Navigating the Looming Pharma Patent Cliff

Navigating the Looming Pharma Patent Cliff

The pharmaceutical patent cliff refers to the wave of blockbuster drugs whose patent protections are expiring, exposing their makers to competition from generics and biosimilars. Industry analysts warn that by the end of this decade, over $200 billion in annual revenues is  at risk as dozens of best blockbusters lose exclusivity.
Pharma companies generally respond with a mix of approaches, often categorized as four strategic pillars: Prevention, Innovation, Extraction, and Adaptation. These overlap somewhat, but each has its own focus:Prevention strategies aim to delay or soften the impact of patent expiration.

This includes legal and regulatory maneuvers (extending patents, filing new ones, orphan exclusivities, pay-for-delay settlements) as well as tactical moves like aggressive pre-LOE marketing. For example, Pfizer stockpiled dozens of secondary patents and even negotiated a pay-for-delay deal with generic makers to stall Lipitor’s decline. Heavy brand advertising is also key: in the decade before Lipitor’s 2011 patent expiry, Pfizer spent over a billion dollars on consumer ads to cement Lipitor as the statin, making patients far more loyal to the brand name. Roche’s Genentech likewise implemented defensive tactics,  in 2014 it restricted cancer antibodies (Avastin, Herceptin, Rituxan) to a few specialty distributors, eliminating the usual 5% wholesaler discounts and creating logistical hurdles for biosimilar entrants.
These prevention moves are essentially a moat-building exercise: they buy time by keeping generics at bay or by depressing their incentives, even if only temporarily.

• Innovation strategies focus on creating new value so the original drug isn’t the sole star of the portfolio. Companies invest in product-line extensions and R&D to launch successor products or new indications. A simple example is turning a prescription drug into an over the counter (OTC) product under a new formulation, which brings fresh FDA exclusivity.
  (Pfizer tried this for Lipitor in 2015, but the FDA balked. More broadly, firms bolster their pipelines , through in house research or strategic acquisitions,  so that when one molecule’s income wanes, others can pick up the slack.
   
  Merck’s experience is instructive: it nearly defunded the cancer research that led to Keytruda, but after buying Schering-Plough it ended up with Keytruda in its portfolio and a thriving oncology franchise. Similarly, J&J’s 2017 acquisition of Actelion for ~$30B added valuable pulmonary medicines (Opsumit, Uptravi) to diversify beyond Remicade.
   In short, innovation strategy is “bet on the next big thing”: file new patents on tweaked formulations (a new inhaler device, a long-acting injectable version, etc.), push new indications (each can earn 3 years of data exclusivity), and do M&A to replace the revenue stream.
   When Humira faced its 2023 cliff, AbbVie had already invested heavily in two new antibody drugs (Skyrizi, Rinvoq) from its Allergan acquisition,  products that now generate over $11 billion annually and effectively absorb Humira’s loss.
   The lesson: don’t let your success be one and done, build successors and backups before the old champion fades.
  
  
  

• Extraction strategies come into play as LOE nears or arrives: the goal is to milk the cash cow as much as possible in the final months. Tactics here include dynamic pricing and targeted discounting.
  One counterintuitive move is raising the list price just before exclusivity ends, because insured patients will still pay their copays and pharmacies are locked into contracts,  this happened with Humira in Medicare (a 41% price hike 2016–2020).
  At the same time, brand companies often roll out rebate programs to blunt generics. For Lipitor, Pfizer’s “Lipitor fo -You” program gave hefty rebates to insurers and patients during the 180-day exclusivity period, effectively subsidizing the brand to keep filling scripts. Authorized generics are another popular tactic: the brand company licenses (or itself sells) a generic version at a modest discount to capture some share.
  GSK did this with Advair in 2019 (an identical generic via partner Prasco) to retain patients who would have otherwise switched to a cheaper substitute. And J&J launched an authorized version of Xarelto.
  On the margins, firms will bundle products and cut fees to deepen existing contracts. J&J famously bundled Remicade with other drugs and offered huge discounts to infusion centers, making it financially unattractive for hospitals to switch to biosimilars.
  In essence, extraction is a careful squeeze: tweak prices and deals to keep revenue flowing without accelerating the cliff.
  Done smartly (and legally), this maximizes final profits.
  
