How do drug companies purchase patents?

Last Updated at: Jul 25, 2020
How do drug companies purchase patents?
Two health activist groups have appealed to the Indian Government recommending that Gilead Sciences’ patents for remdesivir be rescinded so that it could be more effectively circulated to coronavirus patients around the world, especially in poorer countries.


Since the pharmaceutical companies in India spend a large amount of their money researching new drugs and combinations, patent protection is a must. Patent protection encourages research and development, as it ensures companies protection of intellectual property. By protecting their best interests and economic security, it fosters the development of new drugs. So, how do these drug patents work, and how can companies buy licenses? Also, why should companies buy patents when they can file one themselves? Here’s a look at how the Indian drug patent system works, and how MNCs and Indian companies buy patents for their financial benefit.

  1. Why Do Drug Companies Need Patent Protection?

  2. Need for Drug Patents

  3. Office of Generic Drugs 

  4. Types of Drug Patents

  5. Branded Drugs Definition

  6. Purchasing of Patents

Why Do Drug Companies Need Patent Protection?

Big pharmaceutical companies spend billions researching the effect and need for new drugs that can help save lives. However, if they do not have a drug patent for their drugs, other companies have the chance to make the same drug and sell it. Since these companies did not spend money on researching how to make the drug, it costs less for them to make. Therefore, such companies can make a profit, even by selling the drug at lower costs. When two drugs that do the same thing hit the market at different prices, the one selling at a lower cost will capture the market. Therefore, the company which found the drug ends up running at a loss. 

However, if they do have a drug patent, then other companies cannot sell their drug. Therefore, they will be the only players in the market for a while. The duration of the patent allows them to recoup the cost endured for research. Following this, other companies can make generic drugs that do the same thing, which helps make the drug more affordable. This is why drug companies need drug patents.

Need for Drug Patents

  • Pharmaceutical products take around 10 to 15 years to develop and market. 
  • A large number of years of the drug gets lost in approval, testing, and marketing. Studies have shown that while a drug patent lasts for 20 years, the useful life of a license rests at 11.5 years. 
  • Therefore, drug companies have to recoup their research cost within these 11 years to run a profitable business. 
  • Also, the same study shows that it takes roughly at least $800 million to develop a new drug. 
  • Patent protection makes scientific information regarding new drugs open to the public. Therefore, if not for patent protection, manufacturers would lose their market exclusivity.
  • However, to ensure that even middle-class and lower-income people get access to these drugs, governments allow generic drugs to be sold. After a patent expires, generic drug manufacturers buy these patents, so that they can produce versions of the same medication at lower costs.

Office of Generic Drugs

The Office of Generic Drugs is the American authority that regulates and ensures that the public is provided with safe generic drugs. They put all generic drugs through a scientific and regulatory process to ensure that Americans consume only high-quality generic drugs. Studies show that almost 90% of all prescribed medications in the US are generic drugs. The Office of Generic Drugs ensures that all such drugs have the same quality as that of the original. They review generic drug applications, provide oversight to clinical trials, and investigate reports of low-quality generic drugs. 

Types of Drug Patents

  1. Product Patent – Such a patent can be for an active ingredient, formulations, isomers, or even the drug as a whole, as it is very unique. 
  2. Composition Patents – These patents seek to protect specific doses, combinations, and formulas of drugs and tablets. Composition claims tend to cover active ingredients, carriers, fillers, and lubricants. 
  3. Synergistic Patents – Drug synergy refers to the way a combination of drugs helps in magnifying or enhancing the effect of one. Such patents help protect new synergistic combinations.
  4. Technology Patents – These patents claim to protect the technology involved in stabilization, solubility, and taste masking.
  5. Polymorph Patents – Polymorphs are the various crystal structures and physical forms of an existing compound. They help in increasing the stability or reducing impurities within drugs. Polymorph patents help protect discoveries of compounds that enhance the efficacy of a drug.
  6. Biotechnology patents – Such patents revolve around drugs that use living organisms and biological materials.

Branded Drugs Definition

Brand name medicines or branded drugs are those which are discovered, manufactured, and sold by a pharmaceutical company. They require a lot of R&D, approval, testing, and paperwork to start their sales. After approval, the innovatory company starts to exclusively market the branded drug for 20 years. Usually, they are sold at higher prices, so that the parent company can cover the cost of drug research and development. It is only after the patent expires that generic drugs can enter the market.

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Purchasing of Patents by the Drug Companies

Whenever a very useful, widely popular drug loses patent protection, generic competition takes over. The original company loses a great asset, as most of the market will flock towards the lower-priced drug. In the US, in 2016, drugs whose sales cross $133bn annually got exposed to generics, as their patents expired. What happens in such cases is that individual companies wait for such opportunities to make money. Patent laws have given rise to drug manufacturers who do no R&D of their own. These companies wait for patents to expire, and then rush in to buy those licenses. After buying them, they hike the price of the drug, as patented drugs have no price caps, though they did not spend on R&D. Therefore, they invest in purchasing patents and not in research. This has led to a patent market, wherein licenses are bought and sold by middlemen searching for fiscal benefit.

While the primary purpose of a business is to make money, when dealing with the healthcare industry, ethics come into the picture. The best thing the government can do in such cases is promoting an atmosphere of balance. While pharmaceutical companies deserve support for innovation, they must be regulated to prevent a monopoly of the market.