The ESRI, in its recent Quarterly Economic Commentary (Spring 2014), suggests that the impact of the patent cliff in 2014 will be much smaller than in 2012 and 2013. In this post I present data that support such a position. I believe that the greatest impact of the patent cliff on Ireland will have occurred in the period from 2012 to 2014. I base this on a simple inspection of the expiration data related to blockbuster drugs produced by multinational companies which have Irish plants.
Before presenting the facts, I provide the usual health warning – there are great uncertainties involved in estimating the effect of the patent cliff on the Irish economy. Most estimates are partly based on an analysis of the specific products losing patent protection and their global revenues. Relatively good data on patent expiry dates and global revenues is publically available. This data can then be linked to the companies operating in Ireland. Based on primary interview data and newspaper analysis, one can get a fair idea about which of the blockbuster drugs coming off patent are at least partially produced in Ireland. This allows us to get some idea as the size of the impact of the patent cliff on exports and GDP.
There are, however, a number of uncertainties. Firstly, although we have good data on when blockbuster drugs are due to come off patent, not all of these drugs actually lose patent protection on the due date. Drug companies do what they can to protect their valuable intellectual property. Most will try to obtain an extension of their patent and some are successful. The granting of one or two patent extensions can seriously alter the impact of the patent cliff on a particular country.
Secondly, even greater uncertainties are involved in estimating Ireland’s share in the global production of a particular drug. Pharmaceutical companies typically operate multiple sites for the production of active pharmaceutical ingredients and drug products. In some cases nearly 100% of the global supply is produced in Ireland, but in most cases we have no information about what share of production is accounted for by plants in Ireland. In most cases the only information we have is that part of the global production takes place in plants in Ireland.
Table 1 presents the blockbuster patent expirations relevant to Irish plants during the period from 2011 to 2016 (data on the involvement of Irish plants is based on interviews and Internet search). The methodology provides no guarantee that all involvement of Irish plants is identified. However the pattern is clear enough to support my main argument.
Table 1. Blockbusters coming off patent* and involvement of Irish plants
The data clearly show that patent expirations relevant to Ireland were concentrated in the period 2011-2012. Six blockbuster drugs whose patents expired, with a global sales value of $35bn, were at least partly produced in Ireland (Enbrel’s patent for the USA was extended). Because of the six-month ‘exclusivity period’, during which only one generics company is allowed to enter the market, the full effect on output will only be felt a half year after the expiration date. In addition, the table presents the expiration dates for the USA. In other markets, the drugs developed by US companies tend to come off patent somewhat later. This phenomenon is clearly illustrated in Table 2 which shows that the full effect of the Lipitor patent expiration in the US at the end of 2011, is only reflected in the 2013 global export figures of Ireland. I therefore suggest that the effect of the 2011-2012 cohort (in Table 1) will be fully expressed in the 2012-2014 export and output data.
Table 2. Pharmaceutical Exports (SITC 51 and 54)
The blockbusters that are losing patent protection in the 2013 to 2014 period have far smaller combined global sales ($25bn over the three year period) and, crucially, the data suggest that few of these drugs are manufactured in Ireland. I could only find evidence for one drug, Nameda, a relatively small blockbuster with $1.4bn global sales, coming off patent in 2015. These data suggest that in 2014 we will have passed the peak of the direct impact of the patent cliff on the Irish economy.
This post is based on extracts from my discussion of a paper by Mary Dalton and Shane Enright (Dept. of Finance). “The Impact of the Patent Cliff on Pharma-Chem Output in Ireland”, presented at The Statistical and Social Inquiry Society of Ireland, Dublin: Royal Irish Academy, 6 March 2014.