The Perils of a Patent Cliff and Using Strategic Intellectual Property Portfolio Management to Mitigate Economic Impact of Patent Cliffs


What is a “patent cliff?”

A “Patent cliff” is the sharp share price or revenue drop immediately after the expiration of patent supporting market exclusivity of a particular product. During 2010-2020, several large pharmaceutical companies have been painfully hit by a wave of “patent cliffs.”  For example, the primary patents of Lipitor® expired in 2010-2011. As a result, Pfizer lost 60% of its revenue on Lipitor® and in 2012 and later, the loss was over 70%.

What’s unique in pharmaceutical industry

Although a “patent cliff” may be a problem in any industry, it is particularly problematic in the pharmaceutical industry for two reasons:

  1. Shortened exclusively period.

in order to preserve an early filing date, a patent application is usually filed as soon as possible after a drug compound is identified as a potential target. This may be well in advance of any data to support efficacy.  The identification and confirmation of a promising drug compound, on average, takes 8-10 years before the compound can be commercialized. Therefore, the 20-year patent life of the compound is split into a first non-profitable half (8-10 years) and a second profitable half (10-12 years).  On average, companies have only ½ of the allocated exclusivity period to recoup their investment and return profit to shareholders.

  1. High R&D investment.

According to a study by Tufts Center for the Study of Drug Development, the R&D costs of developing a new prescription drug is estimated to be 2.56 billion in 2014. To recover and profit from such high upfront investment, the pharmaceutical in a limited amount of time, the brand drugs are often priced quite high. In addition, the investment in parallel compounds that do not reach market also need to be factored into the costing model to take into account that only less than 10% of compounds in a company pipeline make it to market.

Ideally, the pharmaceutical companies would want to extend the exclusivity provided by patent until the drug is outdated by a more effective drug. While the reality is not always ideal, patenting strategically to extend the market exclusivities will at least smooth out the impact of more waves of revenue loss accompanied by “patent cliff(s)” yet to come.

Let’s turn now to some strategies that can be incorporated into patent filing and prosecution strategies for addressing this very real issue.

Mitigate the harm through strategic patenting

Strategic patenting is about building a cluster of follow-on patents around a core family of compounds or technology. The core is the primary effective compound which may mature into a commercial drug.

  1. Split patent filings.

The core of such a patent cluster is the primary effective compound. Typically, the core patent protects a specific therapeutic compound and preferably the disclosure may enable a genus that include the primary effective compound, several individual compounds and several individual forms of these compounds. Many applications are drafted in this manner to allow for enablement of the genus.  However, this does not have to be the case since the priority date for the disclosure of the genus will control the patent term.  And even worse, there is a very strong likelihood that no patent will issue on the genus in the initial filing. So, in effect, by disclosing the genus vs a specific compound, there is meaningful impact on the term of exclusivity period.  To extend the total exclusivity period, the primary patent can be split into a genus patent and at least one species patent.

A typical filing route in this category is a genus patent following by several patents on isomers, homologs, etc. A comprehensive analysis of follow-on patents published in FDA’s Orange Book for drugs approved during 1998-2005 shows that independent patenting of individual compounds with minor structural variants, including isomers, extent exclusivity by 6.3 years on average.

The advantage of this filing strategy is obvious: the exclusivity period is somehow reset, every time a follow-on species patent is obtained, in conjunction with the replacement of an old version drug with the newer version containing the subsequently patented isomer or homolog in the market.

However, the later filed species patent application will also need to overcome a major obstacle: non-obviousness requirement codified in 35 U.S.C. § 103.
“A patent may not be obtained though the invention is not identically disclosed . . . if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.” 35 U.S.C. § 103

Pharmaceutical patent applications are especially susceptible to obviousness rejection, because the discovery of new drug candidate is, more often than not, built upon knowledge of a known group of compounds. Considering the nature of drug discovery, the interpretation of non-obviousness requirement has been tailored to address the unique issues in the pharmaceutical industry, which has been exemplified by the decision of Federal Circuit on the patent to Plavix®.

Plavix® is the brand name of the dextrorotatory enantiomer of clopidogrel marketed by Sanofi and protected by US patent 4,847,265. Clopidogrel is an anti‐thrombotic agent which inhibits the aggregation of platelets and is used to treat patients at risk for heart attacks and strokes.

