NCPA - National Center for Policy Analysis

Winners and Losers When a Drug Goes Off Patent

September 5, 2001

A deluge of branded drugs are scheduled to go off patent soon and the generic drug industry is licking its chops. Big wholesalers and drug store chains also stand to reap big gains.

  • From now through 2005, a collection of branded drugs that pulled in $35 billion in the United States last year will lose their patents -- more than twice the rate of the 1990s.
  • Drugs usually enjoy 12 to 14 years of patent protection.
  • Within 12 months of expiration, 80 percent of the business will migrate from research pioneers to copycat manufacturers.
  • By volume, generics' share of drug prescriptions has swelled from 33 percent to 45 percent over the past decade.

Two sorts of middlemen distribute prescription drugs and stand to make considerable profits as generics hit the market. They are wholesalers and giant retailers. The wholesalers generally serve small drugstore chains and independent stores which lack warehousing space and bargaining clout. The retailers, such as Walgreen, lack neither and cement their deals directly with generic manufacturers.

For big distributors, profit margins on generics are said to be three to four times those on patented drugs.

The worth of the prescription drug market last year has been estimated at $140 billion at retail.

Source: Chandrani Ghosh and Andrew Tanzer, "Patent Play," Forbes, September 17, 2001.


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