  
  

• Adaptation strategies accept the reality that exclusivity is gone and reconfigure the business accordingly. This might mean embracing generics/biosimilars or pivoting to new focus areas entirely.
  Some companies spun off or created generics divisions (e.g. Endo International started as Merck’s generics arm before focusing on patented drugs). Others license out older products and concentrate R&D on fresh targets.
  Merck’s pivot from Singulair (whose US patent expired 2012) to vaccines and immuno-oncology, with the almost-forgotten Keytruda project suddenly bearing fruit, shows how adaptation via innovation saved the company from a blowup.
  Roche, after losing its “Big Three” cancer blockbusters, funneled resources into new oncology drugs (Tecentriq, new cell therapies) and diagnostics, keeping revenues at a record high in 2021 despite the cliff.
   AbbVie even launched its own Humira biosimilar in some markets , why lose 100% of share when you can grab 30-40% yourself?
   On the other hand, if margins dry up, companies may simply phase out the old product: salesforce promotions are cut, manufacturing scaled back, and that forgotten molecule quietly becomes a minor line item. The bottom line of adaptation is survival: be willing to change the ship’s course as the wind shifts.
  
  
  

These strategy categories are not mutually exclusive; the best prepared companies mix and match.
 Following are some case studies from history that we might learn something about.

Case Study: Pfizer’s Lipitor (Atorvastatin)

Prevention: Pfizer built Lipitor’s brand early. By undercutting rivals in the statin market and spending lavishly on TV ads, Lipitor became the #1 statin. The company filed patents on formulations and the combination pill Caduet, and even made a patent settlement with Ranbaxy (pay-for-delay) to hold off certain generics.

 Innovation: Pfizer attempted product-line moves. It tested an OTC 10 mg Lipitor (at much lower price) to capture new users, though FDA didn’t approve it. More significantly, Pfizer bolstered its pipeline and portfolio via deals – buying Wyeth in 2009 ($68B) brought in vaccines (Prevnar) and other drugs to offset any Lipitor shortfall.
 Extraction: In 2011–2012 Pfizer ran the gamut. It raised Lipitor’s list price each year before expiry (since patients still had to co-pay a fixed percentage, insured costs kept funding revenue). After generics launched, Pfizer launched an authorized generic (via Watson) at a tiny 5% discount, capturing about 70% of the market that the brand otherwise would have lost. During the 180-day exclusivity, Pfizer’s huge rebates kept pharmacies using Lipitor,  as Reuters noted, Congress was questioning Pfizer’s rebates to ensure patients still paid less than the generic.
 By mid-2012, once rivals out-competed, Pfizer slashed Lipitor marketing (even stopping all TV ads by May 2012) to avoid wasted spend.
 Adaptation: Post-cliff, Pfizer shifted gear. It leaned on newly acquired assets and R&D (e.g. vaccines, oncology, rare diseases). It divested non core units (sold its nutrition business in 2012) to focus on innovative drugs. Today, Pfizer is no longer a statin company but a broad R&D powerhouse (vaccines like Prevnar and Covid mRNA vaccines are its new pillars). Lipitor’s profits ended, but Pfizer’s strategy ensured it smoothly transitioned to the next wave.

Case Study: Roche’s Oncology Trio (Avastin, Herceptin, Rituxan)

These three cancer antibodies once totaled >$15B/year for Roche. As their patents expired (2018–2019), Roche deployed multiple tactics.
 Prevention/Extraction: Early on, Roche evergreened Herceptin by developing a new subcutaneous injection (Herceptin SC),  approved in 2014 and on patent until 2030.
This gave a “fresh launch” to flip patients onto a new product ahead of biosimilars. Meanwhile, Roche expanded indications for Avastin/Herceptin into more cancer types (netting new exclusivities and more sales).
 In 2014 Genentech radically tightened distribution: it cut out normal wholesalers and went exclusively through specialty distributors, eliminating hospitals’ 5% bulk discount. On the surface a quality-control move, this also raised the barrier for biosimilar manufacturers, who now had to establish new specialty channels.
When biosimilars finally arrived (their U.S. entry began mid 2019), Roche had already extracted huge value. It increased its R&D and marketing of newer drugs, knowing its old blockbusters would still earn some dollars during transition.
 Innovation: Roche didn’t wait for generics to sink it. R&D spending actually increased through 2019 and beyond, focusing on new oncology/immunology therapies (Tecentriq, Ocrevus in MS, etc.). This paid off: in 2021 Roche’s sales reached an all-time high despite the cliff.
 Extraction: Roche carefully managed the old products while biosimilars eroded them. The decline in Avastin/Herceptin sales was steep (roughly a 35–47% drop in one year), but Roche used price concessions and rebates selectively to protect share. Its diagnostics division (unaffected by the cliff) also grew, balancing the books.
 Adaptation: Ultimately, Roche’s business is now far more diverse than “just those three drugs.” It has a slew of new biologics and diagnostics which completely offset the loss. The company’s ability to pivot into new therapies meant that even a 57% drop in those three drug revenues (2019–2021) didn’t wreck the company,  total company sales kept climbing.

