The U.S. biopharmaceutical market has strong, structural incentives to innovate new products, anchored by robust intellectual property (IP) protections. These IP protections occasionally expire at the same time – inadvertently creating what is colloquially called a “patent cliff.” In a new insight, Director of Health Care Policy Michael Baker explains the concept of the “cliff” and what policymakers should prioritize to keep the U.S. biopharmaceutical industry competitive.

Key points:

• The patent cliff is not itself a structural problem but drives necessary decision-making in the pharmaceutical industry about where the next innovative product comes from, including mergers and acquisitions, in- and out-licensing of products, and research and development priorities.
• It is important to understand what the patent cliff is and how it acts within the biopharmaceutical market to incentivize innovation and maintain the development of next-generation therapeutics while creating savings as generic and biosimilar competition enters the market.
• Policies that compress innovation incentives and increase costs – such as federal price-setting, overly broad prohibitions on deal-making, and tariffs – should be avoided to allow market forces to efficiently allocate resources and bring new therapies to market.

Read the analysis.