Patenting Necessary for Continued Innovation in Biotech/Pharma Industries, Academics Conclude

Most recent academic and some popular assessments of the effects of the Bayh-Dole Act have been critical.  This has been due in part to political opposition to licensing university technology (and the purported soiling of the purity of the academic mission), the desire of corporate entities (foreign and domestic) to simply appropriate that technology, and the uneven distribution of university patent success stories (an outcome experienced tech transfer managers both understand and expect — one of the few truths in Bessen and Meurer’s Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk is that most patents outside the biotech/pharma area are not “blockbusters”).

CoverWhich makes notable the recent report from Mari Lundeby-Grepstad and David Tordrup of the London School of Economics, and Tina Craig and David Taylor of the School of Pharmacy the University of Central London.  This report, entitled “Patients’ Needs, Medicines Innovation and the Global Public’s Interests: Achieving affordable universal care, enhanced public health and sustained investment in better treatments” was funded by the International Alliance of Patients’ Organizations, which characterizes itself as “a global voice for patients.”  The Report’s conclusions and assumptions are set forth on the first page of the Report:

• In 1900 world-wide average life expectancy at birth was no more than 40 years. Today it is about 70 years for men and women combined. Advances in medicine, surgery and medicines (ranging from antibiotics and anti-virals through to vaccines against diseases like pneumonia, hepatitis and HPV and drugs that reduce stroke and heart disease risks) have accounted for about half the improvements in health achieved since 1950.

• As life expectancy rises and birth rates fall people’s values alter, and societies go through profound changes. Providing universal access to health care typically becomes an increased priority, while relationships between health care professionals and health service users become less directive and more questioning. The influence of patients and patient organisations on health policies and practices tends to increase. They develop enhanced roles in areas such as research and clinical trial governance and health technology assessment.

• There are important opportunities for pharmaceutical and other innovations to contribute further to improving the global public’s health in areas ranging from the diagnosis, prevention and treatment of tropical infections through to the management of the common non-communicable conditions. There also are over 6,000 rare diseases that collectively affect 100 million people in the ‘developed’ OECD nations and up to 500 million world-wide. Many are currently difficult to diagnose and lack definitive treatments.

• By 2050 further progress towards universal health care coverage and delivery, combined with ongoing health technology innovation, could virtually eliminate disease related child and working age adult deaths. It should also support active ageing in ways that cannot be achieved by life style changes alone. Realising such gains will depend on the political will needed to provide better health care combined with continuing public and private investment in high risk research in spheres such as medicines development.

• Patients and patient organisations have important interests in both funding innovation and assuring access to effective treatments after they have been developed. Following concerns about the cost of and access to new HIV medicines in the 1990s, some commentators question the value of intellectual property rights (IPRs) such as pharmaceutical patents because they increase the prices of recent therapeutic developments. But without intellectual property rights private investment in high risk biomedical research would be very unlikely to take place. This would almost certainly have negative ‘knock on’ effects on public funding for fundamental research.

• There is little realistic possibility that alternatives such as offering State or private donor backed prizes for developing therapeutic innovations could ever fully substitute for patents and regulatory data exclusivity based approaches to maintaining private investment in biopharmaceutical innovation. But initiatives like the recently proposed Health Impact Fund, Advanced Market Commitments and the examples set by organisations such as the Gates Foundation may usefully augment IPR based provisions.

• If access to new ‘essential’ medicines is to be enhanced in ways that do not undermine innovative capacity, well designed national and international purchasing arrangements backed by differential pricing strategies are likely to play key roles. There is a case for the global extension of the periods of intellectual property protection available to health technology innovators, balanced by increased minimal cost supply obligations in poor communities.

• Differential pricing between and within markets should allow innovators to enhance access to IP protected products without losing income and so reducing investment capacity. However, inappropriate movements of medicines between markets and resentments in higher price areas can make such schemes difficult to implement. International agreements about the principles and criteria on which differential pricing and allied approaches (including voluntary IPR and licence sharing) might in future enhance their viability.

• Patient organisations should seek to clarify the definitions of essential medicines and public health emergencies. This could help protect world-wide public interests and prevent the inappropriate use of powers like compulsory medicines licensing.

• There are uncertainties as to how robust intellectual property rights should be in order to sustain ongoing investments in high risk research. Individuals and organisations seeking to defend patient and public interests in maintaining the conditions needed for continuing innovation may be exposed to charges that they are defending commercial rather than health interests. Yet under-investing in research for the future would harm the interests of both patients and the global public. Lives lost and years of disability caused because innovations have been delayed can never be regained.