Initially, Sanofi obtained a genus patent (4,529,596) for a broad class of anti‐thrombotic compounds for treating blood clots, which include a mixture of two enantiomer (also known as “racemic mixture”) of clopidogrel. However, the adverse effects of the racemic mixture motivated the scientists in Sanofi to isolate the two enantiomers. Further research revealed that the dextrorotatory enantiomer processes all of the beneficial antiplatelet activity, while the levorotatory enantiomer is responsible for all of the neurotoxicity side effects.

Although Apotex, who wanted to make a generic version of Plavix, argued that it is obvious for one of ordinary skill in the art to isolate and evaluate the properties of individual enantiomer in racemic mixture using readily available methods in the field, the Federal Circuit disagreed with Apotex.

According to the Federal Circuit, the beneficial and adverse effects of a racemic mixture is generally shared by both enantiomers. Thus, the distinct properties exhibited by the two enantiomers in the Plavix® case are unpredictable, as evidenced by factual data. Moreover, the Federal Circuit also affirmed that the separation of enantiomers was not routine, considering the uncertainty associated with the isolation process. The Federal Circuit has taken the fact that Sanofi expended millions of dollars and great amount of experimental efforts to develop the racemic mixture prior to the isolation of the enantiomers as evidence against an obviousness rejection to the dextrorotatory enantiomer.

Therefore, the Federal Circuit implies:

  • Patenting a species, such as an isomer, which is covered by a previously filed genus patent is possible, if supported by proper factual evidence;
  • Such species patent is frequently challenged by obviousness rejection, which can be overcome by showing unexpected results;
  • Under this notion, it is not obvious, if the beneficial or adverse effects are not evenly distributed among components consisting of a mixture, or synergistic effects (the beneficial effect of a mixture is greater than doubled, when combining two components) is observed;
  • The unexpected results do not have to be improvement in therapeutic efficacy. Reduction of adverse effects can also be considered to be unexpected results;
  • While it has been well-established that isolating a handful species from a genus containing a large number of members is not obvious, the difficulties of isolation can also be used to weight against obviousness.
  1. Combine active chemical compositions.

This strategy patents a new formulation that combines two or more active compounds in to one dosage. It should be appreciated that one would first patent each respective compound and then patent the combination separately.  Such patenting is only possible, when the new formulation brings additional benefits, such as reduced adverse effects or synergistic effects of the drugs in the new formulation.

Eli Lilly was a successful in utilizing this strategy, by introducing a combination of fluoxetine and olanzapine as Symbyax® for treatment of depression. The patent (US4314081A) for fluoxetine, marketed as Prozac® by Eli Lilly, expired in 2001. On the other hand, the patent (US5229382A) for olanzapine, marketed as Zyprexa® also by Eli Lilly, expired in 2008. By patenting (US6960577B2) a fix-dose combination of both, Eli Lilly was able to extend the exclusivity of both to 2017.

Although Eli Lilly has set up a successful example of securing a follow-on patent on a formulation combining two previously patented compounds, the obtaining of such a patent is still usually an up-hill battle.

In the case of Symbyax®, fluoxetine is used to treat depression, while olanzapine is used to treat schizophrenia and bipolar disorder. Not unexpected, the application was challenged by an obviousness rejection, as the two component compounds are both previously disclosed. Although there is not teaching in prior arts to combine both, such motivation to combine does not need to be explicitly taught anyway under the current framework of patent prosecution. Therefore, a showing of unexpected results, as a frequently used prosecuting strategy in the pharmaceutical industry, is again used with data supporting the synergistic effects of the drug compounds achieving improved therapeutic results in patients.

Like we have discussed, the progresses in the pharmaceutical industry are always built upon something known and is susceptible to obviousness rejection. One of the most effective way to overcome such rejection is to show unexpected results supported by experimental evidence. In other words, let the facts tell one plus one is greater than two.

  1. New formulation patents with incremental improvement.

Research on a compound does not stop after it’s put on the market as a drug. Pharmaceutical companies will constantly make small improvements to their products, such as new formulation that reduce dose frequency, less invasive administration, reduced adverse effect profile, etc. Often, the investment on making these improvements is trivial compared to that to develop a novel compound from scratch. However, the benefit of patenting such incremental improvements on extending market exclusivity is not trivial.

The patenting and launch of Namenda® XR, a longer release version of Namenda® marketed by Forest Labs, has also set a successful example. Namenda® is the brand name of memantine, which reduces the actions of chemicals in the brain that may contribute to the symptoms of Alzheimer’s disease. The patent of the original Namenda® (US5061703A), licensed from Merz Pharma, expired in mid-2015. However, before the expiration of the ‘703 patent, Forest Labs obtained a patent (US8039009B2) for the long-release version, Namenda® XR, which extend the exclusivity to 2029.

