Irish merchandise exports are dominated by the pharmaceutical sector. This sector has been performing strongly in recent years despite the persistent economic turmoil, both domestic and international. Pharmaceutical exports, grew from €24.6 billion in 2000 to €51.8 billion in 2011 and accounted for 56% of Irish merchandise exports in 2011.

For some time industry observers have been warning of an impending ‘patent cliff’. Many drugs enjoy a period of patent protection, during which the originator company can charge a high price for its product. When the patent eventually lapses, the market is opened to generic competition which seriously reduces the value of the product. As it happens, many blockbuster drugs are coming off patent in a concentrated period between 2011 and 2013. Six of the ten main blockbuster drugs coming of patent in this period are at least partially produced in Ireland. The patent cliff is therefore expected to have a strong impact on Irish exports.

The most recent CSO release of merchandise export figures, on first inspection, does not appear to indicate a substantial ‘patent cliff’ impact. Irish exports of chemicals (dominated by pharmaceuticals) in the period January-June 2012 were a mere 4.1% down from the same period in 2012. But it is important to appreciate the geography of trade. Chemicals exports to the US in the first half of 2012 were down 2.6bn Euro, or 30%, from the same period in 2011. Exports to Britain increased, while exports to the ‘other EU’, the most important market, were stable. I believe that this cannot be explained by the habitual strongly fluctuating nature of chemicals exports and that the figures represent the first concrete evidence of the impact of the patent cliff on Irish exports.

To understand this we need to realise that patents do not expire in all geographies at the same time. Patents for new drugs tend to be initially filed in the home country of a given multinational corporation. As a result they will first expire in these markets also.  Last November, Lipitor, the number one global blockbuster drug of Pfizer (a US company) came off patent in the US. In the first half of this year Irish exports to the US dropped by 30%. Figure 1 below shows that this is an unusually large drop and that it diverges from recent trends. Since 2009 we had experienced growing exports (in value terms). What is more, in volume terms, exports marginally increased. That, to me, points to a strong fall in the price of chemical products being exported to the US and I believe that this reflects the impact of the patent cliff.

The 30% drop in half-yearly exports to the US translates into an annual drop of 5.2bn Euro – already 10% of total Irish total pharmaceutical exports in 2011. Pharmaceutical exports to the US are likely to fall further in the coming years, as other blockbusters come off patent. In addition, the patent cliff has still to reach the UK and the rest of the EU, which are far more important markets for Irish pharmaceutical exports (together accounting for 60 per cent of Ireland’s chemicals exports). After a delay, exports to these markets will be affected as well. It is difficult to even estimate the precise effect. The overall impact depends on the make-up of pharmaceutical exports to the EU market and the strategic response of the originator drug companies when their patents expire. But  the impact of these developments on Irish exports will be in the order of billions.