Drug Patents
Provectus Pharmaceuticals Receives Patent Allowances In Europe And China
February 28, 2008
Provectus Pharmaceuticals, Inc. (OTCBB: PVCT, http://www.pvct.com), a development-stage oncology and dermatology biopharmaceutical company, has received allowance of its patent applications in Europe and China covering diagnostic use of PV-10 and a number of related agents in CT and MRI imaging. The pending patents cover products for diagnosis of cancer and other serious diseases.
"These cases augment our international portfolio of twenty-six issued patents and four pending patents, along with our U.S. patent portfolio of sixteen issued and five pending patents," said Craig Dees, PhD, CEO of Provectus Pharmaceuticals. "As important milestones, they demonstrate the scope of our patent activity that spans markets ranging from the developed world to the rapidly developing world."
Read the rest of this press release on Provectus Pharmaceuticals pharma patent .
The Pharmaceutical Industry and the Patent System
Executive Summary
Patents are exclusive property rights in intangible creations of the human mind. They exist only as provided in the laws of sovereign states, and can be enforced only to the extent that application has been made and a patent granted covering the territory of an individual state. Patent rights are limited in duration, with the global standard being 20 years from the date of application. The new product, article of manufacture or process described in the patent application must be something that has never been previously disclosed anywhere in the world and something that would not be obvious to a person ordinarily skilled in the field involved. Determinations of whether these requirements have been met are made by comparing the claims of the patent applicant against the body of published literature in the field, including previously issued patents. This process is called examination, and it assures that no one is able to claim patent rights on anything that already is existence.
Patents work differently indifferent industries. In the electronic industry patents are often shared among competitors through pooling or cross licensing. This sharing is necessary because a given product often contains many patented technologies. However, in the pharmaceutical, chemical and biotechnology industries the patent normally equals the product, and protects the extensive investment in research and clinical testing required before placing it on the market. Patent protection for chemical and pharmaceutical products is especially important compared with other industries because the actual manufacturing process is often easy to replicate and can be copied with a fraction of the investment of that required for the research and clinical testing.
The extensive cost required to produce a new pharmaceutical product has meant that private sector investment in pharmaceutical innovation has been disproportionately directed to products meeting the needs of patients in developed countries, particularly in the United States, which combines strong patent protection with a market free of price controls.
Until the TRIPS Agreement in 1994 many developing countries provided no patent protection for pharmaceutical products. And, while countries that have joined the WTO have obligated themselves to provide such protection, least developed countries are not required to meet this obligation until 2016. The continuing lack of patent protection for pharmaceutical products makes it very difficult to establish research-based industries in most developing countries. Most medical research in these countries takes place in the public sector. The lack of any means of patenting these inventions and the related lack of experience in licensing them to the private sector, suppresses the development of commercial enterprises focused on alleviating the disease burdens common to developing countries.
The controversy over availability of patented therapies for the treatment of HIV disease has resulted renewed interest in the compulsory licensing of pharmaceutical products. After two years of discussion, the WTO Council recently affirmed that the TRIPS Agreement permits such compulsory licenses in health emergencies, even in cases where the compulsory license is for an imported product. However, to date, no compulsory licenses actually have been issued, even though the threat of compulsory licensing has been used as a means of seeking lower prices.
One danger in compulsory licensing is that it will discourage further the commercial R & D necessary to new drugs to fight global epidemics. Another danger is that compulsory licensing can be used to seek price levels below what a given national market is capable of supporting, further concentrating the burden of financing pharmaceutical innovation on developed country consumers and discouraging development of drugs targeted at the disease burdens of countries using compulsory licenses.
There are promising developments in countries such as India and Brazil that are beginning to use patents to develop commercial pharmaceutical industries that produce products directed at local diseases and available at price that patients in those countries can afford. Foundations and nonprofit organizations such as the Bill and Melinda Gates Foundation and OneWorld Health, Inc. are supporting such efforts. These efforts show that developing countries have the capacity to build research-intensive pharmaceutical industries capable of operating profitably in the conditions of the local market. However, for such local industries to take root and grow, effective patent protection must be made available, the commercialization of publicly funded research must be encouraged, and compulsory licensing must be kept to a minimum. Wealthy countries can assist this process by subsidizing local markets for the purchase of drugs through the Global Fund, and by direct programs of assistance such as that recently proposed by President Bush. Consumers in all countries can share the burden of drug development equitably by paying for medicine at a price level consistent with their means, rather than attempting to shift the costs of drug development to others.