• Measures developed by health economists to guide short term health resource allocation decisions under-estimate the long term society-wide value derived from medicinal and allied innovations. Because of the economics of their development and supply new medicines typically become – after the expiry of IP rights – low cost resources for long periods of time. This is a powerful reason for continuing to invest in innovative research in order to improve established treatments and create fundamentally new opportunities for the relief of suffering, the elimination of diseases and the enhancement of life.

The conclusions are supported by the evidence set forth in the Report.  The policy dichotomy is recited explicitly:

The advocates of intellectual property provisions such as patents and the temporary monopolies they award see them as an essential element in the infrastructure that underpins the global financing of medical and pharmaceutical research.  By contrast, critics say that they inhibit competition and free trade and deny poorer people low cost access to medicines and other goods that they need.

The authors assert that there is no “scientific way to judge which of these approaches are correct, assuming there are ‘elements of truth in both'” on both economic and ethical grounds.  But the Report cautions that while it would be “unacceptable if poor patients were routinely denied life saving treatments commonly available in affluent communities,” it would also be ineffective to reduce patent rights through compulsory licensing and other actions that “sacrifice[] innovators’ intellectual property rights.

The Report characterizes innovation in the therapeutic space (including biologic and traditional small molecule drugs) as being “high technology products which are costly and risky to develop, but once marketed are often relatively inexpensive to copy.”  Under these realities, “research based pharmaceutical producers are unusually reliant on the temporary shielding from unregulated free market forces that intellectual property rights provide,” according to the Report.  Innovation remains important for “neglected tropical diseases” (like Chagas disease and schistosomiasis) and non-communicable diseases of aging like Alzheimers’ disease, not to mention the estimated six to seven thousand “rare” diseases that affect up to 100 million people, against a backdrop of current biologic drug development that is palliative rather than curative and combines high cost with small increases in life expectancy.  In addition, so-called “lifestyle” changes will not be enough to significantly increase life expectancy, either as a global or regional average or in places in the world (such as Africa and India) where life expectancy has not reached Western levels.

The “necessary conditions for innovation,” according to the Report, include recognized need (although the Report also recognizes innovation that creates or recognizes the need and note that “directed” innovative efforts can be counter productive), funding, human and cultural factors that encourage innovative thinking.  The need for funding is illustrated by the cost of pharmaceutical research and development over the past twenty years in the U.S., Europe and Japan:


The authors conclude from this data that “modern medicines [like much modern technology] are high technology products,” but differ from other high tech products by not comprising multiple parts (indeed, most often consisting of an active pharmaceutical ingredient and much more fungible excipients or other formulation components), which makes patent protection even more important for the underlying active ingredient.  There exists the paradox that while the cost of developing drugs increases (when R&D costs are added to regulatory approval costs), the size of the consumer pool is being reduced by high costs (reducing the size of the patient pool that can afford the drugs), generic competition, and the size of the relevant patient population inter alia related to more rare disorders.  As a consequence, there may be even greater economic pressure for exclusivity for such drugs even at a time that reducing drug costs is the goal of most countries around the world (albeit for different reasons).  (This tendency is illustrated by the length of the market exclusivity period in the Biologic Drug Act portion of the Affordable Healthcare Act and the complexity of the patent litigation provisions of the Act.)  Consequently:

The danger for patients and the other beneficiaries of pharmaceutical innovation is that if the prospect of private profit from the supply of new medicines declines, so too in time will public investment in the discovery processes that open the way to their development.  There is also a possibility that, despite the importance of public sector values, a decline in commercial ethos driven innovation will weaken the efficiency of the overall system.  The key point to emphasise is that publicly and privately funded agencies have vital and mutually complementary roles to play in pharmaceutical and other science based innovative processes [citing Mazzucato, 2013].

After providing a brief review of patenting and other intellectual property throughout the ages (including evidence that “patent medicines” were in fact adulterated forms of conventional but unpatented medicaments), the authors set forth a series of examples, including anti-retroviral drugs, in the context of challenges and failures of the system of intellectual property rights, international trade, and governmental intervention in providing such drugs to patients without the economic wherewithal to obtain them.  Accordingly:

The past weaknesses of not only pharmaceutical industry but also some governments’ approaches to this area has in recent decades done much to increase patient and wider public concerns about the negative public health impacts of IPRs.  The development of effective anti-HIV drugs was a triumph for research based companies and their University and other public sector partners.  However, the reputational damage to the innovative pharmaceutical industry associated with HIV patients not being able to afford life saving treatment has been comparable to that inflicted by the Thalidomide tragedy of the early 1960s.

