Global Pharmaceuticals – Navigating the Patent Cliff Challenge
Chief Investment Office - Hong Kong29 May 2024
  • When a drug’s patent expires, generic versions of that drug enter the market at lower prices. This is known as a patent cliff
  • Sales loss in the US from patent cliffs will more than double from USD67bn (2018-23) to USD145bn (2024-28)
  • Eight out of 13 global pharm players making up >50% of the global pharm sector have >30% of their sales facing patent expiry in US by 2026
  • Prefer global players with <20% of their sales exposed to patent cliff
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Global pharmaceutical players are facing risk of a patent cliff. When a drug’s patent expires, generic versions of that drug enter the market at lower prices, capturing market share from the original drug manufacturer. This is known as a “patent cliff”. Patent expiries can lead to sales of the original drugmaker falling, sometimes by up to four-fold. R&D firm IQVIA expects total sales loss in the US for patented drug makers from a patent expiry will more than double from USD67bn (2018-23) to USD145bn (2024-28).

Players with low sales exposure to patent cliffs can mitigate the risk. For the top 13 industry giants, which make up 55% of global pharmaceutical sector’s market cap, eight of them would have 30% or more of their sales facing patent expiry in US by 2026. This contributes huge uncertainty to their sales. Based on 2026 sales figures, we estimate there are four players with less than 20% of their sales having exposure to the patent cliff. Our preference remains with such players for their potentially higher topline resilience.

New drug approvals and clinical trial data to be upcoming catalysts. Apart from lower exposure to patent cliffs to mitigate risks, investors should also look out for the pipeline for new drug approvals, as well as positive clinical data readout. These factors will help to further mitigate challenges posed by patent cliffs.

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