Patents are the lifeblood of the Pharmaceutical Industry, without patents companies would not be willing to spend the time, resources, and money to produce new drugs. The vast majority of money in the pharmaceutical industry goes to research and Development it takes very little to actually manufacture the drug. What this means is that as long as a company has a patent on a drug they have a monopoly on it. Having a patent on their drugs means that as a reward for spending the resources to develop the drug is that for a limited time, a number of years usually 20, the government allows them to be the sole producer of that drug. In effect giving the company a monopoly on that drug allowing them to charge a higher price then the market would produce.
Once the drug goes off patent though the market becomes flooded with generics. The FDA defines generics as “A generic drug is identical -- or bioequivalent -- to a brand name drug in dosage form, safety, strength, route of administration, quality, performance characteristics and intended use.” What that means in simple terms is the exact same drug just with a different name. Since these new companies do not have to go through the long research and development product to make a generic version of the drug they charge a substantially smaller amount for their drug. To put it another way generic drugs make up over 70% of all drug sales in the nation but only around 15% of the 300 billion spent on prescription drugs.
With numbers like that it is easy to see why drug companies are very weary of when key drugs go off patent. Some companies have developed tricks t extend the life of the patent on their drugs but not very effectively. Furthermore companies were just given protection from lawsuits regarding warning labels. Generic drugs are not aloud to have warning labels stronger then brand name drugs. This new layer of protection gives generic drug companies less risk then brand name companies.
Across the industry companies are going to be losing patents on some of their best selling drugs. One example is Eli Lilly whom over the next several years they are going to lose patents on drugs that account for almost three-fourths of total sales. Without further research into new drugs these companies can expect to see their revenue streams weaken.
So over the next several years we can expect a lot more money to stay in consumers pockets with a rise in the number of generic drugs and if companies don’t keep up the development of new drugs we can expect their profits to start shrinking.
Sources:
http://www.nytimes.com/2010/02/20/business/20generics.html?ref=genericdrugspharmaceuticals
http://www.fda.gov/Drugs/ResourcesForYou/Consumers/QuestionsAnswers/ucm100100.htm
http://www.nytimes.com/2010/10/01/business/01lilly.html?ref=lillyeliandcompany&pagewanted=1
That is an excellent point about patents. They are probably the single most important asset that the pharma companies possess. Once they expire, it will become very difficult for companies like Pfizer and GlaxoSmithKline to rake in billions of dollars on their own.
ReplyDeleteI agree with Jake, however, the real sticking point with this whole patent mess (and I say that because there are even bigger problems with patents in areas like technology and media) is whether to advocate for a large boost in the number of available generics at the cost of losing some substantial contributions to the US economy or to try and promote the extension of patents which have been the life blood of so many large organizations for so long.
ReplyDeleteI also agree with Jake. Patents are such an important part of the pharma industry. But, when they expire its a plus on the consumer side because it allows them to save some money.
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