Competition In The Pharmaceutical Sector


In the pharmaceutical environment there are two types of companies acting, the originator companies and the generic companies. The former produce and sell products that they discover and develop, the latter produce products using originator companies’ ideas.
The new medicinal sector is strongly tied to the research and the development of new medicines, with the aim to put new products, capable of curing new diseases or those which still do not have a cure, on the market.
Research and development department is very costly and complicated because firms compete each other on the market by launching always new medicines. Originator firms have to cover the costs by selling their products with higher price than the generic companies because the latter do not have any “R&D” plan. Having lower prices, generic companies can erode market share from other companies with higher costs.
For all these reasons, originator companies need to protect their market position avoiding that generic companies can have access to the use of their findings.
The main tools they have at hand to obtain this are the so-called “patents”, which are used to avoid abuse from the competitors.
However it can happen that generic companies can find a way to enter the market without infringing other companies’ patents. For example whether the patents is invalid or whether it is annulled before its expiry date.
According to the paper there are many ways to delay or block the entry of generic competitors, and these are: Patent strategies of originator companies, Patent-related contacts, disputes and litigation, opposition and appeals, etc…
There are some strategies to protect the “property rights”, and the purpose of them is to extend and to broaden the protection for these rights. Originator companies tend to file plenty of patents (on process, reformulation, etc…) on their inventions besides the base patent. This is called “patent cluster” and it is useful to protect both against invalidation challenges and to maintain a protection of the product even though the base patent is expired, in fact when this is no longer effective the generic companies cannot entry the markets because of the other patents. But a problem arises because the larger is the number of patents application the weaker they are and then many of them are easily revoked by the EPO (European Patent Office). However 36 out of 43 companies use this kind of strategy.
Another strategy is the use of the “divisional patent applications” that consists in patenting some part of the product. These parts are not related to the “parent patent” (the main invention), this means that they would be still pending whether the parent patent has been revoked. Nevertheless they have the same duration of the principal patent. The goal of the divisional patent is to avoid that generic companies can reproduce products during the patent examination, even if the parent patent has been refused, because they do not know what they are allow to imitate.
Summing up, patent strategies are aimed to create legal uncertainty and to create barriers in the market towards generic companies.
Since litigations are costly and time-consuming, it would be better try to avoid them. To do so, there can be some “tools” called “patent-related exchanges” such as contacts and disputes (out of the court). These can be very important between the companies as they can affect the launch of a product from the generic firms. Usually originator companies start the contacts and disputes (91%) as a strategy to protect themselves when they know that a generic company is entering the market. Some examples of patent-related exchanges out of court are: informing the generic competitor of its patent right, demanding that the generic product is withheld from the market, etc…
Whether the generic firm accepts not to enter the market or whether the originator realizes that there is no infringement then originator firm will not continue the dispute.
Nonetheless it can happen that the two parties can end up in court. The originator wants the court find an infringement in the behaviour of the generic company and, on the other hand, the generic party wants the court to state that it does not infringe any patents.
In the 54% of the cases, are originator companies that sue generic companies, but they win only 51% of the cases. At European level, the average duration of a litigation is 2,8 years (Italy over six years). However one third of the cases end with a settlement.
A solution to temporarily interrupt generic undertakings from selling a litigated product is the “interim injunction”. Whether the product is already in the market, it can forbid the marketing of it.
Generic companies have the right to oppose to the originator company’s patent in order to get legal verification on it, and if it is so they can enter the market without any problem. Anyhow they can oppose only within a certain period of time.
In the 59,6% of the cases, oppositions and appeal have total success and in the 15,4% they manage to reduce the scope of the patent.
Generic and originator companies can reach an agreement with each other in order to resolve disputes, litigations and oppositions on patent-related problems. In doing so, they can save money and time and reach an compromise that can satisfy both of them.
In fact, more than a half (53%) of the originator companies has reached an agreement with generic companies. In spite the fact that each case is examined individually, there are some factors that are taken into account in almost all the settlement agreements. From the originator side, one of them is the probability of winning the litigation, and from the generic side is the cost of the court case.
An example of settlement agreement could be a payment (in terms of money, licence or distribution agreement etc…) to the generic company by the originator company.
The “battle” between originator and generic companies is very tough because, on one hand, there is the right to protect originator companies’ inventions that are research incentives and, on the other hand, there is the consumers’ benefit in terms of having lower price medicines.

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