Innovation – Patents, Generics and Payers: The Political Dynamics of Interaction

Abstract

This paper sets out to explore the relationship between pharmaceutical innovation, its industrial dependence on patent protection, the advent of cheaper generics after patent expiry and the cumulative impact of these issues and events on healthcare payers. Three observations will help to set the scene. These relationships are not static, but dynamic. They change over time as the pendulum tends to swing. The issues under observation are heavily politicised because the conduct, financing and outcome of healthcare are all politically controversial and influential in general elections. Pharmaceuticals are both an industry and a component of healthcare. The political balance, at government level, between healthcare policy and industrial policy for pharmaceuticals will profoundly affect the prospects of both the research-based and the generics sector of the industry. Historically, the two sectors became clearly distinguishable in the 1930s.