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Employees need effective patents as much as their employers

In a dramatic illustration of the value of patent protection to a company’s employees (and the effect of losing that protection), pharmaceutical giant Lilly has announced that its 38,000 employees around the world will see their pay frozen through 2014 and that bonuses in 2015 are also likely to be reduced. The reason? The impending expiry of patents on two of Lilly’s blockbuster products – Cymbalta (duloxetine) and Evista (raloxifene). These two products, an antidepressant and cancer/osteoporosis treatment respectively, together contributes over $6 billion per annum to Lilly’s revenues.

The so-called “patent cliff” – the collapse of revenues that occurs rapidly when patent protection on successful drug products expires and generic competition becomes possible – has been responsible for widespread cost-cutting measures and rationalisation within big pharma companies in recent years. Lilly itself had to contend with the loss of protection for its antipsychotic treatment Zyprexa (olanzapine) only two years ago, and now faces further pressures.

This is an extreme example of the direct effect that loss of intellectual property protection can have on a company’s revenues, and in this case how that effect can disadvantage not only shareholders, who may see a fall in revenues, a fall in dividends and possibly a fall in the capital value of their investment, but also on the company’s staff.

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