Case Study: J&J’s Remicade (Infliximab)

Remicade was J&J’s immune-suppressant blockbuster (~$7B peak sales) whose US patent expired in 2016. J&J waged an extraction-heavy defense on this biologic.

• Contracts & Bundling: J&J signed exclusive contracts with many large health providers to favor Remicade over biosimilars. It bundled Remicade with other profitable products, so that a hospital dropping Remicade would lose access to deals on other J&J products. This “portfolio contracting” meant insurers risked big losses if they switched away.
  
  
  

• Deep Discounts: Independent infusion centers (price-sensitive buyers) were offered large rebates on Remicade, shielding them from biosimilar price cuts. The strategy paid off: when Pfizer launched Inflectra (its Remicade biosimilar) in 2017, it captured only a tiny fraction of market (about $74M vs. Remicade’s $800M in Q2 2019). Pfizer sued J&J over these deals, claiming they “foreclosed” competition, and the FTC even opened an investigation.
  
  
  

• Marketing: J&J continued to market Remicade heavily right up to expiry, ensuring a loyal customer base. Then, after generics arrived, it eased off (phasing out patient programs for Remicade) and shifted promotion to newer immunology drugs like Stelara and Tremfya.
  
  
  

• Adaptation: Crucially, J&J’s total revenue did not crash after 2016. The company had diversified: it acquired Actelion, boosting new sales, and expanded R&D in oncology and other fields. Notably, J&J’s overall sales hit new highs in 2018–2019 even as Remicade declined.
   Remicade (now also sold as biosimilar Renflexis) survives as one option among many, but it’s no longer J&J’s lifeblood.
  
  
  

Case Study: GSK’s Advair (Fluticasone/Salmeterol)

Advair, an asthma/COPD inhaler, was a ~$5B-per-year seller. Its US patents on the drug expired by 2010, but GSK had patents on the Diskus inhaler device, which stretched exclusivity on that product to 2016. Generic competition was delayed: doctors had to certify patients could use the generic inhaler before substitution. Meanwhile, GSK launched a new version of Advair (named AirDuo and a pressurized HFA inhaler) with new patents running into the 2030s.

• Prevention: The expensive, complex inhaler system served as a built-in barrier. GSK mined device patents and trialed new form-factors instead of relying on the old Diskus.
  
  
  

• Extraction: When the first generic Advair Diskus finally launched in 2019 at a 70% price discount, GSK quickly introduced its own authorized generic (via partner Prasco) to capture price-sensitive buyers. It also offered rebates to keep Advair on formularies, while marketing resources were gradually shifted to newer respiratory combos (e.g. Trelegy).
  
  
  

• Adaptation: By 2022, Advair sales had fallen sharply, but GSK had already reshuffled its portfolio. In 2015 GSK swapped its entire oncology pipeline to Novartis in exchange for vaccines and consumer health products. GSK became a vaccines-specialist (e.g. Shingrix) and consumer healthcare giant, with respiratory as only one division. The money from Advair was reinvested elsewhere, illustrating that GSK treated the Advair cliff as a cue to refocus its strategy.
  
  
  

Case Study: Merck – Singulair (Montelukast) & Keytruda

Singulair, an asthma pill, lost US exclusivity in 2012. Merck tried one extraction tactic: it applied to sell Singulair OTC to lengthen its market. The FDA declined in 2014, and generics promptly took 90%+ share. Merck’s Singulair revenues plunged (like a typical small-molecule cliff). But Merck had planned for this.

