Do generic drugs encourage innovation or damage competition? Sarah Southerton reports

From may this year, a new law was passed in South Africa, allowing generic, or copied, drugs to be used in the treatment of African Aids patients.

The legislation, first introduced in 1997, followed a high court battle in Pretoria against the major drugs companies, who argued that such a rule would ignore those existing governing patent and intellectual property rights.

The Pharmaceutical Manufacturers Association of South Africa argued that such moves would not be permitted in other industries. "If this type of legislation was applied to any other type of industry infringing their commercial rights it would be regarded as a form of nationalisation and they would pack up and go," said chief executive Mirryena Deeb at the beginning of the hearing.

Aid charities argue that the ruling in their favour and the subsequent law would have a snowball effect on the cost of treatment. "If more medicines are cheaper, you will have more private companies who will give them to their staff," said Sophie-Marie Scouflaire of Medecins Sans Frontieres. "It will be less expensive to treat their employees [with anti-retrovirals], than pay bills from hospitals."

The case in South Africa is just an example of how concerned the pharmaceuticals industry is about an increasingly competitive market for generic drugs. The European Commission is currently holding a regulatory review into the generic drugs industry. A result of this could be the harmonisation across Europe of the "data exclusivity" of brand drugs, that is, the period of time during which health authorities cannot accept a brand's generic equivalent. At present this length of time can vary from country-to-country, from six to 10 years.

An existing proposal is to increase this across the continent to 11 years, to encourage innovation in the drugs industry, and so compete more effectively with the US. But, points-out the British Generic Medicines Association, American health authorities only wait five years before producing generic products - and yet US pharmaceuticals still continue to lead the field.

It is generic drugs, it argues, that have been proved to encourage innovation among the big brands; when a number of products reached their patent expiry date in 1997, generic equivalents quickly took 60 per cent of the market. In other drugs, this can be as high a proportion as 90 per cent within a year.

"The importance of generics must not be underestimated," argued Chairman John Beighton. "Generics in the UK have the lowest prices in Europe. Without the contribution made by generic medicines, the NHS as we know it couldn't exist."

The pharmaceuticals, however, are fighting back. Tactics are now being employed to prevent generics from taking the market, before the brand's patent expires. Drugs companies are increasingly withdrawing the brand before patent protection ends, to replace it with a different brand, by modifying the original product with little or no extra benefit.

The BGMA estimates that, over a decade, such practices could cost the NHS as much as £2 billion for a popular product, or £150 million for one less used.

There are alternative methods to promote generic drugs. France, Denmark and the Netherlands have all adopted a scheme known as the "pharmacist's right of generic substitution." This allows pharmacists to administer generic drugs to patients containing the same active ingredient as the brand.

Meanwhile, in Italy and Belgium, the reference reimbursement scheme was introduced this year, which forces the prices of the originator drug and the generic drug to be interrelated.

Despite these measures, however, last year France, Spain and Italy had still failed to reach the government target for the generics market to account for 15 per cent of pharmaceuticals, reaching only two per cent. A further measure that European countries are being encouraged to adopt is the Roche-Bolar exemption, already in existence in the US, and would allow generic drug companies to develop new treatments before the brand's patent runs out.

In contrast to last year's European figures relating to the generics market share, in the American pharmaceuticals market, generics accounted for 40 per cent. However, generics are not necessarily the simple answer to reducing NHS costs as it may seem.

In 2000, health minister Lord Hunt pledged to "force down" the prices of these drugs, claiming that they were "a rip off": "There is no adequate explanation for the steep price rises - nor for prices remaining high for so long What is clear is that some players took advantage of the situation within the supply chain, at the expense of the NHS."

Officers from the Serious Fraud Offices raided six pharmaceutical companies in April this year, over allegations that they had overcharged the NHS for penicillin-based antibiotics and warfarin between 1996 and 2000.

Generic drugs are a desirable alternative, particularly in the third world, but whilst the cost of R and D for new pharmaceutical products remains huge, this debate is unlikely to be resolved in the near-future.