The Value of Patent Expiration

Abstract

Despite bringing breakthrough medications to market, pharmaceutical companies incurred criticism during the 1990s and early 2000s because of high prices of many drugs. We argue that the benefits of pharmaceuticals should be evaluated in a dynamic context that extends beyond the patent expiration date. Now that numerous patents have expired, generic medications exist in many important drug classes. Thus, consumers reap the benefits of past innovation for years to come. We estimate that across 19 molecules whose patents expired from 2005-2009, $193-436 billion will transfer to consumers over 10 to 20 years due to patent expiration. This suggests that, while prices were high during the patent period, creating an incentive for innovation, the transfers to consumers after patent expiration are significant, which is how the patent system is designed to function.

The value of innovation under value-based pricing

“…It is therefore important to acknowledge that drug prices change over time and the effect such change has on NHS productivity. For example, the drop in drug prices due to generic entry represents a significant transfer of value from the industry to the NHS ( 16 ). The impact of this transfer of value is exemplified by statins, which, according to Claxton et al ( 3 ), ‘were cost-effective when introduced and improved the productivity of the NHS (tending to reduce the threshold).…”