Generic Drug Industry Headed for a “180-Day Exclusivity Cliff”

By Kurt R. Karst–      

The generic drug industry is headed for its own version of a “patent cliff” – a “180-day exclusivity cliff” – according to a report from MorganStanley on large cap and specialty pharmaceuticals issued earlier this month.  “Patent cliff” is a colloquial term used to describe the disruption that occurs when a company or industry loses the market for a product as a result of the expiration of patents. 

The report, which covers myriad issues from the prospects of legislation banning patent settlement agreements (not high) to the prospects of biosimilar approvals (don’t hold your breath), estimates that the growth in the generic drug industry seen in the past few years will begin to slow starting in 2013 “due to fewer and lower value opportunities.”  According to , generics drugs accounted for 57.7% of prescriptions dispensed five years ago, and close to 75% today.

More than $100 billion of brand name drug sales are expected to go generic between 2010 and 2015, says MorganStanley, and a majority of the generic opportunities will likely be realized by the end of 2012.  More importantly (for us Hatch-Waxman folk at least), MorganStanley estimates that “exclusivity opportunities drop by 75% after 2012, from $40B in 2010-2012 to $10B in 2013-2015.  The declining value of first-to-file exclusivities after 2012 could pressure earnings since exclusivity opportunities are roughly 4x more profitable than base business generics (75% operating margins vs. 10-20% in the base business).”

 
The “180-day exclusivity cliff” tracks the “patent cliff” brand-name companies are expected to face as many blockbuster drugs come off patent between 2011 and 2014.