Patent Cliff

AAA

DEFINITION of 'Patent Cliff'

A colloquialism to denote the potential sharp decline in revenues upon patent expiry of one or more leading products of a firm. A patent cliff is when a firm's revenues could "fall off a cliff" when one or more established products go off-patent, since these products can be replicated and sold at much cheaper prices by competitors. While it is applicable to any industry, in recent years the term "patent cliff" has come to be associated almost exclusively with the pharmaceutical industry.

INVESTOPEDIA EXPLAINS 'Patent Cliff'

The world's biggest pharmaceutical firms such as Pfizer and GlaxoSmithKline stand to lose billions of dollars in revenues from the patent expiration on such blockbuster drugs as cholesterol drug Lipitor and asthma medication Advair respectively. There are numerous firms that have established profitable businesses by manufacturing "generic" alternatives to off-patent drugs, which can be sold at a fraction of the price of branded drugs. The "patent cliff" threat has spurred increasing consolidation in the pharmaceutical industry, as companies strive to replace blockbuster drugs whose patents are expiring with other drugs that have the potential to become big sellers.

RELATED TERMS
  1. Trade Secret

    Any practice or process of a company that is generally not known ...
  2. Pharmaceutical Industry ETF

    A sector-following fund that invests in developers and manufacturers ...
  3. Generic Brand

    A type of consumer product that lacks a widely recognized name ...
  4. Intellectual Property

    A broad categorical description for the set of intangibles owned ...
  5. Non-Disclosure Agreement - NDA

    A legal contract between two or more parties that signifies a ...
  6. Patent

    A government license that gives the holder exclusive rights to ...
RELATED FAQS
  1. What are the major barriers to entry for new companies in the drugs sector?

    Pharmaceutical companies face infamously high barriers to entry in the United States. Many economics and business textbooks ... Read Full Answer >>
  2. How is a product line depth related to a product line?

    A company's product line depth is the number of products in the company's product line. Product Line A product line is a ... Read Full Answer >>
  3. What are common growth rates that should be analyzed when considering the future ...

    Some of the most common growth rate metrics that investors and analysts consider in evaluating a company's future prospects ... Read Full Answer >>
  4. What are the major categories of financial risk for a company?

    There are many ways to categorize a company's financial risks. One possible perspective is provided by separating financial ... Read Full Answer >>
  5. How can a business set social responsibility goals?

    A business can set social responsibility goals through the use of a triple bottom line approach to operating. When it comes ... Read Full Answer >>
  6. What does it mean when airline revenues are adjusted for air traffic liability?

    Airline revenue adjustments for air traffic liability are simply part of the accrual accounting method that airlines commonly ... Read Full Answer >>
Related Articles
  1. Professionals

    Advertising, Crocodiles And Moats

    Memorable advertising is a brick in the fortress that keeps competitors at bay.
  2. Investing Basics

    Patents Are Assets, So Learn How To Value Them

    Innovation is the key to staying on top. Find out how companies protect their ideas and how to figure out how much they're worth.
  3. Fundamental Analysis

    Evaluating Pharmaceutical Companies

    Learn how to find a healthy pharmaceutical investment in a market full of weak drugs.
  4. Markets

    Buying Into Corporate Research & Development (R&D)

    Investors take note: companies that cut research and development are in danger of saving today but losing big tomorrow.
  5. Fundamental Analysis

    Pharma Patent Trolls: Cheap Drugs At A Steep Price

    Though patent trolls can help patients achieve cheaper medication in the short-term, everyone pays for it in the long term.
  6. Personal Finance

    Is ESPN a Sport Monopoly?

    With such a dominant presence in sports as demonstrated through substantial ratings and a firm online presence, some may consider ESPN a sports monopoly.
  7. Economics

    Understanding Implicit Costs

    An implicit cost is any cost associated with not taking a certain action.
  8. Economics

    What are Deliverables?

    Deliverables is a project management term describing an object or function that must be provided or completed by a certain due date.
  9. Economics

    What Does Capital Intensive Mean?

    Capital intensive refers to a business or industry that requires a substantial amount of money or financial resources to engage in its specific business.
  10. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!