Read the rest of this report on the pharma patent system.
Pharma Patent Protection: A Platform for Investment, Markets and Improved Health in the Americas
(Paper presented to Workshop ID, Cartagena, March 1996)
By: Harvey E. Bale, Jr., Ph.D., Senior Vice President International
Pharmaceutical Research and Manufacturers of America
"Without the sense of security which property gives, the land would still be uncultivated. "
François Quesnay (1694-1774), Maximes Générales (1760)
In this forum on policies affecting development and technology, I highlight the importance of the role of providing strong protection of intellectual property rights. In a study published in 1995 by the World Bank-affiliate — the International Finance Corporation (IFC) — it was concluded that "a country’s system of intellectual property protection seems to have a substantial effect in relatively high technology industries like chemicals, pharmaceuticals, machinery and electrical equipment on the kinds of technology transferred to that country and the amount of direct investment in that country … by Japanese and German, as well as U.S., firms."
If we consider this fact in light of the global competitive position of the Americas in relation to that other great region where economic development is accelerating –Asia– I am afraid we have to be quite concerned. With the exception of India, all major developing countries in Asia have adopted much stronger industrial property protection — covering patents, trademarks, etc.– than is the case in many countries of the Americas. The effect on investment and technology has been dramatic. Having been in China recently, I have seen the investment enthusiasm that has led to 12 joint-ventures between American and Chinese firms in the pharmaceutical sector following passage of China’s 1992 patent legislation. As the head of China’s Patent and Trademark Law Office said last week, "New technology is the most important thing brought in by external investment and patents are a way to protect that technology." Unfortunately, in our own hemisphere, there are still forces fighting rearguard actions to protect their privileged position by preventing early action on patent legislation.
On a global plane, there is very little debate today about whether there should be strong intellectual property protection for pharmaceutical products. Debates of the past about the so-called "monopoly" effects of patents on the market place have been resolved in favor of the recognition that adequate patent, trademark, and trade secret protection for pharmaceutical products is absolutely essential for the development of new pharmaceutical compounds. In other words, without adequate intellectual property protection, we would not see the new miracle drugs for mental depression, heart disease, etc. that have benefited patients in recent years. New pharmaceuticals that result from strong patent protection are saving lives, money and improving the quality of life of patients around-the-world.
A decade ago, Professor Edwin Mansfield of the University of Pennsylvania described in a simple table (Table 1) how pharmaceutical innovation and development were dependent, in absolute terms and relative to other industries , on strong patent protection. This ranking is not very surprising when you consider that the ratio of R&D expenditures of the pharmaceutical/biotechnology industry is far higher than in any other important industrial sector (PhRMA companies spend 20 percent of their revenues on R&D, compared to less than 4 percent for U.S. industry overall). It costs hundreds of millions of dollars in the United States to do R&D for each new marketed drug discovery; and it takes an average of a decade or more to bring each new pharmaceutical compound to the marketplace.
If it has been conceded that patent protection is essential for pharmaceutical products, it has been argued by some that such protection should be: 1) very limited compared to other sectors, perhaps subject to compulsory licensing; and 2) restricted only to advanced industrial countries. These arguments, too, have lost out to the recognition that the term of patent protection (because of regulatory delays) needs to be lengthened beyond the normal standard for other products; that compulsory licensing provisions such as previously existed in Canada, need to be repealed; and that, in fact, developing countries themselves have much to gain in providing pharmaceutical patent protection.
Looking over the past twelve years, in the United States, Europe and Japan the term of patent protection for pharmaceuticals has been uniquely extended to make up for some of the economic benefits lost during the life of a patent in the process of obtaining necessary regulatory approvals (e.g., from the FDA) for marketing pharmaceutical products.