• Adaptation/Innovation: Years earlier Merck had merged with Schering-Plough (2009), gaining early rights to Keytruda (immunotherapy) and Gardasil (HPV vaccine). At the time Keytruda was a modest project; today it’s Merck’s crown jewel (>$25B sales). The Singulair cliff was dramatically offset by the rise of these new drugs. Merck also invested in other areas (diabetes drugs like Januvia, animal health, women’s health via Organon acquisition). The bottom line: losing Singulair was painful, but Merck’s broad, renewed pipeline meant total company revenue barely skipped a beat.
  
  
  

• Extraction: Apart from the OTC attempt, Merck did not heavily discount Singulair; it focused on new products instead. This shows that if extraction options are limited, robust innovation/adaptation becomes even more crucial.
  
  
  

Case Study: AbbVie’s Humira (Adalimumab)

Humira is the poster child of the patent cliff. By 2022 it was the highest-selling drug ever (~$20B/year). Its US patents started expiring in 2016. AbbVie responded with all-out extraction and prevention long before 2023:

• Price Increases: AbbVie raised Humira’s price relentlessly  for example a 41% jump in Medicare price 2016–2020 – to fill its coffers.
  
  
  

• Patent Thicket: The company filed ~250 patents around Humira (many on formulations, manufacturing tweaks, and new indications).
   This “patent thicket” delayed the first US biosimilar launch until 2023, six years after the main patent expired.
  Meanwhile, biosimilars hit Europe by 2018, but AbbVie took advantage of every exclusivity extension in the US.
  
  
  

• Pay-for-Delay: AbbVie made settlements with several biosimilar makers (e.g. Amgen) to push back their launches. Amgen’s Amjevita (a Humira copy) was court-approved in Europe in 2018, but in the US wasn’t allowed to enter until January 2023 under the deal – effectively a pay-for-delay in name if not disclosed.
  
  
  

• Innovation/Adaptation: Crucially, AbbVie did not rely on Humira alone. It spent heavily on new immunology drugs. Buying Allergan in 2019 for ~$63B brought in Botox and other products, but more importantly AbbVie developed and launched Skyrizi and Rinvoq (autoimmune drugs) which by 2023 were selling ~$11.7B combined.
   AbbVie essentially created its own succession plan. After Humira’s patent fell, AbbVie was able to walk away without collapse because Skyrizi/Rinvoq revenue was already streaming in. The company also trimmed R&D in older areas and focused on high-growth franchises.
  
  
  

• Post-LOE: When Humira biosimilars finally launched in 2023, AbbVie’s branded Humira sales dropped (the U.S. share fell from nearly total to about 2/3 by year end. But the company had stockpiled cash and pivot drugs.
  Today, AbbVie’s share price and total sales are resilient,  proving it managed the cliff by aggressively extracting Humira’s value early, then adapting to a new product mix.
  
  
  

Case Study: Eli Lilly – Neuroscience to Endocrinology

Lilly’s lesson is one of reinvention. In the 2000s Lilly’s revenue rested on two CNS blockbusters: Zyprexa and Cymbalta. Zyprexa lost U.S. patent protection in 2011, Cymbalta in 2013, leaving Lilly scrambling. Lilly quickly shifted focus: it ramped up investment in diabetes and obesity.
The GLP-1 agonist Trulicity (launched 2014) grew into a $7+ billion franchise by 2022.
 In 2022 Lilly also launched the new dual-agonist obesity drug Mounjaro, poised to be a multi-billion seller.
On the acquisitions front, Lilly bought companies like ImClone (for cancer drug Erbitux in 2008) and Loxo Oncology (for precision cancer drug Vitrakvi in 2019),  moves that broadened its offerings beyond neuroscience.
Meanwhile, Lilly’s old products were gradually wound down; Humalog (insulin) lost patent in 2014 but stayed at ~$2B sales because making insulin biosimilars is tough. Lilly even raised some insulin prices until biosimilars arrived, then managed that decline by patient support programs.
Overall, by the mid 2010s Lilly had once again  become a  diabetes and obesity company, with oncology as a rising pillar.
Its losses from CNS generics were cushioned by these new stars and by the fact that, like J&J, Lilly never relied on a single product for most of its earnings.

