Pharma Patent Cliff
Plus! Samsung's new dishwasher, an indefiniteness case, and a "benevolent" public health patent term extension proposal
The pharmaceutical industry is known for its blockbuster conferences like BIO, one of the biggest in the industry. Some of the speakers included the head of the FDA, big pharma CEOs, and even military brass. It’s the type of conference that is so big that the main sponsors Fortune 500 companies and nation states. Other than an alphabet-soup of drug targets, there was one number that kept coming up over and over again: 2028. Some people were even handing out flyers explaining the significance of this all-important date.
For the uninitiated, 2028 is the year that some in the pharmaceutical industry are calling the “great patent cliff.” According to a report by Citeline, products worth $93.78 billion in annual revenue, including some of the best-selling drugs of all time, will have their patents expire by that time: Humira just expired this year, with others like Keytruda on the way. The impact will be enormous. Some analysts have estimated that a third of the pharmaceutical revenues could evaporate, and some of the biggest companies, like Merck and Pfizer, are staring down losing half their incomes by 2028. This will affect their business behavior for years to come. Read on to learn more about this massive event rocking the world of pharma, patents, and all of business.
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Patent cliffs and dealmaking
The pharmaceutical industry is ruled by patents in a way that few other industries are. Every product is protected by patents, typically covering multiple aspects of the product from the drug itself to difficult aspects of the manufacturing process. Drugs also have a unique economic profile: they are extremely expensive to develop—it costs $1-2 billion to bring a drug to market—but the raw material costs, once a drug is proven, are quite cheap. This makes pharmaceuticals a perfect application for patents. Because the industry is so complex, it even has some of its own rules. Last week, for example, we covered the patent industry’s unique patent term extension regime under the Hatch-Waxman Act.
When blockbuster products go off-patent, the effects are dramatic. When Eli Lily lost its Prozac patent, for example, its sales for that drug went from $2.9 billion in 2001 to $480 million. It is not the only company to have this experience; in fact, it is the common one. That said, it is typically not a total loss. Companies are still be able to sell their brand name products. When drugs go off patent, also called “loss of exclusivity,” pharma companies typically are able to retain some pricing power due to their brand names, trade secret knowledge, and sales networks. One study found that pharmaceutical prices drop 38-48% following loss of exclusivity (though some research has suggested this does not always happen), but that same study also found that revenue overall increases by 52%. There may also be other constraints: other patents. Take Ozempic, the anti-obesity breakout drug of the year. Ozempic’s first patent will expire next year, but there are dozens of other patents protecting the product that will still be in force. The main bottleneck today is manufacturing capacity, and likely will be for several years. Ozempic is likely covered.
Patents, of course, are inextricably tied to R&D. Pharmaceutical companies have in recent years prioritized “external innovation,” where they depend on investment and licensing deals with biotech startups and universities rather than large, expensive industrial labs like those they had half a century ago; in fact, over half of new revenues now come from such products. As a result, expect this gap to be plugged primarily with expensive acquisitions, especially given the long lead time to develop a drug and the industry’s $700 billion in cash to spend. In 2022, Ernst and Young published a report titled “Don’t expect the return of the mega-merger,” but in defiance, pharma M&A has accounted for 48% of all deals and 73% of all value in 2023 so far, according to Deloitte. This is greatly in part thanks to mega-mergers, like Amgen spending $28 billion on Horizon and Pfizer shelling out $43 billion for Seagen and $11.6 for Biohaven. That said, pharma has been spending more on R&D, and the companies that have been more aggressively investing have been rewarded with promising candidates in their pipeline to help plug the gaps. Eli Lily is one example while Merck is another, but even they still are spending heavily on acquisitions—Merck bought Prometheus, a California-based biotech, for nearly $11 billion, 75% above its share price.
There is five years between now and 2028, and that is a fair amount of time. Due to the long timelines for drug approval, a lot of R&D is already baked in. But there is always an opportunity for surprises. GLP-1 agonists, which are the newest weight-loss drugs by companies like Eli Lily and Novo Nordisk, were mainly used as a diabetes drug with a modest market size for over a decade before the sudden discovery of their anti-obesity properties. Large companies run roughly 50-100 clinical trials a year, and one of those could hit. And, of course, there is always room for IP strategy. Pharma patent strategy includes tactics like marketing reformulations under new patents, patenting novel combinations as new therapies, and even suing generics manufacturers to delay their market debut. Plus, as pharma companies need to refresh their portfolio, they may go earlier to in-license patents for products with sufficient data. These all necessitate investments in R&D, but also in patent infrastructure. As IP becomes more important, creating and managing that IP does too.
Gripping Gazette entries
US 11,767,631 B2: A new washing machine by Samsung that prevents detergent from overflowing, solving a problem we’ve all had in our apartments
US 11,768,078 B2: A solution to the traveling salesman problem. This is a hard computation problem, so faster solutions are always needed
US 11,768,649 B2: Controlling a reflector on a phone screen based on detecting an event from a sensor. Possibly for a 3D display
WSOU Invs., LLC v. Google LLC, Nos. 22-1066, -1067 (Fed. Cir. Sept. 25, 2023): A §112 indefiniteness case for phone cameras. Designated non-precedential, but most importantly: with means-plus-function claims, gaps in the specification can’t be filled by knowledge of a person skilled in the art. Also, if you have a typo in your patent, the courts won’t fix it for you
Columbia Sportswear North America, Inc. v. Seirus Innovative Accessories, Inc., No. 2021-2299, 21-2338 (Sept. 15, 2023): A big case on comparison prior art in design patent cases. For prior art to anticipate, it must be for the same type of article—this clarifies across several lines of cases. The issue of how logos interplay with design patents was left for another day
IPR2022-00738 and IPR2022-00739: In two PTAB interpartes reviews, the PTAB invalidated two patents by Teva Pharmaceuticals. Teva had asserted these patents against Eli Lily, petitioner, claiming that its Emgality drug infringed on these patents
US 6622354 B1: An improved carabiner, for users like rock climbers
US 6622368 B1: A diaphragm for microphones designed primarily to improve their sensitivity
US 6622367 B1: A device for treating intravascular disease, like ischemia, by putting a liner in the arteries to access affected areas like the brain
Notable news items
A proposal to “benevolently” extend patent life to incentivize public health innovation (Nature)
Mitsubishi Heavy Industries switches up its IP chief to accelerate its green transition (IAM)
MAN Energy Solutions, a green energy company, files for 37 patents in a mere 3 years for a new ammonia engine (Offshore Energy)