Canada and New Zealand, several years ago, repealed onerous compulsory license measures that eroded the effect of intellectual property protection; and since 1986 developing countries of Asia and the Western Hemisphere have adopted strong intellectual property protection for pharmaceutical products as Table 2 shows. The fact is that, today, there is only a small minority of important developing countries that still do not provide adequate intellectual property protection for pharmaceutical products. A number of those countries unfortunately are in Latin America. But even this is changing. Aside from the fact that the U.S. Government has made strengthened intellectual property protection abroad a major priority in its negotiations with foreign governments, there are other — even more compelling — reasons for developing countries in the Western Hemisphere and elsewhere to change their current or past anti-patent policies.
Increasingly, it has been recognized that the non-patentability of pharmaceutical products is a growing economic and health burden on the economies of Latin America — leaving aside the fact that it sours the trade relationships between Latin America and the United States, and increasingly Europe and Japan. Inadequate intellectual property protection is disguised protectionism for local industry. A 1990 study by the Latin American Economics Foundation FIEL states that: "the non-patentability of pharmaceutical products, that was in its beginning a device designed to safeguard public health, has presently turned into an instrument used to protect local industry." It has also become another basis for the corruption of public officials. Further, in this age of emerging and re-emerging serious infectious diseases, particularly in tropical climates, the lack of intellectual property protection for pharmaceuticals is an example of national and regional disarmament against the invasion and destruction of such diseases. Without patents, where is the incentive for local companies and research institutions to exploit the biomedical promises of Latin America’s rain forests? Why must Latin American scientists go to the United States or Europe to win Nobel prizes for the discovery of new pharmaceutical compounds? These are issues and questions which every government in the hemisphere is asking as they review their intellectual property policies.
Read the rest of this report on pharma patent protection.
Pharma Patent category on Diffusion Pharmaceuticals
Read the latest articles on pharma patents from Diffusion Pharmaceuticals.
Alvine Pharmaceuticals Obtains Pharma Patents For Celiac Disease Therapies
February 25, 2008
Alvine Pharmaceuticals, Inc., a biopharmaceutical company focused on the treatment of autoimmune and gastrointestinal diseases, announced that the United States Patent and Trademark Office has issued two key patents, 7,320,788 and 7,303,871, covering gluten detoxification with proline specific prolyl endopeptidases (PEPs) and with mixtures of a PEP and a glutamine specific protease. Alvine has an exclusive worldwide license to these patents under an agreement with Stanford University. Both patents provide important protection for ALV003, Alvine’s lead product currently in clinical development for use in the treatment of celiac disease.
"Alvine is delighted that these two patents have issued," said Dr. Abhay Joshi, Alvine’s President and Chief Executive Officer. "Alvine and others have shown PEPs to be efficient at degrading gluten. With these patents and our recently announced initiation of clinical trials of ALV003 (a combination of a PEP and a glutamine specific protease), we believe Alvine is well positioned to capitalize on the potential use of proteases as therapeutic agents to treat celiac disease. ALV003 is more efficient at degrading gluten than either a PEP or a glutamine specific protease alone."
Read the rest of this article on Alvine Pharmaceuticals’ pharma patent .
What Patent Problem?
By Roger Bate
May 17, 2004
As the world’s health experts gather in Geneva today for the World Health Assembly, it is time to assess the main AIDS debate that has raged for all of this decade. Without clarity on the problems of the spread of HIV AIDS there can be no hope of a solution.
Amir Attaran, a fellow with the Royal Institute of International Affairs (and a board member of my own organization, Africa Fighting Malaria), has for the past four years done his best to provide light to an otherwise heated debate. Specifically, he has exposed the various fallacies of anti-globalization public-health activists who attempt to undermine the patent system for the sake of manufacturing and exporting generic drugs. He has also done his best to expose the hyper-sensitivities of the pharmaceutical industry. His recent analysis of drug-patent exploitation in developing countries, published in the May-June issue of Health Affairs, does both. In it Attaran points out that patents have rarely been a problem for drug consumers in poor nations; in fact, only 1.4 percent of the WHO essential-drug list is on patent in the poorest 65 countries. Because of this fact, Attaran concludes that "poverty, not patents, imposes the greater limitation on access." At the same time, he also points out that the patent system is not as likely to be undermined as pharmaceutical companies might believe or imply.
