Ireland hits its "patent cliff" Chart from Michael Saunders at Citi (click to enlarge): What that shows is a pretty dramatic fall in Irish industrial production in September, down 12.7 per cent on a month on month basis. But it's not as surprising as it might have been, particularly when you take into account the component entitled " Basic pharmaceutical products and preparations" - the scary blue line at the top. It fell 35.2 per cent over the previous month, its sharpest drop in since February 2006 and right over the "patent cliff" - that rather worrying precipice when several blockbuster drugs manufactured in Ireland lose their patent protection, leading to steep cuts in prices and lower export volumes. From the Irish Times" Dan O'Brien in September: [T]he pharmaceutical and chemicals sector generated export earnings of €56 billion last year. This represented a 40 per cent increase in just five years. No other goods exporting sector has come near a rate of growth of this kind. But not only is it unlikely that such rates of growth will continue, they may well be reversed, and in a relatively short time frame. The reason is the expiration of patents on many of the big-selling drugs made in Ireland. There is no doubt that global sales of these drugs will fall sharply in value as generic manufacturers offer their own versions at a fraction of the cost. What is in question is what the holders of expired patent decide to do in response. Chris Van Egeraat, an academic specialising in the sector at NUI Maynooth, believes the choice for "big pharma" is either to continue production and slash prices to compete with new entrants to the market or to exit the market altogether. If major firms plump for the first option, overall export earnings will fall sharply; if some halt Irish production altogether, earnings will fall even more precipitously and some of the 30,000 people employed in the sector will face the grim prospect of redundancy. And from Saunders again: The pharma sector can be quite volatile from month to month and accounts for 33% of Ireland's total industrial production (and 36% of manufacturing output). The sharp drop in output for this sector reflects the "patent cliff," with reduced output of a specific high-selling branded pharmaceutical product produced in Ireland. Unless the "patent cliff" effect has a further negative impact, output is unlikely to continue falling sharply in coming months - but nor is it likely that output will simply reverse this drop and rebound to the August level. Related links: Patent losses threaten Irish recovery - FT Weak vaccine demand hits GSK - Irish Times