Pharmaceutical Industry Restructuring Driven by Patent Expirations
Major pharmaceutical companies are accelerating business restructuring triggered by patent expirations. Kyorin Pharmaceutical has decided to sell its generic drug business. Teijin has also announced a policy of seeking a “best owner” for specific pharmaceutical operations.
Behind these moves lies a sharp decline in revenue due to patent expirations. When a new drug’s patent expires, generic manufacturers enter the market, intensifying price competition and causing sales to drop significantly in a short period.
Viewing this news through the lens of “reversible management” offers interesting insights. These major companies are using the clear deadline of patent expiration as a trigger to ensure business reversibility.
Patent Expiration: The Perfect Timing for a “Reversible Exit”
Patent expiration provides ideal conditions for considering the reversibility of management decisions.
First, the timing of the exit is clear. The patent’s expiration date is predetermined, allowing companies to predict when profitability will decline.
Second, the business’s value is relatively easy to assess. While the patent is active, the technology and market share carry a premium. After expiration, the business is evaluated purely on its competitiveness against generics.
Third, finding a buyer is easier. For companies specializing in generics or seeking new business areas, acquiring existing sales channels and manufacturing facilities is a rational option.
Kyorin and Teijin’s decisions are excellent examples of executing an exit strategy when the “reversible conditions” of patent expiration are in place.
Conditions for a “Reversible Business Sale” That SMEs Should Learn
The actions of major companies offer valuable lessons for SME owners. It is crucial to understand the following three conditions.
Condition 1: Set an Evaluation Period in Advance
Patents have expiration dates. For SMEs, you can set the timing of contract renewals with business partners or the obsolescence of specific technologies or know-how as an “evaluation period.”
For example, when starting a new business, decide to “review it triggered by market changes after three years.” Or, set the renewal period of a contract with a major client as the “timing for an exit decision.” Simply doing this reduces the risk of aimlessly continuing a business.
Condition 2: Design the Business for Easy Separation
When considering a sale or exit, if the business is intricately intertwined with other departments, separation can be costly.
For SMEs, dedicating specific systems and personnel to a particular business makes it difficult to dispose of those assets during an exit. Conversely, using cloud services or outsourcing to convert fixed costs into variable costs minimizes the damage during an exit.
Thinking in advance about “what will remain when this business ends” is the foundation of reversible management.
Condition 3: Maintain a Mindset of Seeking a “Best Owner”
Teijin’s concept of “seeking a best owner” can be applied to SMEs. Instead of viewing divestiture as a “defeat,” consider it as finding the owner who can maximize the value of that business.
For example, even a business with limited growth potential within your company could create significant value when combined with another company’s product lineup. Shifting your mindset from “separating” to “handing over” lowers the psychological barrier to exiting.
The Era Demands “Reversible Management”
Cases like patent expiration, where a business’s lifecycle is clear, are actually limited. In many SMEs, profitability gradually declines, and while owners feel “it might be time to call it quits,” they postpone the decision.
The essence of reversible management is not about avoiding postponement. Rather, it’s about treating decisions as “experiments” and predetermining the evaluation period and exit conditions.
Kyorin and Teijin are using the clear deadline of patent expiration as an “exit trigger.” SME owners are encouraged to take stock of their own businesses to see if there are any “invisible patent expirations.”
This could be the obsolescence of a specific technology, the deteriorating performance of a key client, or even the aging of the owner.
The important thing is to set that timing in advance and keep the business in a state where it can be separated. This way, you always have the option to “reverse course.”
Summary: Exit is a Strategy, Not a Defeat
The news of business restructuring triggered by patent expirations teaches SME owners the importance of “exit timing” and “reversible design.”
Letting go of a business is never a defeat. Rather, it is a strategic decision to concentrate limited management resources on areas with greater growth potential.
Designing “reversibility” into management decisions. Isn’t this the most practical approach for navigating an era of high uncertainty?
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