For drugs to be effective in patients, it is important to maintain a suitable range of drug concentration in the patients’ blood stream. For an immediate release (IR) version of drugs, the active compounds are released into blood stream fast and metabolized fast. In order to boost the blood stream concentration of the drug, the patients usually need to take the drug multiple times a day. In the IR to XR version switch, the extended release (XR) versions automatically boost the blood stream concentration of drugs by gradually release the active compounds into the blood stream, so that the patients can take the drug only once a day. Although such convenience would be appreciated by patients, it is less appreciated in meeting the non-obviousness requirement during the prosecution of the follow-on new formulation patents.

Typically, in the IR to XR version switch, the IR and XR versions are compared to show the XR version is superior in aspects such as therapeutic efficacy, safety profile, etc., in order to meet the non-obviousness requirement. Such evidence was used to support the switch of Seroquel® IR to XR versions and secured Seroquel® XR a follow-on patent.

However, the evidence supported the granting of Namenda® XR patent is less direct and, therefore, worth our discussion here. The examiner initially rejected the Namenda® XR formulation, primarily based on the ’703 patent for Namenda® IR together with a printed publication authored by Hartmann (hereinafter, “Hartmann”).

’009 patent for Namenda® XR:

“method for treating Alzheimer’s disease comprising once-daily administration of a modified release solid oral dosage form comprising 28 mg ±5% of memantine”.


“the majority of patients were treated with 20 mg/day memantine, the recommended daily dose”

While the ’703 patent for Namenda® IR surely disclosed the compound memantine, it did not disclose the same dosage as ’009 patent for Namenda® XR. The approved dose of Namenda® IR is 10 mg tablets, which are taken twice daily. Therefore, it seems the examiner believe combining the two daily tablets of Namenda® IR into one dosage would perform as well as taking twice a day, which makes the 28 mg single dose of Namenda® XR obvious.

Instead of directly comparing the separate intake of two 10 mg tablets (Namenda® IR) and the 28 mg single dose (Namenda® XR), Forest Labs compared both 20 mg Namenda® IR (two Namenda® IR tablets at once) and Namenda® XR to placebo. By showing the insignificant difference between the 20 mg Namenda® IR and placebo and superior therapeutic result of 28 mg single dose Namenda® XR compared to placebo, the patent for Namenda® XR was eventually granted.

Therefore, when re-formulating an existing drug, the follow-on patent needs to be accompanied by certain research:

  • New formulation is not about the formulation itself, but about better clinical results;
  • The comparison may not between the old and the new products. The prosecutor may take a detour from the direct comparison between the old and the new products, by craftly choosing the primary reference to compare with;
  • Be prepared for an obviousness rejection. The data collected when evaluating various formulations will help.
  1. New Use for a known compound.

In addition to research on new formulation that may bring additional benefits to the existing patients, the incremental improvements may also reveal efficacy of an existing drug on a different disease, which benefits to additional population of patients.

Evista® by Eli Lilly is an example, when follow-on patent for a new use of the drug saved millions of revenue loss at the edge of the primary patent cliff. Evista® is the tradename of raloxifene, which is an is an antiestrogen initially developed for the treatment of estrogen-dependent breast cancer. The primary patent (4,418,068) on this compound was filed in 1981 and granted in 1983. Following years of pre-approval development, raloxifene failed Phase I and Phase II clinical trials, due to low bioavailability. In 1988, the researchers at Eli Lilly finally published an article and concluded that raloxifene shows little anti-tumor activities and is no longer worth of further evaluation as an anti-cancer agent.

Despite such discouraging results, these researchers explored the use of raloxifene prevented osteoporosis in postmenopausal women. Osteoporosis is a condition due to loss of bone density, which is quite common in women over 50 years old. After another decade of pre-approval research and development, raloxifene was approved by FDA for use in the prevention of osteoporosis in postmenopausal women in 1997 and was able to be marketed as Evista®. By the time Evista® was on the market, the primary patent for raloxifene was only 3 years away from its expiration in 2001. Fortunately, the follow-on patent (6,906,086) for inhibiting bone loss was granted in 2005, which extended the exclusivity period to 2012.

Even though we distinguish the primary and follow-on patents (or secondary patents by those who are against such follow-on patents) for their strategic functions in the patent clusters, follow-on patents are, after all, patents, which meet the same requirements as the primary patents. Although the primary patents may be frequently used as a prior art against the follow-on patents in other categories, such as follow-on patents for isomers, the primary patent for the active drug compound rarely causes significant difficulties to the prosecution of new use patents.