Dr. Attaran’s argument should squash once and for all demands for compulsory licensing of patented medicines in most poor countries. (Compulsory licensing is a legal procedure that allows the overriding of patent rights so that generic medicines can be produced and sold in countries that lack the capacity to manufacture them themselves.) His analysis should also make largely irrelevant the Doha declaration, made at the World Trade Organisation Ministerial meeting in November 2001, which established the notion that the poorest countries should, in principle, be able to import drugs from generics companies in countries that do not (albeit legally) respect the drug patents of Western companies.
The key difficulty in passing this declaration was agreeing on what should constitute the poorest countries and which diseases should be covered. There was widespread disagreement as to whether ‘poor’ should include just the poorest countries (known collectively in U.N.-speak as less developed), or should be expanded to include all countries except the non-OECD members. The U.S. and most European nations wanted just the poorest nations included. But the U.S. was isolated on the disease scope. Most countries did not want the list of diseases covered to be restricted to the ‘Global Fund’ diseases of AIDS, tuberculosis, and malaria; the U.S. alone pushed hard to confine the list to this group.
Dr. Attaran was convinced that the U.S. trade representative, impelled by the pharmaceutical industry, was wrong to make such a fuss about the scope of diseases covered. Attaran’s analysis shows that there has been no compulsory licensing of Western medicines in developing countries, although the legal right to do so has been agreed upon in international law for decades. He says that "the threat is not credible" that poor countries are going to engage in much undermining of the patent system.
"There are absolutely no economically important pharmaceutical markets that have insufficient or no manufacturing capacity, and therefore, no important pharmaceutical markets are affected by the Doha Declaration," he says. With the notable and tiny exceptions of Lichenstein and Luxembourg, all developed countries have the capacity to manufacture most pharmaceuticals. Furthermore, most key poorer country markets — such as Brazil, China, Egypt, India, Mexico, South Africa, and Thailand — have the capacity, too. "In fact, compulsory licensing is so extraordinarily rare that it has not been used once in the last decade by any country in respect of a finished medicine. This is a striking omission from the trade discussions, compulsory licensing is not practical."
Attaran says the reason for much of the heat — and not light — on the issue in international-trade negotiations is because the anti-globalization activists’ primary goal is not public health in poor countries but compulsory licensing in developed-country markets. In other words, the activists wilfully conflate their true desire (e.g., for Canadian generic drugs to have full access to American markets) with their phoney claim to want to help the world’s poor. "The anti-globalizers have expended enormous effort on this (often with the help of too-trusting public health activists and scholars) and yet by any objective measure of success — such as the number of generic medicines manufactured under compulsory licences, the number of patients treated using those medicines, or the dollars of pharmaceutical sales lost to compulsory licences — the effort has been fruitless," Attaran concludes.
Speaking last year, Attaran was at a lost to know why the drug industry, faced with the facts, continues to push such a hard line on the issue. He thinks it was because they were fixated with law rather than diplomatic, political, and attitudinal realities. "Simply put, it is now a custom that countries aspiring to the polite society of globalization never compulsorily licence medicines. Certainly they may threaten it, as Brazil sometimes has when rattling sabres and bargaining with pharmaceutical companies, but they never actually do it — the velvet handcuffs of international custom and comity are that strong." Set against this reality, the Doha declaration is a legal technocrat’s dream. It cannot change international custom. It is therefore powerless to threaten the pharmaceutical industry.
Read more drug patent facts .
Pharma Patent Trolls: Cheap Drugs At A Steep Price
by Andrew Beattie
Pharmaceuticals is an industry exposed to many unique risks. The capital intensive research and development (R&D), the uncertainty of Food and Drug Administration (FDA) approval, and a constant shroud of legislative risks may seem like a lot to deal with, but one of the fastest growing threats for pharmaceuticals are patent trolls.
