Patents, Market Exclusivity, and Generic Drugs

When a drug developer creates a new chemical that they believe could be used to treat disease, they generally file a patent, granting them the exclusive right to market that chemical. A chemical patent expires twenty years after the date of filing, after which point, other companies can manufacture the drug in the exact same way, also known as a generic drug. The generic versions of the drug that have been approved by the Food and Drug Administration (FDA) can be marketed by other companies. Generic drugs compete with the original drug, significantly reducing both the cost of the originator drug and the generic drug.

Drug patents are usually granted when the drug is discovered, which is before a drug begins clinical trials or has been approved by the FDA. In some cases, drug development and clinical trials  take so much time that drug developers are left with only a few years of patent protection to be the only product on the market and recoup their costs.

To incentivize the development of new drugs, the drug developers receive market exclusivity for a period of five years after a new drug is approved, during which time, no other company can sell the drug, whether or not it is protected by a patent. Some drugs, including orphan drugs, are granted longer periods of market exclusivity (i.e., 7 years) to incentivize development.