In the case of the ’086 patent for Evista®, Eli Lilly did not face with difficult challenges from either its own primary patent on the compound or disclosure of methods by others, such as generic competitors who want to secure their own follow-on patents based on the compound disclosed in the primary patent, even though the filing for the method patent is about 10 years after the disclosure of the compound. This should not be a surprise. Usually, the owner of the primary patent for the compound accumulated more comprehensive information on the compound, including some undisclosed data. This gives them some lead ahead of the generic competitors. In other words, the generic competitors face higher costs and technical barrier, even in the competition for a follow-on patent. Therefore, the owner of the primary patent has the advantage to somehow delay the filing of their follow-on method patents without the pressure to compete for an early effective filing date. However, this will require tight monitoring of R&D trend in the field, especially movement of the generic competitors. In such as a situation, it calls for close collaboration between the IP department and the R&D and marketing departments.

Even though such patents for new use face less challenge in the meeting the novelty and non-obviousness requirements, they may not prevent generic entries from competing in the market of their original uses.

  1. Combined strategy of non-compound patents

When a novel compound is identified as being of interest, the patentable cluster is composed of features other than the core drug compound. In addition to the new formulation, new use and a promising species discussed above, these additional features may also be manufacturing process and delivery mechanism, which help to create a more protective patent cluster around the novel compound and can also greatly extend the market exclusivity, as exemplified by the patents for Paxil® (paroxetine), a drug treating anxiety and depression, marketed by GlaxoSmithKline.

Upon the identification of the effective compound, GlaxoSmithKline obtained primary patents for both the compound (US4721723) and the tablet form drug (US4839177) marketed at that time, which both expired in 2006. With the approaching of the expiration of these primary patents, GlaxoSmithKline obtained a method of use patent (US6133289), which extend the exclusivity to 2015. Later, GlaxoSmithKline obtained another secondary patent (US6172233) for the process of making the drug, which further extend the exclusivity to 2018.

To build a more solid patent cluster, GlaxoSmithKline applied additional patenting strategies in conjunction with filing secondary patents. During the lifecycle of its primary patents, GlaxoSmithKline obtained a new formulation patent (US5422123) for its tablet form to replace the older version (US4839177), which moved the exclusivity from 2006 to 2012. This is a patent for incremental improvement as detailed below.

The patenting of the tablet form (US4839177) and new formulation (US5422123) faces similar challenges as the switch from immediate release (IR) formulation to extended release (ER) formulation discussed above and the key is to prove the additional gaining of an unexpected benefit or the increase of efficacy by greater than two-fold. On the other hand, the method of use patent (US6133289) patent follows similar route as the prosecution of Evista®. As long as the primary compound patent does not disclose the specific use, it is not likely to be used against a follow-on method patent. However, the challenge is in planning the patent cluster at an early stage and evaluate what information may be kept secret temporarily for a later filed patent.

Now let’s turn to the patent (US6172233) for process of making the drug. While the primary patent for compound is unlikely to be a prior art, the process patent usually faces challenges from existing chemical or biological synthesis techniques. Since the process development chemists would usually avoid the use of unusual or exotic reagents and solvents, and to use tried and tested methods, it’s common that commercial scale processes are mostly based on known chemistry process with minor modification. However, if the minor modification is crucial in improving yields, avoiding toxic solvents and reactants, greatly easing the scaling up and/or using less complicated and expensive starting materials, it may be deemed patentable.

However, the greatest challenge of process patent is not obtaining it, but using it to prevent infringement. This is because the parameters specified in a process patent would rarely leave a mark on the final products. Therefore, the evidence of infringement is usually restricted inside the manufacturing plant of the infringer, which is not accessible to the patent owner.

Despite the difficulties in implementing, the value of the process patent should not be denied. If successfully implemented, the generic competitors cannot manufacture the product as cost efficient as the patent owner or manufacture products inferior to that of the patent owner, putting the patent owner on a more advantageous position in the market. Furthermore, the possibility of infringing someone’s patent may repel some generic competitors from the market until the expiry of the patent.

As discussed above, the follow-on patents only protect one or a few aspects of the invention. For example, the patent for new use won’t prevent generic competitors from marketing products with the same compound for the old use. However, the research on improvements frequently provides new information on many aspects of the drug compounds, such as a new formula with better clinical profile, a more efficient manufacturing process or the use of old drug for a new indication. The aforementioned example of GSK illustrates how powerful combined strategy of patenting non-compound aspects can be.