The Pharmaceutical Process
FDA approval is already a long process, and even properly-approved drugs have left companies open for litigation. To take just one example from 2008/2009, there is an ongoing legal argument about whether federally approved warning labels pre-empt state law. The main problem was that if the Supreme Court ruled that warning labels didn’t pre-empt state law, or if Congress changed the rules to give state law equal importance, then drug companies could find themselves facing more lawsuits. In addition, the drug companies would have to go through FDA approval followed by state by state compliance checks - all of this adding to the already considerable costs of doing business. (This volatile sector can provide huge gains, but there’s also lots of downside, read The Ups And Downs Of Biotechnology.)
Patent trolls, by either attacking existing patents or hoarding vague patents, hurt pharmaceutical companies more acutely by reducing returns on investment at a time when both the companies’ costs and risks are rising. Drug companies need large cash reserves/war chests at all times to pay for capital-intensive research, FDA approval and settling lawsuits. To maintain this war chest they need strong and, more importantly, stable profits from their products.
Risk and Return
These companies pay out the huge R&D costs in return for huge possible rewards on patented drugs. The rewards are more or less proportional to the risks, as many drugs never make it to market, meaning they never pay back their R&D costs. Drug companies want their patents, essentially their intellectual property rights, protected for as long as possible. They want an exclusive monopoly over their product in order pay back the costs of development along with a profit equal to the risks taken on by the company. Excess profits will either go to the shareholders or cover the costs of the many failed drugs that never make it out of developmental stages. (Investors take note: companies that cut research and development are in danger of saving today but losing big tomorrow, see Buying Into R&D.)
Trolls Provide Short-Term Benefit
Whether it is generic aspirin or generic Viagra, the patient receives an immediate benefit from patent trolls in the form of a lower price for medicines. This short-term benefit is no doubt much appreciated. The government also tends to think short-term - a cynic would say in four-year cycles - and generally in line with patients. They want cheap pills for voters and are more than willing to see corporate profits take a hit to meet that end. Governments have shown their support for patent trolls by creating legislative loopholes and eroding patent rights.
By attacking long-term patents, trolls are able to open up specific formulas for generic mass production and bring cheap generic drugs to market quicker. In the short-term, it’s hard to argue that cheap medicine doesn’t benefit the general population. In the long-term, however, the actions of patent trolls may actually hurt everyone.
Long-Term Problems
Bringing cheap pills to market quickly makes patent trolls look like important middlemen in the process towards generic drugs, but their long-term impact is more subtle and devastating. In the current pharmaceutical structure, drug companies pony up the cost of R&D. Therefore, even a slow drain on their reserves means less R&D and less new drugs in the future.
You might disagree with how much these companies take as profits for their shareholders, but it is those same profits that motivate the best corporate and scientific minds to keep searching for new medicines - and it is those profits that convince investors to put their capital behind the research rather than investing it somewhere else. (Valuing firms in this sector can seem like a black art, but there is a systematic way to pin a price on potential. For a better understanding, see Using DCF In Biotech Valuation.)
Possible Fallout
There are a lot of possible outcomes for the rise of the patent trolls. One is that drug companies will be pushed further away from high-cost, high-risk research and into simple domestic products like mouthwash and skin cream. Some of this can be seen in the 2009 acquisitions by Pfizer (NYSE:PFE), Merck (NYSE:MRK) and others. These companies have focused on other companies that have strong brands in household goods. These products and markets will be used to hedge against losses in the pure drug research, but they will also divert capital and research from the R&D. Instead of a pharmaceutical industry, we’ll end up with a bunch of Johnson and Johnson (NYSE:JNJ) clones that occasionally make medicine.
