Patent_cliff
Patent cliff
Sales phenomenon
The term patent cliff refers to the phenomenon of patent expiration dates and an abrupt drop in sales that follows for a group of products capturing a high percentage of a market. Usually, these phenomena are noticed when they affect blockbuster products—a blockbuster product in the pharmaceutical industry, for example, is defined as a product with sales exceeding US$1 billion per year. When a product’s patent expiration comes after 20 years there is a sudden diminish or decrease in a particular company’s annual income. After the expiration date the combatants then can start selling that particular drug in the market. This was a Patent Cliff.[1][2]
The abrupt drop in sales expected after the date of patent expiration can be estimated with the following formula:[2]
where A is the peak sales value before the patent expiration and Y the years after the peak sales year (the peak sales year is considered year 0), and B is an exponent with value -1.032. The formula above could be simplified for practical calculations to: