On Pharmaceutical Innovation, Intellectual Property Rights, Patient Access and Pricing

A Significant Policy Analysis on Pharmaceutical Innovation, Intellectual Property Rights, Patient Access and Pricing

01.30.14 | By Mark Grayson

Dr. Robert FreemanDr. Robert Freeman, Professor of Pharmacy Administration (health services research) in the Department of Pharmacy Practice & Administration at the University of Maryland Eastern Shore School of Pharmacy, comments on the recently released paper from University College London School of Pharmacy on patient’s needs and intellectual property in middle income countries. Read his thoughts on this important issue below.

David Taylor and his colleagues at the University College London (UCL) School of Pharmacy and at the London School of Economics (LSE) have recently published a significant policy analysis concerned with advancing and maintaining biopharmaceutical innovation in the context of the interplay between intellectual property rights, public health, patient advocacy and industry pricing practices. Although other researchers have also addressed these issues, the UCBLSE analysis takes a holistic perspective that focuses on their interdependency.

A number of key points are worth reinforcing, notably the value of innovation at a global scale, the unquestioned need to foster innovation through strong intellectual property rights, and patient access to essential drug products through equitable pricing.

Sustainable pharmaceutical innovation is a challenge, not only because of the inherent complexity of the underlying science and discovery and developmental lead times, but also because of the rigorous drug regulatory requirements that must be satisfied before a new drug can be introduced. Biopharmaceutical innovation has moved into the development of “large molecules” that treat diseases that have significant unmet medical need. Research and development costs for each new drug approved approach over $1.5 billion USD, and large molecule drug development will likely require larger amounts.  The authors noted that advances in medical innovation along with increased patient access through universal health care systems could virtually eliminate disease related premature mortality by 2050. Research into cures for neglected diseases, including rare and ultrarare diseases that affect up to 500 million people globally, offers significant opportunities to improve public health. Despite the inherent risk of research and development, we are clearly entering an era of unprecedented opportunities to advance patient care and public health.

Current and future research and development can only be sustained if sufficient global revenues, positive cash flows and operating margins are realized. These financial requirements are achieved through strong intellectual property protection through patents and data protection and through pricing flexibility that allows different prices to be charged in country markets based on the national health systems’ relative willingness to pay and ability to pay for early access to new medicines. In effect, patents allow the innovator a number of years of exclusivity during which time revenues and operating margins are generated at levels necessary to fund additional research and development. As Lichtenberg and Phillipson note, government encouragement of research and development benefits not only the innovator but also rival firms in that sector.

Lichtenberg has also determined empirically that patent protection has the effect of stimulating incremental innovation by competitors within that drug class. The process by which new, improved entrants compete with the first patent holder results in economic losses of approximately eight percent, which is similar to the amount lost due to patent expiry. The importance of their findings is that patent law has indirect effects that stimulate competition among manufacturers of patented drugs.

As Taylor and his colleagues further note, patents are under challenge by governments, especially in developing countries and in those counties with a domestic generic pharmaceutical manufacturing sector. If either patent laws are weakened or if price differentials cannot be maintained, delays in access result in lost years of life and decreases in economic returns to innovation that cannot be recovered. Price differentials, or more formally, Ramsey pricing, allows earlier access to innovations and optimizes general welfare. The net effect of the downward pressure on pricing levels is that a single.or very narrow, global price would be too low to sustain research and develop and, therefore, delay access in wealthier developed countries while remaining too high to assure access in developing countries.

Intellectual property rights, while a contentious issue in World Trade Organization negotiations and amongst some stakeholders, are recognized as essential for innovators to conduct high risk research and development, a fact acknowledged by some of the industry’s harshest critics. Unfortunately for the future of innovation, proposals such as compulsory licensing and weakened data protection are not equitable longterm solutions. Concerning the former, a consensus on what defines a “public health crisis” that would trigger a country’s issuance of compulsory licenses has not been reached and remains controversial. In some instances a country’s enactment of compulsory licensing laws is a thinly veiled attempt to promote the interests of its domestic generic drug manufacturing industry.

Other alternatives, such as the awarding of prizes and more direct governmental sponsorship of pharmaceutical research and development, are intriguing but problematic in administrative logistics, funding levels and longterm viability. It is easy to conclude that the patent and pricing systems are broken to the extent that patient access to pharmaceutical innovation is harmed. The is; however, no empirical evidence to support these claims. To the contrary, a strong intellectual property environment that is both transparent and equitable to foreign and domestic firms coupled with pricing flexibility are essential for a robust global pharmaceutical industry. Without these protections the risk of innovative research and development is too high to justify investments.

Taylor D., Craig T., LundebyGrepstad
M., et al. (2014) Patients’ Needs, Medicines Innovation and the Global Public Interests. London: University College London School of Pharmacy.

Lichtenberg F and Phillipson T. (2000). Can the Public Sector FineTune Private R&D? Theory and Evidence from the Pharmaceutical Industry. NBER Spring Meeting. Cambridge, MA.

Lichtenberg F. (2002) Pharmaceutical KnowledgeCapital Accumulation and Longevity. Presentation before the NBER Conference on Measuring Capital in a New Economy. Washington, DC.


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