Along with a more domestic focus, the trend of buying companies to fill existing and upcoming holes in the pipeline will intensify. As patents end prematurely and new drugs have yet to fill their place, many drug companies acquire other companies’ products to prop up revenue. Unfortunately, the merger of two pipelines and two corporate cultures often leads to less overall spending on R&D rather than any significant synergy. Many drug companies are focusing ever more on pills with commercial appeal (erectile dysfunction, weight loss, etc.) and tightening their spending on expensive research into cures for rarer but more critical maladies. (Innovation is the key to staying on top. Find out how companies protect their ideas and how to figure out how much they’re worth in Patents Are Assets, So Learn How To Value Them.)
Read the rest of this article on pharma patent trolls.
Pharmaceutical Patent Profits Facilitate Innovation
Roy Bodem
Without the potential for patent profits, there would be no reward for innovative ideas that lead to beneficial products. These products are the technological advances that make life better. Pharmaceutical companies have the ability to develop new drugs that can prolong life and provide cures to diseases that affect people worldwide. Patents are especially important to these drug companies because they can guarantee profit and make all the time and cost put into developing their new drug worthwhile. A patent is an economic catalyst to these pharmaceutical companies who push to research new and beneficial drugs on the premise that they will be able to reap rewards by way of profits.
Profits for patented pharmaceutical represent a reward that pharmaceutical companies earn through years of research and development and only then will they be able to profit from their work. The patent system allows drug companies to profit from patents by prohibiting any other company from marketing and selling an identical prescription drug. This system seems to be the best way to provide drug companies with the reward of potential profit for the research and development spending that in necessary to develop new and innovative prescription drugs.
What is a patent?
A patent is a property right to a product and in the case of pharmaceutical companies is usually in the form of a chemical formula that may not be duplicated by any rival company. The life of a patent is 20 years from the time the patent is issued. (Lehman, 2003) This gives the company ample time to profit from its invention. An invention is “any new or useful process, machine, article of manufacture, or composition of matter.” (Lehman, 2003) This means that the inventor has the guarantee that that his or her product will be the only product of its exact kind on the market for 20 years.
Inventions can also be new improvements to previous inventions. New inventions are evaluated by National Patent Offices to compare new inventions with previous inventions that are similar to be sure that the invention is novel and not just an obvious replica of a previously patented invention. (Lehman, 2003)
Thomas Jefferson reviewed and granted the first patent and the patent review process has remained the same ever since. (Roth, 2005) Patents are reviewed by searching through previously granted patents to make sure that the patent is new and unique. This patent provides the researcher with the incentive to spend the costs, time, and effort to be granted a patent. (Roth, 2005) The inventor knows that his work will be rewarded with potential profits once a patent is granted because a patent ensures no competitor will be able to copy his or her idea and prevent the inventor from profiting. (Roth, 2005)
Patents must be enforced.
Patents are enforced by the National Patent Offices, World Trade Organization (WTO) and evaluated by the World Intellectual Property Organization (WIPO). (Lehman, 2003) These organizations provide the patent protection to those seeking the protection by giving judicial enforcement of the intellectual property rights. (Lehman, 2003) This means that a company could sue a rival if it felt its patent was being violated and have official documents at the National Patent Offices to substantiate its claim to a product.
Patents are available for a variety of products including prescription drugs. Patents in the pharmaceutical industry are somewhat different and possibly more important than in other industries because of the laboratory research and clinical trials that must be done beforehand. This research costs the pharmaceutical company and is usually accomplished through capital investment on the basis that the result will lead to profit for the company. (Lehman, 2003)
Research and Development
The U.S. patent system is effective and attracts investment from companies who want to profit from industry. The U.S. market is perfect place to a pharmaceutical company to grow and profit. Expenditures on research and development in the pharmaceutical industry in the U.S. went from $1.7 billion in 1977 to $26.4 billion in 2002. (Lehman, 2003)
The pharmaceutical industry in the U.S. is effective and turning out new and beneficial drugs each and every year. 2001 saw 402 new cancer medicines, 123 new treatments for heart disease and stroke, 83 new AIDS drugs and 176 new drugs for neurological diseases. These new pharmaceuticals are the result of patent incentive with companies expecting to have a return in their investment on the research and development of these new drugs. (Lehman, 2003)
The U.S. is the world leader in pharmaceutical profits and research for the development of new pharmaceuticals. Ninety percent of all the biomedical research done in the world is done in the United States. Sixty percent of the profits generated by prescription drug companies are earned in the U.S. (Hoen, 2003) Without the innovation of the pharmaceutical companies of the U.S. then, most of the new drugs on the market wouldn’t even exist. This must mean that the system for granting patents that generate profits for companies who do the research to get the drugs on the market in the first place is the best way to promote the creation of new drugs.
