Fraser Forum

Stronger worldwide patent protection key to medical advances

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Public dismay about high drug prices is a major news item these days. Notwithstanding that some of the more notorious controversies involve generic products, particular concern has surrounded the pricing of new patented drugs such as Gilead Sciences’ hepatitis drug Sovaldi and Vertex Pharmaceuticals’ cystic fibrosis drug Orkambi.

The fundamental concern is that high prices for new drugs will limit patient access to those drugs, as government and even private insurers struggle to find the money to pay for them. At the same time, it’s widely acknowledged that developing new drugs is a risky and expensive proposition, particularly with the advent of the biotechnology revolution, which has ushered in the production of new large molecule drugs. These new drugs promise treatments and cures for hitherto incurable diseases and conditions and also promise to reduce overall health-care costs in the long run by displacing less-effective and often more costly therapies.

A major problem is that governments in many countries are reluctant to extend strong patent protection to branded drugs to promote access to those drugs among their domestic populations. This is particularly true in lower-income and emerging market countries such as India, but also characterizes some developed countries such as Canada. Facilitating the rapid introduction of off-patent drugs—often manufactured locally—is seen as both saving money for the national health-care system and encouraging the growth of a domestic biopharmaceutical industry. The high costs of developing new drugs must therefore be covered by the populations of developed countries that offer relatively strong patent protection regimes, notably the United States.

The U.S. health-care system has, to date, been a large direct and indirect funder of research and development into new drugs and medical devices in part because it has been a disproportionately large customer in the world market for patented drugs and medical devices; however, this situation may be changing.

For one thing, the growth of U.S. demand for new drugs and medical devices will slow as U.S. real economic growth proceeds at a significantly slower pace than its historical performance. And government and private insurance programs in the U.S. are increasingly reluctant to bear the lion’s share of the costs of developing new medical products by paying prices that are substantially higher than those paid by buyers outside the U.S.

The implication is that foreign governments will need to strengthen their intellectual property protections for biopharmaceutical products and medical devices if their citizens are to continue to realize the benefits of ongoing advances in biological science and informatics. Unfortunately, individual governments on their own have strong incentives to “free ride” on the initiatives of other governments to promote innovation in the biopharmaceutical and medical device sectors by strengthening intellectual property protection.

Historically, multilateral trade agreements served as an instrument to harmonize initiatives to strengthen intellectual property protection across countries. Unfortunately, the political environment for implementing new trade agreements has soured with the rise of populism in the U.S. and in many parts of Europe. In particular, the opposition of the two U.S. presidential candidates to the Trans-Pacific Partnership (TPP) threatens to halt all momentum towards multilateral progress on long-standing trade issues, including intellectual property protection.

In this context, government actions to lower the legal and regulatory-related costs of developing new health-care products are increasingly imperative. A step in this direction might involve agreements among developed countries to harmonize protocols for assessing the safety and efficacy of new drugs and medical devices, as well as a greater willingness on the part of national regulators to accept earlier findings of foreign regulators with regard to the safety of new health-care products.

The debate over health-care costs is increasingly contentious, and biopharmaceutical prices are a significant part of the debate. If societies are to continue to enjoy breakthrough treatments and cures to enhance and extend lives, and reduce the burden of disease, companies in the biopharmaceutical and medical device industries must continue to have incentives to carry out expensive and risky research and development. Governments need to recognize that multilateral commitments to stronger intellectual property protections, as well as other creative interventions, will help ensure that biopharmaceutical pipelines continue to deliver.


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