Without patents, the pharma industry couldn’t exist.
That’s because pharma wouldn’t be able to make a profit on their substantial investments.
How do they work?
Typically, a patent is taken out on a new molecule of interest shortly before it enters pre-clinical trials. This is called a compound patent and lasts for 20 years.
Now the clock starts ticking.
By approval, there is usually ~12 years exclusivity left
Most of a patent’s life expires before the drug has even launched. That’s why a drug needs to be developed quickly. It’s possible to launch a drug after the expiration, using data exclusivity protection. But this may only last 5 years.
Huge difference to ROI
The return on investment (ROI) for a drug is enormously influenced by the years left on the patent. One extra year could double the return, because that’s another year of sales (for a drug like Gleevec, it could be $5bn). The day after generics hit the market, it is not unusual to see an 80% sales drop.
For this reason, drug companies will try all sorts to retain their patent protections. They might sue generic drugs companies in an attempt to delay genericisation.
Genius v unethical
Occasionally, like with Allergan’s Restasis, they’ll resort to extreme tactics, like selling the patent rights to a Native American tribe. Tribes are immune from civil suits, and therefore intellectual property challenges. Whilst the market was delighted, its kept the drug price high.