THE IMPACT OF PATENT EXPIRATION ON U.S. DRUG PRICES, MARKETING AND UTILIZATION BY THE PUBLIC
November 6, 2009
What is the impact of the expiration of drug patents on U.S. drug prices, marketing, and the quantity of drugs consumed, ask economists Frank Lichtenberg of Columbia University and Gautier Duflos of the Paris School of Economics?
Although expiration of a drug's patent causes the average price of the drug to decline sharply, it does not cause utilization of (or access to) the drug to increase. This is because utilization of a drug depends on how much its manufacturer spends on marketing it as well as on its price, and marketing expenditure also declines sharply after patent expiration, according to a new study by the Manhattan Institute.
This study is based on data on the price, marketing, and utilization of nearly all prescription drugs sold in the United States during the period 2000-2004, some of which lost patent protection during this period:
- Drugs generally lose patent protection about 12 years after they are first sold in the United States.
- Within five years after patent expiration, prices decline by 61 percent.
- Advertising expenditures decline 60 percent four years after patent expiration.
- Number of prescriptions remains constant between year 12 and year 16 despite the sharp decline in average price.
The findings indicate that increased utilization of prescriptions for generics after patent expiration is almost perfectly offset by reduced utilization of branded prescriptions. The absence of any increase in the number of prescriptions during the period of rapidly increasing competition from generics may be due to the sharp decline in advertising. The authors note that marketing has a significant impact on utilization and insofar as increasing the utilization of medical innovations improves public health, limitations on advertising may unduly diminish it. Additionally, these findings imply that weaker or shorter patent protection would not increase American's access to prescription drugs.
Source: Frank Lichtenberg and Gautier Duflos, "The Effect of Patent Expiration on U.S. Drug Prices, Marketing and Utilization by the Public," Manhattan Institute, October 2009.
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