Pharmaceutical Innovation Versus Generic Competition - In the Context of the New EU Pharmaceutical Legislation

Development of innovative drugs is a lengthy, risky and expensive enterprise, and the research-based pharmaceutical industry depends uniquely on intellectual property rights, e.g. patents and regulatory data protection to support its investments in drug development activities. After the expiry of intellectual property rights for original drugs, generic drugs may enter the market. A generic drug is a copy of an original drug, sold at a considerable price discount in comparison with the original drug. In the vast majority of cases, the entry on the market by generic drugs results in huge and rapid losses of market shares on behalf of the originator. The EU pharmaceutical legislation has recently been revised through the 2001 Pharma Review. On one hand, recent legislative and regulatory developments on both the EU and national level threaten the value of pharmaceutical innovation in two distinct respects. Firstly, patent rights are being restricted through the inclusion of a Bolar provision in the EU, allowing generic competitors to conduct pre-patent-development work. Secondly, state governments increasingly introduce systems favouring the use of generics, in order to cut down their healthcare budgets. These factors contribute to making investments in pharmaceutical research and development even more hazardous from a risk return perspective. On the other hand, there is a possibility to obtain increased periods of market exclusivity for innovative drugs in the EU. Furthermore, under the new EU pharmaceutical legislation, original drugs, and thereby the research-based pharmaceutical industry, will benefit from an increased and harmonised period of regulatory data protection. At first sight, it is hard to see how legislative measures actually affect the conflicting interests of research-based pharmaceutical companies on one hand and generic competitors on the other. In this thesis, changes introduced by the 2001 Pharma Review is scrutinised and compared to the earlier legislative situation. The intent is to elucidate as to what extent the new EU pharmaceutical legislation succeeds in striking a balance between pharmaceutical innovation and generic competition. In the concluding part of this thesis, the main finding is that through the new EU pharmaceutical legislation, in connection with national practises promoting the use of generic drugs, the generic industry is favoured and therefore the incentives to engage in pharmaceutical research and development are found to be diminished