It takes a ton of time and money for a pharmaceutical company to produce a new drug. Some companies claim an average of 12 years and over $350 million just to get one new drug from the research lab to your medicine cabinet. And only then does a brand name drug starts to finally make money for its maker. But after a number of years in the marketplace (usually between 7-12 years in the U.S. and up to 20 years in Canada), that brand name drug’s exclusive patent protection expires, thus opening the market to competition from cheaper generic forms of the same drug. When generic drugs become available, the market competition often leads to much lower prices for both the original brand name drug and the generic forms.
So when a drug falls off the patent cliff, drugmakers stand to take a substantial hit to their profits from then on. The bigger the blockbuster drug, the bigger that financial loss will be. Continue reading