Key Takeaways

The patent cliff is a clear and present challenge,  not just a distant threat. Companies face $200+ billion at risk in the next few years.
 The winners will be those who start implementing a mix of these strategies well before their big drugs expire. Some lessons from the examples above:

• Plan early and broadly. Build a pipeline or M&A strategy years ahead of the cliff. Don’t count only on pay for delay or patent games to save you.
  Merck’s success with Keytruda and Lilly’s pivot to diabetes came from years of R&D and partnerships put in place long before the old drugs fell off patent.
  
  
  

• Balance defense with offense. Prevention (patents, exclusivity, contracts) can buy time, but it usually just delays the inevitable. Simultaneously invest in next-generation products or different therapeutic areas. AbbVie illustrates this balance: it extracted maximum value from Humira and delayed competition via a patent thicket, while simultaneously building Skyrizi/Rinvoq as the successors.
  
  
  

• Customer loyalty is a double-edged sword. Hard-selling your brand (DTC ads, marketing to doctors) is great in the near term. Pfizer’s heavy Lipitor advertising anchored it in physicians’ minds. But once generics come, that loyalty diminishes quickly unless you have rebate programs or authorized generics ready.
  
  
  

• Know your market. Biologics allow more nuanced plays (because of interchangeability rules, provider contracts, etc.) than small molecules. J&J could use bundling deals to block Remicade biosimilars, tactics that wouldn’t apply to a pill. Small-molecule drugs like Lipitor or Singulair required faster R&D pivots because generics generally meant an immediate steep drop.
  
  
  

• Be ready to adapt company structure. Some firms separate or spin off parts of the business (e.g. generics arms) to let those compete freely. Others double-down on core strengths.
  The right call depends on your assets. Lilly kept Humalog (insulin) on books until biosimilars arrived (adapting later), whereas Endo spun off its generics business (though that had mixed results).
  
  
  

• Regulatory and legal environment matters. Watch patent law, FDA guidance, and antitrust scrutiny. Some “defensive” strategies (like pay-for-delay or exclusionary contracting) are increasingly under the microscope. By planning for multiple outcomes, pharma can avoid being caught flat footed. As the Humira and Remicade cases show, regulatory changes or lawsuits can upend a revenue model if too much is at stake.
  
  
  

In sum, the patent cliff is a daunting but navigable challenge. History shows that a comprehensive strategy,  combining legal defenses, product innovation, clever pricing, and portfolio pivots – can carry a company through. Pfizer, Roche, J&J, GSK, Merck, AbbVie, Lilly and others all found unique mixes of these tactics.
The clear lesson for industry leaders is to start now: analyze your own upcoming LOEs, design tailored countermeasures for each drug, and execute on them well ahead of time.
With smart planning, the revenue cliff becomes more of a slope that a prepared company can descend without breaking its stride.

References:

1. Gardner, J. “Big pharma’s looming threat: a patent cliff of ‘tectonic magnitude’.” BioPharma Dive, Feb 21, 2023 (biopharmadive.combiopharmadive.com.)
   
   
   

2. Staton, T. “Senators, Watson chief question Pfizer’s Lipitor deals.” FiercePharma, Dec 1, 2011 (fiercepharma.com.)
   
   
   

3. Berkrot, B. “Roche’s Genentech defends supply shift for top cancer drugs.” Reuters, Nov 24, 2014 (reuters.com.)
   
   
   

4. Sagonowsky, E. “J&J boasted about defending Remicade from biosims. Now it’s under FTC investigation.” FiercePharma, Jul 30, 2019 (fiercepharma.comfiercepharma.com.)
   
   
   

5. Gardner, J. “Two decades and $200 billion: AbbVie’s Humira monopoly nears its end.” BioPharma Dive, Mar 17, 2022 (biopharmadive.combiopharmadive.com.)
   
   
   

6. Santoro, C. “Trastuzumab’s Evergreening Impact on Biosimilars, Health Care Costs.” Center for Biosimilars, Dec 13, 2024 (centerforbiosimilars.com.)
   
   
   

Chao, et al. [Master Thesis] “Pharma Patent Cliff Strategies: Prevention, Innovation, Extraction, Adaptation.” Copenhagen Business School, 2024

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Author: Kristoffer Danielsson
Founder & CEO
Jarlen Capital
Email: Kristoffer@jarlencapital.com