When it comes to drug patents, many people’s first reaction is a “20-year protection period”. But if you are the owner of a pharmaceutical company and hold a “heavyweight bomb” with an annual sales revenue of billions, the real time left for you to make money may not even be 10 years.

The “culprits” behind this are the two core concepts we are going to talk about today: patent term compensation and patent cliff.

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1、 Why can pharmaceutical companies only make profits for 10 years despite having a patent for 20 years?

The Patent Law clearly stipulates that the protection period of an invention patent is 20 years, starting from the date of application – the key point is not counted from the day the new drug is launched and starts making money, but from the moment the patent application is submitted, the countdown begins.

However, a new drug needs to go through a long process from patent application to final market launch:

(1) Drug discovery: 2-4 years, screening and designing potential drug molecules from countless compounds;

(2) Preclinical research: 1-2 years, preliminary validation of drug safety and efficacy through cell and animal experiments;

(3) Clinical trials: 5-7 years, which is the most time-consuming and costly core stage of the entire new drug development process. It is mainly divided into phases I, II, and III to gradually verify the safety and effectiveness of the drug on the human body. Phase I focuses on safety, recruits a small number of healthy volunteers, and tests drug metabolism and tolerance; Expand the sample size in Phase II, include target patients, and preliminarily validate drug efficacy and appropriate dosage; Phase III will conduct large-scale clinical trials to confirm efficacy and safety in a wider patient population, providing key data support for drug marketing.

(4) Review and approval: 1-2 years, submit an application to the drug regulatory authority and wait for marketing authorization.

On average, it takes 10-12 years for a new drug to go from patent application to approval for market.

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This means that when pharmaceutical companies finally obtain marketing authorization and can sell drugs to make money, half of the 20-year patent protection period has been used up, and the actual remaining protection period is often only 8-10 years.

Give two real-life examples for a more intuitive understanding:

Endatinib, a Class 1 new drug developed independently by Beida Pharmaceutical, is a targeted drug for ALK positive non-small cell lung cancer in China. It is also another core innovative product of Beida Pharmaceutical after Ecatinib.

Research report experience: Beida Pharmaceutical’s Ensatinib Hydrochloride, a lung cancer targeted drug, has the potential to break through the market. The development of this drug began in 2007 and went through 13 years of arduous research and development. It has completed drug molecular screening, preclinical cell and animal experiments, and multiple rounds of clinical trials – the clinical trial phase alone took nearly 7 years, covering thousands of lung cancer patients from multiple centers at home and abroad. Finally, it was approved for market by the National Medical Products Administration in November 2020.

The core compound patent of Ensatinib was applied for as early as 2008 during the early stages of development, and the patent protection period starts from 2008 and expires in 2031. This means that from its launch in 2020 to the expiration of its patent in 2031, this new drug, which took 13 years to develop, has only 11 years left to monopolize the market and achieve profitability. In just 11 years, Beida Pharmaceutical not only needs to recoup billions of R&D investment, but also cope with subsequent market competition, which shows the pressure on profitability.

A more extreme case is sidamide, a drug developed by Microchip Biotech and the first domestically developed histone deacetylase inhibitor in China.

The development of Sidamide began in 2001 and went through a long research and development cycle, from drug discovery, preclinical studies to clinical trials, taking 14 years. It was officially approved for market in January 2015.

The patent application for its core compound was filed in 2003, with a protection period expiring in 2023. In other words, after the listing of Sidamide, the actual patent protection period is only 8 years. As an innovative drug targeting rare diseases, its market audience is relatively limited, and its sales growth rate is slow. The 8-year exclusive period is far from enough for the enterprise to recover high research and development costs, and it is even more difficult to achieve considerable profits. This perfectly reflects the industry dilemma of “patents for 20 years, actual earning time less than 10 years”.

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2、 Patent Term Compensation: Recovering Lost Time for Pharmaceutical Companies

The research and development process takes too long, and the patent protection period is exhausted, which is a common pain point in the pharmaceutical industry. To address this issue, on June 1, 2021, China’s new Patent Law officially introduced a compensation system for the duration of drug patent rights.

Simply put, this system means that the time delayed due to drug review and approval will be compensated by the government.

How to make up for it specifically?

Article 42 (3) of the Patent Law stipulates that in order to compensate for the time occupied by the review and approval of new drug launches, the patent administration department of the State Council shall, at the request of the patentee, provide patent term compensation for invention patents related to new drugs that have obtained marketing authorization in China
The compensation period shall not exceed five years,
The total effective patent term after the new drug is approved for market shall not exceed fourteen years.

Give a simple and practical example to better understand the role of this compensation system.

Assuming a pharmaceutical company develops an innovative anti-cancer drug, the core compound patent is filed in the 0th year, and according to the Patent Law, its 20-year protection period is officially launched, with the original expiration date being the 20th year.

This new drug took a full 12 years from patent application to final approval for market – the first 4 years were spent on drug discovery and preclinical research, screening effective molecules and completing cell and animal experiments; In the middle of 7 years, clinical trials will be conducted to gradually verify safety and efficacy in humans; Completed the review and approval process in the last year and successfully obtained the marketing authorization.

