	Introduction

Congress has exhibited a strong and ongoing interest in facilitating the development of new, innovative pharmaceuticals for the marketplace while reducing the cost of drugs to consumers. Policies pertaining to funding for research and development (R&D), intellectual property protection, and cooperative ventures have played an important role in the economic success of these sectors. Industry-specific legislation, including the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the "Hatch-Waxman Act," also work to encourage innovation in the pharmaceutical sector while facilitating the entry of lower cost generic competition. A critical component of many of these federal efforts concerns patents. Patent ownership can provide an economic incentive for companies to take the results of research and make the often substantial investment necessary to bring new goods and services to the marketplace. In the pharmaceutical industry, patents are perceived as particularly important to innovation due, in part, to the ease of duplicating the invention. Recently, patents on a significant number of "blockbuster" drugs have expired. Between 2012 and 2016, branded pharmaceuticals with an estimated $117.2 billion in U.S. sales are expected to go off patent. Once patent protection is lost, these drugs are expected to lose up to 80% of the revenue generated for the innovator companies. Innovator companies depend on the funds generated from sales of blockbuster drugs to invest in additional R&D leading to new products that can improve the health and welfare of the public. The effects of blockbuster drug patent expirations on companies can be amplified when they have no other products in development to replace lost sales. Without branded drugs, there are no generics. In the absence of the research, development, and testing performed by the brand name pharmaceutical companies, generic drugs would not exist. Many factors contribute to innovation in the pharmaceutical industry and its ability to bring new and inventive products to the marketplace, including the cost of capital, FDA approval requirements, and insurance coverage. At the same time, this sector is facing significant issues associated with the loss of revenue available for additional R&D as blockbuster drugs lose patent protection and are subject to generic competition.
Congress has exhibited a strong and ongoing interest in facilitating the development of new, innovative pharmaceuticals for the marketplace while reducing the cost of drugs to consumers. Policies pertaining to funding for research and development (R&D), intellectual property protection, and cooperative ventures have played an important role in the economic success of the pharmaceutical sector. Industry-specific legislation, including the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the "Hatch-Waxman Act," also work to encourage innovation in the pharmaceutical sector while facilitating the entry of lower cost generic competition.
A critical component of many of these federal efforts concerns patents. Patent ownership can provide an economic incentive for companies to take the results of research and make the often substantial investment necessary to bring new goods and services to the marketplace. In the pharmaceutical industry, patents are perceived as particularly important to innovation due, in part, to the ease of duplicating the invention.
Recently, patents on a significant number of "blockbuster" drugs have expired. Lipitor, the world's best selling medicine, lost patent protection at the end of 2012 and immediately faced generic competition. Between 2012 and 2016, branded pharmaceuticals with an estimated $117.2 billion in U.S. sales are expected to go off patent. Once these drugs are no longer patent protected they are expected to lose up to 80% of the revenue generated for the innovator companies.
Brand firms depend on funds from sales of blockbuster pharmaceuticals for investments in additional research and development leading to new products that can improve the health and welfare of the public. The effect of blockbuster patent expirations on company revenues and R&D funding can be dramatic, particularly when there are insufficient products in the development pipeline to replace these drugs. Some experts point to indications that productivity is declining in this sector as revenues available for additional investment appear to be decreasing.
While many factors contribute to innovation in the brand pharmaceutical industry and its ability to bring new and inventive products to the marketplace, this sector is facing significant issues associated with the loss of revenue available for additional R&D due to patent expirations and generic competition. Generic versions of brand pharmaceuticals benefit the public due to their lower cost and greater availability. However, experts point out that without the research, development, and testing performed by the brand name pharmaceutical companies, generic drugs would not exist. Thus, there is ongoing congressional interest in striking the proper balance between lower cost drugs and maintaining an innovative domestic pharmaceutical sector.