Can Biotech Save Big Pharma From the Patent Cliff?

Many big pharmaceutical companies have been recently facing large patent cliffs on certain notable blockbuster drugs. As these patents expire, big pharma will begin to realize significant drops in sales that can significantly bite into both revenues and profits. As a result, big pharma has been instituting a variety of strategies to deal with these patent expirations. While no one strategy is likely to be a cure-all for all organizations, big pharma companies are facing some significant patent expirations that they will have to deal with, sooner rather than later.

One strategy has been to reduce overhead and to cut costs as much as possible, to face shrinking sales. Another has been to attempt to protect these patents as much as possible in various foreign locals in which patent rules vary. Other big pharma companies have been fighting the patent cliff by investing in new forms of drug research in the hopes of developing the next big drug. Some big pharma companies have attemepted to diversify from these blockbuster drugs by relying on over-the-counter drugs and other health products such as vitamins and diapers. While others yet have been seeking to repurchase shares to manage earnings per share (EPS) as much as possible.

The answer may yet come from another arena. Biotech companies that develop new drugs may make for beneficial joint venture partners for big pharma firms or may be ripe takeover targets. Basically, biotech companies are generally smaller companies that are nimble and may be able to advance research into certain technologies that may yield significant advances in scientific research. But due to the significant costs associated with advancing drugs into the various phases, as dictated by the Food and Drug Administration (FDA), these small tech firms may be unable to push a drug through this process independently. Partnering with, or being acquired by a big pharma company that has significant fiscal resources may be the only way to complete drug research on new medications for these small bio-technology companies.

The pharma industry has a long history of these transactions. The best-selling drug of all time, Lipitor, was originally acquired by Pfizer through their acquisition of Warner Lampert. This acquisition led to significant sales increases and profits for Pfizer. Can history repeat itself? Sure it can. However, increased scrutiny by the FDA may limit or slow the implementation and introduction of new drugs to the market so maintaining a diverse basket of drugs in the pipeline may be the best method for ensuring profitability of big pharma in the future.

Biotechnology companies face a tough economic environment this year; learn what they are doing to deal with it on our websites.

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