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Generics Competition & Innovation—A New Relationship

It is by now generally recognised that the lack of pharmaceutical innovation in Europe is not due to deficient market protection for pharmaceuticals. Europe’s failure to keep pace with the United States’ record on innovation is rooted in other problems.

Generics — Savings — Innovation — Employment

Too many people in Europe still hold the old fashioned belief that any form of competition from generic medicines is bad news for originator companies. Recent thinking demonstrates this to be far from the truth. Policy-makers and health economics experts now see increasing generic competition after patent expiry as a major instrument for promoting pharmaceutical price competition, innovation and employment in the EU.

As discussed elsewhere, permanent monopolies on pharmaceutical products provide little incentive to discover new medicines. Competition is a major stimulation to innovation. This is born out amply by the US experience, where, R&D investment rose sharply after establishing more intense competition from equivalent generic medicines in the late 1980s. This in turn gave rise to the success of the 1990s, one of the most brilliant periods of pharmaceutical invention of all times, with US laboratories leading European companies nearly two to one in the number of new chemical entities introduced.

It is precisely because the US boasts a history of governmental encouragement of generic competition that it enjoys one of the world’s highest rates of generic penetration (over 60% in volume terms). And it is for precisely this same reason that the United States is the country with the highest rate of global pharmaceutical innovation.

It is by now generally recognised that the lack of pharmaceutical innovation in Europe is not due to deficient market protection for pharmaceuticals. Indeed Europe now has the strongest and longest periods of market protection in the world, particularly after the introduction of the new provisions on Data Exclusivity from the EU Pharmaceutical Legislation adopted in 2004.

Europe’s failure to keep pace with the United States’ record on innovation is rooted in other problems. These include unnecessary delays in market access, undercutting of revenues for in-patent products by parallel imports, lack of university-business research relations and lack of public investment into pharmaceutical research. Addressing these problems and increased encouragement of generic competition will benefit not only Europe’s patients, but also the economic competitiveness of both the originator and generic medicines industries in Europe.

For further information:
EGA Position Papers submitted to the Pharma Forum