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.

BREAKING DOWN '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 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. Stock Analysis

    Investors Need to Stop Shorting GoPro. Here's Why

    Discover why investors should stop shorting GoPro. GoPro has been one of the fastest-growing companies since 2005 with many betting against more growth.
  7. Stock Analysis

    6 Things to Know About Soul Cycle Stock

    Learn about SoulCycle and how it has found success. Understand six aspects of the company everyone should know before considering an investment in SoulCycle.
  8. Stock Analysis

    5 Things to Know About Neiman Marcus Stock

    Learn about Nieman Marcus and how it has become successful. Understand five aspects potential investors should know about the company.
  9. Stock Analysis

    5 Things to Know About Planet Fitness Stock

    Learn about Planet Fitness and how it has achieved success. Understand five aspects of the company that have made it an attractive investment.
  10. Economics

    Explaining Replacement Cost

    The replacement cost is the cost you’d have to pay to replace an asset with a similar asset at the present time and value.
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 do you find the break-even point using a payback period?

    It does not make sense to find the breakeven point using a company's payback period. A company's payback period is concerned ... Read Full Answer >>
  3. How do investors interpret the same store sales ratio when analyzing food and beverage ...

    When an investor interprets the same-store sales ratio in analyzing food and beverage stocks, he looks at the monthly same-store ... Read Full Answer >>
  4. How does a long tail become profitable?

    A long tail becomes profitable because the costs to produce, market and distribute a product or service in a niche are low, ... Read Full Answer >>
  5. How do you calculate free cash flow?

    Free cash flow (FCF) is one of many possible estimates of cash flow for a business. The idea is to find out how much money ... Read Full Answer >>
  6. What are some examples of items that count as comprehensive income?

    In business accounting, other comprehensive income, or OCI, includes those revenues, expenses, gains and losses that have ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  2. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  3. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  4. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  5. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
  6. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered. Until the call ...
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!