This means that when pharmaceutical companies can finally sell drugs for profit, the 20-year patent protection period has been exhausted for 12 years, and the original remaining exclusive period is only 8 years.

According to the compensation rules for drug patent rights, this new drug can apply for compensation, with a maximum compensation period of 5 years and a total effective patent period of no more than 14 years after listing. Considering its 12 year R&D approval process, the pharmaceutical company can apply for a top tier 5-year compensation. After the compensation, the actual market monopoly period will be extended from 8 years to 13 years, which does not exceed the upper limit of 14 years and also provides the company with an additional 5-year golden period without imitation competition.

In the past five years, pharmaceutical companies do not need to worry about generic drugs diverting the market. They can quickly increase volume with exclusive pricing power, gradually recover billions of R&D investment, and achieve profitability. This is precisely the core value of the patent term compensation system.

And Rongchang Biotechnology’s Taitasipu is a benchmark case of “top grid compensation” since its implementation in China.

In June 2025, Rongchang Biotechnology announced that its core product, Taitacept Injection, received 1827 days (approximately 5 years) of patent compensation, becoming another “top tier compensation” case since the implementation of the domestic drug patent term compensation system.

Taitacept is the world’s first BLyS/APRIL dual target fusion protein innovative drug, approved for the treatment of systemic lupus erythematosus in 2021. Its core patent originally expired in 2027, but after receiving compensation, it was directly extended to 2032.

This is undoubtedly a “shot in the arm” for Rongchang Biology:

In 2024, Taitai Xipu’s revenue was 977 million yuan, a year-on-year increase of 94.87%; After receiving 5 years of compensation, it will have an additional 5 years of golden sales period without imitation competition. According to the current growth rate, the cumulative sales revenue in these 5 years is expected to exceed 10 billion, which can greatly alleviate the loss pressure of the enterprise.

Here is a key reminder: patent term compensation is not something that can be easily compensated. According to the regulations of the China National Intellectual Property Administration, even if a drug has multiple patents, the patentee can only choose one of them to apply for compensation; A patent involving multiple drugs can only apply for compensation for one drug.

So, pharmaceutical companies must carefully select the “most valuable” patent in order to maximize their profits.

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3、 Patent Cliff: The Scariest ‘Cliff Crisis’ for Pharmaceutical Companies

After discussing ‘how to make up for it’, the consequence of saying ‘can’t make up for it’ is the ‘patent cliff’ that makes all pharmaceutical companies shudder.

What is the patent cliff?

Patent Cliff “refers to the phenomenon where a large number of generic drugs enter the market when the patent protection period of the original drug expires, resulting in a sharp decline in the sales revenue of the original drug.

This metaphor is very vivid: it’s like jumping off a cliff – income drops sharply.

Why has it fallen so sharply? The core consists of three points:

After the patent expires, generic drug companies can legally replicate the drug without investing huge research and development costs;

2. The price of generic drugs is usually only 20% -30% of the original drug, or even lower, with a better cost-effectiveness than the original drug;

3. Medical insurance, hospitals, and patients will all prioritize cheaper generic drugs, and the market share of original drugs will be rapidly eroded.

The most classic case is Pfizer’s lipid-lowering drug Lipitor (commonly known as atorvastatin calcium tablets). Lipitor is mainly used to reduce cholesterol levels in the blood and prevent cardiovascular diseases such as coronary heart disease and myocardial infarction. With significant therapeutic effects and a wide range of applicable populations, it quickly dominated the global lipid-lowering drug market upon its launch.

Use Lipitor to lower cholesterol, be careful not to get side effects on you! 3 tips for doctors to stay away from them | Cholesterol | Atorvastatin | Side effects | Sina News

The core patent application of Lipitor was filed in 1987 and officially expired in 2011. During the patent protection period, Pfizer, with its exclusive market position, had absolute pricing power and did not need to deal with any generic drug competition, firmly occupying half of the global lipid-lowering drug market.

But when the bell rang for the expiration of patents in 2011, dozens of generic drug companies around the world entered the market, and a large number of generic drugs quickly flooded into the market. These generic drugs have similar efficacy to Lipitor, but their prices are only 20% -30% of the original drug, and even lower in some regions. Faced with highly cost-effective generic drugs, medical insurance departments have included generic drugs in their procurement catalogs, hospitals have given priority to prescribing generic drugs, and ordinary patients tend to choose cheaper alternative products, rapidly eroding Lipitor’s market share.

In just one year, Lipitor’s global sales plummeted by over 80%, from a peak of over 13 billion US dollars to around 2 billion US dollars, completely shedding its “drug king” aura. Pfizer also faced enormous performance pressure as a result, and this case has become the most typical and shocking portrayal of the “patent cliff” in the global pharmaceutical industry, making all pharmaceutical companies deeply realize the importance of patent protection period for core products.

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4、 How can pharmaceutical companies “save themselves” in the face of the patent cliff?