Also mentioned are the varying estimated costs of new drug development, which the authors conclude is much closer to the $1 billion estimate by the pharmaceutical industry than the $100 million estimate by commentators like Light and Lexchin (2012, Pharmaceutical research and development: what do we get for all that money? British Medical Journal, 345:e4348), as well as comparisons of profitability between the pharmaceutical and biotech industries compared with other industries, concluding that in all industries “there is a relationship between the share of total income devoted to research and development and profitability [wherein] [t]he more the relative amount invested in innovation the higher the level of return,” which has benefited these industries.  But the authors caution that “taking [the] unusually high proportion of {biotech and pharma company] income[s] on R&D [] their returns are not out of line with those of other successful industries.”

Provocatively, the authors also pose the question of “[f]rom a public health viewpoint, would it matter if pharmaceutical patents were abolished,” concluding that while there are instances of “market failure” (where there is little financial incentive to innovate for populations too small or impoverished for a company to profit from its efforts), “commercially funded pharmaceutical innovation facilitated by the existence of IPRs makes valuable contributions to the well-being of people everywhere in the world,” citing the work of Pogge (2005, Human rights and global health: a research program. Metaphilosophy, 36, 182-209.), Sonderholm (2010, A reform proposal in need of reform: a critique of Thomas Pogge’s proposal for how to incentivize research and development of essential drugs. Public health ethics, 3, 167-177), and Dimasi and Grabowski (2007b, Should the patent system for new medicines be abolished? Clinical pharmacology and therapeutics, 82, 488-490).  The alternative, the authors propose, is the need for “augmented” methods to encourage innovation in such circumstances, such as orphan drug laws in the U.S. and Europe.  And while the Report notes that “from the perspective of politicians and planners based in countries with very limited financial resources, IP ‘sharing’ and the granting of CLs is likely to appear attractive,” “patient groups and others seeking to defend the interests of not only the poorest in the global community but also people with currently untreatable conditions might be better advised to focus on seeking the free or ‘marginal cost’ supply of essential new medicines in communities that are unable to pay more, while recognising that global welfare will be further enhanced if innovators retain an ability to generate substantive returns elsewhere in the global market place.”

The Report also questions whether the TRIPS agreement prevented poor countries getting access to “essential” medicines (it did not, thanks in part to the Doha Declaration and how that instrument was implemented by countries such as Brazil and India with regard to compulsory licensing); the effects of “ever-greening” patented drugs (which is less of a problem when the “original” form of the drug remains available, as a generic equivalent or otherwise); the Myriad case involving patents on genetic material (the authors believing that the Supreme Court decision “provides significant assurance that IPRs cannot be used to inhibit fundamental research”), and whether new forms of intellectual property are needed (the authors concluding that “although governments may impose price controls on pharmaceuticals with the objective of curbing costs, there is from a patient and global public interest standpoint a counterbalancing need to ensure that spending on developing innovative technologies is not unduly restricted”).

Finally, the Report considers proposals, by Pogge and Hollis and others, that financing of biopharmaceutical research be “completely separated” from commercial sales of medicine, stating that “in some circumstances” that might be desireable (such as novel funding from groups like the Gates Foundation for specific projects such as development of new medicines for malaria) or suggestions that prizes be offered for developing new medicines in specific, “high priority” fields (although the authors note that “in complex and fast evolving fields there is a danger they may lack the flexibility needed to maintain their relevance to changing public and patient needs” and “[t]he extent to which such an approach could be scaled up beyond the occasional ‘once-off’ level is also uncertain, and there is no evidence to suggest that a prize based approach could ever fully replace existing IPRs”).

Overall, the Report provides a balanced assessment of the challenges and possibilities of pharmaceutical development in the 21st Century and the appropriate role of intellectual property rights in fostering future progress.  The authors conclude that:

In the final analysis intellectual property laws represent a logically coherent, market led rather than centrally directed, mechanism for ‘taxing’ the use of recent innovations in order to defend public interests in incentivising continuing investment in areas like medicines discovery.  This serves the interests of people with presently untreatable conditions, and underpins the funding of incremental and ‘step change’ innovation alike.