Pharmaceutical patent protection grants pharmaceutical companies with full proprietary rights over new drug designs for a 20 year period. Once that period is over, the patent expires and the company loses all rights over the protected product and with it, the exclusive right to sell it and profit from it. For many companies, the end of patent protection for many of their drugs is around the corner.

The pharmaceutical industry is anticipating a dreadful loss of patent protection which will bring a slowdown on revenue growth for the pharmaceutical giants. Ten of the best-selling drugs in the industry will lose patent protection between now and the end of 2012, and the biggest problem is that pharmaceutical corporations are running out of ideas for new drugs to compensate for these losses.

During 2010, overall sales for the industry reached over $800 billion worldwide, from which $250 billion are accounted for by only 120 brand-name prescription drugs that will all lose patent protection by 2016. That means that 30% of the sales will fade away in the next 5 years, and corporations are hard-pressed to develop new drugs with enough potential to bring in new revenues. There is not much time left to pull that off, and failure to do so can represent financial distress, market share reduction and fiercer competition.

Pharmaceutical companies must then invest all their efforts in Research and Development, and although this is the most logical step, it’s also the most expensive. Pharmaceutical companies have recently faced reduced budgets and higher costs for R&D, partly because of a stagnant economy and partly caused by reduced cash flows due to people choosing generic versions of popular drugs over brand-name versions.

Companies are focusing much of their time and resources in searching for that drug that can turn into a goldmine, trying to develop effective drugs for important and complicated diseases like Alzheimer’s, Parkinson’s and certain cancer treatments. But at the same time, they are also trying to take advantage of their current patents and either increase prices or challenge the patents in order to delay expiration and therefore expand sales; only a six-month extension on the patent protection can represent up to $2.5 billion worth of sales.

To give you an example, widely prescribed brand-name drugs such as Singulair, Plavix, Lipitor and Seroquel (all to lose patent protection before the end of 2012) have faced price increases of up to 16% within the last year. These products together represent over $22 billion on sales every year.

But not everything is bad news when talking about patent protection, as there are also two major winners in this equation: Insurance companies and the general public. Insurance companies cannot wait any longer for many of these patent protections to expire, as they can save millions on prescriptions and claims by requesting that patients acquire the generic versions of the drugs and/or impose penalties on those who buy the brand-name product. Generic drugs represent less than 30% of the cost of the brand-name product normally, and as long as generic versions are FDA approved, insurance companies will be off the hook for liabilities.

The other big winner is the consumers, because drugs will now be able available in generic versions, prices will decrease dramatically, and availability of the products will increase. Treatment related to complex conditions will become more affordable, especially when considering that on many occasions, patients are impaired or disabled by illnesses that challenge their ability to work and reduce their potential to generate the high income needed to pay for brand-name products. The only potential risks consumers are facing now is acquiring generic products that may not yet be FDA approved, since many times ingredients or even the actual products are coming from low-cost countries that may not have similar quality control standards as those of the original product, which may result in a lower quality of the drug, reduced efficiency of the intended purpose of the product, or even aggravated side effects.

Competition among laboratories and pharmaceutical corporations is fiercer than ever and likely to get worse. Companies are looking for the one product that will drive their sales and revenue for the next 20 years, so if you have an idea or know anyone who does, step forward, as it may be an opportunity to create some business. Like those fellows in Mexico who have developed the first (and only) FDA approved scorpion sting antidote that eradicates symptoms within 4 hours, it may not be the ultimate drug, but ask the local pharmaceutical companies in Nevada, Arizona and New Mexico how they like it.
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Diego De la Garza

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