The patent cliff, as an inevitable challenge in the lifecycle of innovative drugs, is not unavoidable. Top pharmaceutical companies have gradually established a diversified and forward-looking response system, with the core logic of mitigating the performance impact caused by patent expiration and achieving long-term sustainable development through early layout and proactive breakthroughs. Specific strategies can be divided into the following four categories:

1. Patent “Evergreen” Layout: Building a Multi level Patent Protection System

Before the expiration of core compound patents, pharmaceutical companies need to systematically layout peripheral patents, forming a multi-level protection matrix of “core patents+peripheral patents” (i.e. “patent jungle”). Specifically, patent applications can be submitted around the crystal form, formulation process, administration route, indication expansion, preparation method, and other dimensions of the original drug. Through multi-dimensional patent layout, the market monopoly period of the product can be extended, and technical barriers for generic drugs to enter can be constructed.

It should be noted that the compliance and creativity requirements for such layouts are becoming increasingly stringent. In 2025, the formulation patents of Pfizer’s Tofacitinib sustained-release tablets will be declared invalid, mainly due to the lack of creativity required by patent law. This also warns the industry that patent layout needs to be based on technological innovation, and the opportunistic model relying solely on formal barriers is no longer sustainable.

2. Reverse Payment Protocol: Balancing Short term Buffer and Compliance Risk

Reverse payment (Pay for Delay) is a market-oriented compromise mechanism reached between original drug companies and generic drug companies, in which the original drug company pays a certain amount of economic compensation in exchange for the generic drug company delaying the launch time of its generic drug, thereby obtaining additional market exclusivity window for the original drug. However, this model poses high antitrust compliance risks. Currently, reverse payment agreements have been included in strict antitrust regulations in major pharmaceutical markets such as the European Union and the United States. Pharmaceutical companies adopting this strategy need to fully evaluate regional regulatory policies and avoid compliance risks.

3. Mergers and acquisitions integration and pipeline supplementation: cultivating new growth poles in advance

In response to the performance gap after the expiration of core product patents, pharmaceutical companies can quickly supplement high-quality R&D pipelines and cultivate new profit growth points in advance through strategic mergers and acquisitions, pipeline cooperation, and other means. For example, Merck acquired Verona Pharma for $10 billion in October 2025 to cope with the impact of Keytruda’s patent expiration in 2028, with a focus on expanding its pipeline in the field of cardiovascular disease treatment and enriching its product matrix; BMS, on the other hand, acquired RNA technology company Orbital Therapeutics for $1.5 billion, laying the foundation for cutting-edge biotechnology and accumulating momentum for long-term development.

4. Indication expansion: Exploring the incremental value of existing products

Expanding indications is one of the most robust and sustainable strategies for pharmaceutical companies to tackle the patent cliff. By conducting clinical trials for new indications, the application scenarios of the original drug can be expanded from a single disease to multiple related disease fields, which can effectively expand the patient population, increase product sales and market penetration. Taking Rongchang Biotechnology’s Taitacept as an example, the product was initially approved for the treatment of systemic lupus erythematosus. Through continuous clinical research, it was gradually approved for new indications such as rheumatoid arthritis and myasthenia gravis, further expanding its market space. Even if the patent expires in the future, it can maintain a stable market share with a wide range of indications.

5、 Not just patents: dual track protection of pharmaceutical intellectual property rights

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It is worth noting that protecting innovative drugs is not limited to patents. China is building a dual track protection system of “patents+data” to add another layer of “protective shield” to innovative drugs.
In March 2025, the National Medical Products Administration issued the “Implementation Measures for Drug Trial Data Protection (Trial, Draft for Comments)”, which clarifies that innovative drugs can obtain a maximum data protection period of 6 years.
Many people may ask, what is the difference between data protection and patent protection? In one sentence:
Patent protection: It protects “technical solutions”, such as the molecular structure and preparation method of drugs, and prohibits others from implementing them without permission;
Data protection: It protects “clinical trial data” and prohibits generic drug companies from directly relying on the trial data of the original drug to apply for marketing.
This means that even if the patent of the original drug is invalidated, as long as the data protection period has not expired, generic drug companies cannot directly use the data of the original drug to declare, and can only conduct complete clinical trials on their own – this will increase the research and development costs of generic drugs and force the entire pharmaceutical industry to shift from “low-level imitation” to “high-quality innovation”.

6、 Summary:

Ultimately, the “20 year” protection period for drug patents is more like a “theoretical upper limit”. For pharmaceutical companies, after deducting the long research and approval time, the window of real profitability is often only about 10 years.

The patent term compensation system provides a remedy for this’ lost time ‘; The data protection system has further strengthened the protection barrier for innovative drugs. For pharmaceutical companies, the best way to deal with the patent cliff is never to struggle on the edge of the cliff, but to find new growth points before the cliff arrives. For investors and even ordinary consumers, understanding the patent expiration date of a drug is also a fundamental skill in understanding the logic of the pharmaceutical industry.

After all, only by allowing innovators to make money can more good drugs be developed, and ultimately, it is all of us who benefit.

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