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March 29, 2010

Economic cliffs

The pharmaceutical industry is an important part of North Carolina's economy. Pharmaceutical companies rely on patents to earn revenues high enough to recover their costs of developing new drugs. But what happens when these patents expire?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This is known in the business in the pharmaceutical business as a patent cliff because what happens is, revenues that those companies are earning from the pharmaceuticals tremendously decline. They slide down like a cliff off a hill when that patent expires.

"What a patent does, of course, is protect a company from competition. If you develop a drug and you patent it, then you have a certain number of years in which you are the exclusive seller of that drug. And you can charge higher prices.

"Now the pharmaceutical industry says they need that because, number one, developing pharmaceuticals is very uncertain. You never know if you are going to end up with a patentable or marketable drug. And secondly, it is very costly. You can have a pharmaceutical company spend almost a billion -- that is a billion with a B -- dollars before they actually sell any of that drug. So when the patent does expire, that is a big deal to the pharmaceutical companies.

"And the concern is, if the pharmaceutical companies don't -- have not recovered the revenue from developing those drugs -- will they be motivated to explore new pharmaceuticals?

"So a big, big issue not only for pharmaceuticals but also here in North Carolina because of the importance of the industry."

Posted by deeshore at March 29, 2010 08:26 AM