Although there are many patenting strategies, the selection and actual implementing of one strategy is a more complex, because other factors such as the interest of an external partners, which is frequently not in line with the drug sponsor drug the follow-on R&D process.

“Drug sponsor”, as used here, refers only to the pharmaceutical companies, which seek FDA approval and market drug compounds as brand drugs.

An interesting phenomenon in the pharmaceutical industry is that the original owner of the primary drug patents, the drug sponsor and the inventors of the follow-on patents are more frequently different in the pharmaceutical industry, compared to other industries. For example, compared to companies in other industries, pharmaceutical companies are more likely to obtain more patents from academia. Furthermore, drugs with academia patents are more likely to have follow-on patents than those without academia patents. A recent study also confirmed that more than 40% of follow-on patents are initially issued to external partners of the drug sponsors. One explanation for this phenomenon is the large amount of NIH research funding allocated to research on certain diseases, making the academia an important source of technologies to fuel not only the primary patents but also the improvements essential for the follow-on patents.

However, without the pre-approval development, manufacturing and marketing capability, the academia has one single purpose of getting patent: generating licensing income. Thus, academia is not motivated to filing patents as strategically as the pharmaceutical industry. To accommodate the different financial interests of the pharmaceutical companies and their external partners in academia, the licensing agreement may be designed strategically, such as adding certain exclusivity limitations, so that the continuous research progress made by the academic partners can be utilized towards the strategic patenting goal of the pharmaceutical companies.

Although the various patenting strategies discussed above can be powerful in extending the actual exclusivity period of drugs, there are still corners beyond the reach of strategic patenting. The follow-on patents may be quite narrow, limiting the drug to one particular isomer, a salt form, a formula or a particular manufacturing process. The generic competitors may choose another salt form, add another addictive to the formula or adjust a different parameter in the manufacturing process, to achieve equally good results, if not better. Thus, proper branding is also an essential component, parallel to strategic patenting, in product life management in the pharmaceutical industry.

Although follow-on patents are great tool to extend market exclusivity, the successful obtaining of follow-on patents depends more or less on continuous research for improvement, which may, sometimes, fail. Brands, protected by trademarks, is another tool to mitigate the revenue loss due to patent cliffs. One heavily discussed strategy discussed is launching a “fighter brand”. Fighter brand is a second brand launched by the owner of a brand drug for a product containing the same active compound as the brand drug but sold at a lower price.

Since the fighter brand strategy is quite new and rarely implemented, many pharmaceutical companies still hesitate about it.  The rationale of fighter brand strategy is to grasp different market segments with different price sensitivity using different brands owned by the same company. The success of this strategy depends heavily on the well-established reputation of the original brand and the full-round protection of both the original and the fighter brands by trademarks. After being a monopolist for years before the expiry, the owner of the original brand also accumulated comprehensive information on the doctors’ prescription habits and the level of price sensitivity of the patients. This prior knowledge allows the original brand owner to target the customer with either the original brand or the fighter brand more accurately than generic competitors and retain higher margin on those loyal subscribers with low price sensitivity. Furthermore, the original brand may gradually transit some subscribers into using the fighter brand even before the expiry of the patent so that the subscribers have already built some loyalty to the fighter brand by the time the generic competitors enter the market. Moreover, the superior reputation of the original brand may also benefit the fighter brand, making some loyal subscribers believe the fighter brand launched by the company providing the original brand is of better quality than the generic launched by other brands.

Zocor®, the brand name of simvastatin prescribed to combat high cholesterol and to reduce the risk of coronary heart disease, marketed internationally by Merck & Co. stands out from the very few cases implementing this strategy.

Poked by the pain of the first wave of “patent cliff”, pharmaceutical companies have tried different strategies to defend their revenue, with some success. At the end of the day, a take-home for any company is that a proactive patenting strategy planned at early stage of product life lifecycle is essential for their sustained revenue generation well beyond the initial exclusivity period.

Any opinions expressed and any legal positions asserted in the article are those of the author(s) and do not necessarily reflect the opinions or positions of Miles & Stockbridge P.C. or its other lawyers. This article is for general information purposes and is not intended to be and should not be taken as legal advice on any particular matter. It is not intended to and does not create any attorney-client relationship. Because legal advice must vary with individual circumstances, do not act or refrain from acting on the basis of this article without consulting professional legal counsel. If you would like additional information on the subject matter of this article, please feel free to contact any of the lawyers listed above.



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