RupakRoyC

Patent expiry results in significant revenue loss for pharmaceutical companies primarily because it allows generic manufacturers to enter the market with bioequivalent versions of the drug at substantially lower prices. This increased competition leads to a sharp decline in sales and market share for the original branded drug.

Key reasons for revenue loss after patent expiry include:

• Loss of Market Exclusivity: Patents grant pharmaceutical companies exclusive rights to sell a drug for about 20 years, enabling them to set higher prices without competition. Once the patent expires, this exclusivity ends, and generics can legally produce and sell the drug.
• Price Erosion: Generic drugs typically enter the market priced 80-85% lower than branded drugs, forcing the original manufacturer to reduce prices drastically or lose sales to cheaper alternative.
• Rapid Market Share Decline: Generics quickly capture a large portion of the market, often reducing the branded drug’s market share by 80% or more within the first year of patent expiration.
• Revenue Cliff: The combination of lower prices and loss of market share can cause revenue from the drug to fall by up to 90%, a phenomenon known as the “patent cliff”.
• Impact on Profitability and R&D Funding: Since blockbuster drugs often fund research and development, their revenue decline affects the company’s ability to invest in new drug development.
• Healthcare System Benefits: While detrimental to the innovator company, patent expiry benefits healthcare systems and patients by making essential medicines more affordable and accessible through generics.

Example:

Natco Pharma operates in two main segments: Pharmaceuticals and Agrochemicals. Its pharmaceutical portfolio includes generic oncology drugs and complex specialty medicines. The company has a strong presence in both domestic and international markets, with operations in over 50 countries. It is known for launching generic versions of important drugs in the US market, such as Tamiflu, glatiramer acetate for multiple sclerosis, blood cancer drug Pomalidomide, and the multiple myeloma drug Revlimid

Revenue Concentration Risk: A significant portion of Natco’s revenue and profits has historically depended on a few blockbuster drugs like generic Revlimid. The eventual patent expiration of such drugs (e.g., Revlimid expected FY27) creates revenue replacement risk.

So, patent expiry transforms a protected, high-margin branded drug into a highly competitive, low-margin generic commodity, leading to steep revenue and profit declines for the original pharmaceutical company