It’s too late to buy a parachute when you’re in mid-air

Marc Sidwell
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AMERICA is teetering on the edge of a so-called fiscal cliff, which falls at the end of this year. If its politicians need more encouragement to avoid falling over it, perhaps they should take a look at the damage already wrought by another metaphorical precipice: the patent cliff.

Three pharmaceutical firms yesterday saw their revenues brought down by the expiry of key intellectual property: Sanofi, Novartis and AstraZeneca, the UK’s second-biggest drugmaker, which suffered most of all. AstraZeneca acknowledged that “the revenue decline in the third quarter reflected the ongoing effect from the loss of exclusivity on several brands”, with antipsychotic Seroquel IR a particular drag in the US. Global revenue fell to $6.682bn (£4.14bn), down 15 per cent at constant exchange rates and 19 per cent on an actual basis.

The problem for AstraZeneca is that it has a lot further to fall. Pascal Soriot has only been in post as chief executive since the start of October, and he can’t be expecting a quiet life. The next five years could witness up to half the firm’s current revenue falling off the patent cliff.

That’s tougher for AstraZeneca than for some others, because it seems unwilling to look for alternative revenues outside of prescription drugs. But the very existence of the patent cliff is in part a sign that blockbuster medicines are proving harder and harder to create. Whether that’s due to the loss of low-hanging fruit or the growing height of the regulatory hurdles that must be jumped, it makes Soriot’s determination to “restore the company to growth and scientific leadership” a very courageous, or, less generously, a high-risk strategy. The only obvious way to make it work, as Soriot has acknowledged, is a strategy of acquisitions rather than just relying on inspiration to strike internally. But that’s expensive.

It’s bad for everyone if the big pharmaceutical firms have to turn from bleeding-edge research to selling shampoo and face cream to make ends meet. But it is doubtful a firm can escape a hard patent cliff landing by trying to buy itself a parachute in mid-air.

spotlight on Santander

LIKE a tabloid love rat, Santander UK was trying to make a good impression yesterday after having left RBS at the altar in its failed attempt to purchase 316 of its branches. That process wasn’t helped by having to admit it had set aside £52m to cover the expense of wooing Stephen Hester’s banking group.

However, Santander UK looks positively rosy next to its parent, Spain’s Banco Santander, which yesterday reported a 94 per cent fall in its net profits. Santander UK is not exposed to Banco Santander’s bad property loans in Spain. But with its long and short term ratings placed on Credit Watch Negative by Standard & Poor’s, it still faces challenges of its own.