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When a patent on a blockbuster drug expires, its sales can crater within months — a recurring, predictable pattern in the industry.
The moment a drug's patent expires, generic manufacturers can enter the market with a significantly cheaper version — sales of the original drug often crash 70-90% within a year, a phenomenon known in the industry as the 'patent cliff.'
A pharma company where a large share of revenue comes from one blockbuster drug whose patent is about to expire is far more exposed than a company with a diversified product portfolio — one large cliff versus many small, spread-out declines.
Ongoing investment in a research pipeline of new drugs is the main way to cope — a company with a weak pipeline and high concentration in one product is the most exposed to this scenario.
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This research is intended for general educational purposes only, does not constitute investment advice, and is not a prediction. Full details on the disclaimer page.