Innovation versus Imitation: study concludes that patents are significantly more important in the area of pharmaceuticals than in other industries.

Medical innovation requires a public policy environment that encourages and supports research and development. New medicines play an essential role in enhancing the quality of life, improving productivity and making health care more cost-effective. In Canada, despite the aging of the population, hospitalization rates have declined by more than 30% over the last 20 yearsi. Innovative pharmaceuticals, diagnostics, and medical procedures have all contributed to the shift from inpatient to outpatient care and are helping to contain health costs while improving the quality of care.

A recent paper by Henry Grabowski, Professor of Economics at Duke University examines the role of patents in innovation and access to new medicines and concludes that patents are significantly more important in the area of pharmaceuticals compared to other high tech industries because the costs of innovation are very high while the costs of imitation are relatively low.ii

“Without a well structured system of patent protection, neither the research pharmaceutical industry nor the generic industry would be able to grow and prosper, as the rate of new product introductions and patent expirations would decline significantly."iii

Less than 1 percent of compounds examined in pre-clinical testing make it into human testing. And those that make it through the development process take, on average, 8 years to pass through the various phases of testing and regulatory approvals. As a result of this lengthy process new drugs introduced in the 1990s had an effective patent life of approximately 12 years. Within one year of patent expiration generic products enter the market with very low development costs and capture 64 percent of market share.