For example, Bristol-Myers Squibb spends over a billion dollars for research each year. Overall, drug companies spend more than $10 billion dollars every year on research. This spending has grown considerably in the past few decades as well, with research and development spending at only $1.5 billion in 1980. (Flint 1994) All this spending must payoff for the pharmaceutical companies or they will not be making such huge investments in researching new drugs.
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Cipro and the Risks of Violating Pharmaceutical Patents
Thursday, November 15, 2001
by Frank R. Lichtenberg
When the threat of anthrax became a widespread concern, the Canadian government said it had serious doubts that Bayer, the owner of the patent for the anti-anthrax drug Cipro, could meet Canadian needs. Canada ignored the patent and ordered generic copies. In the United States, Sen. Charles Schumer expressed the same concerns and proposed that the U.S. government do the same. After Bayer said it could meet the needs of both nations, and after other drugs that are effective against anthrax were identified, Canada reversed its decision, and the issue was dropped in the United States for the time being.
But the proposal to override patents is certain to come up again as other drugs are needed, and as the population ages and demands drug treatment for an increasing range of illnesses and ailments. While overriding a patent might lead to a temporary increase in the supply of a drug, a great deal of evidence suggests that this policy would lead, in the long run, to a lower supply of innovative drugs, and poorer public health.
Research and development investment in general, and pharmaceutical R&D in particular, has made enormous contributions to the economic well-being and health of Americans. To have the incentive to undertake research and development, a firm must be able to get sufficient returns to make the investment worthwhile. The patent system is one of the most important ways in which the government can provide this incentive. Weakening patent protection (e.g., by government violation of patents) may have a chilling effect on private R&D investment, and therefore reduce the health and wealth of future generations.
Value of Medical Research.
A host of academic studies speak to both the value of medical research and the important role of economic incentives. For example, a major project sponsored by the Mary Woodard Lasker Charitable Trust addressed the question, “What is the true economic value of our national investment in medical research?” and found, “It provide[d] a surprisingly dramatic answer: the returns are exceptional.” The pharmaceutical industry performs about one-third of U.S. biomedical research. Some of my own academic research has estimated the benefits to consumers from the introduction of new drugs at the patient level, disease level and national level. These benefits include longer life, better quality of life, and reductions in total medical expenditure.
R&D Investment Is Responsive to Incentives in General.
Economic research on a number of industries (including pharmaceuticals) has demonstrated that the rate of private R&D investment is very sensitive to expected returns.
* In his influential study of almost a thousand inventions in four different industries, the late economist Jacob Schmookler found that the expected profitability of inventive activity determined the pace and direction of industrial innovation.
* In response to the enormous increases in energy prices during the 1970s, firms significantly stepped up spending on energy-R&D projects, in a targeted attempt to reduce energy consumption.
* Whenever the government offers to award a significant defense contract, potential military contractors make large investments of their own funds in R&D for the types of products the government is seeking to buy.
* According to the Food and Drug Administration, passage of the Orphan Drug Act in 1983 led to a twelvefold increase in the number of drugs for rare diseases brought to market.
* Both firm-level and industry-level evidence are consistent with the hypothesis that the threat of pharmaceutical price controls in the Clinton administration’s 1992-93 health care reform proposals had a significant negative effect on pharmaceutical R&D investment.
Economic theory and evidence indicate that, in general, a firm’s incentive to invest is positively related to its market value (relative to the replacement costs of its assets).
* My research has indicated that a 10 percent decrease in market value is associated with a 2.25 percent decrease in R&D expenditure, holding constant tangible assets, past R&D investment and cash flow.
* In a National Bureau of Economic Research paper, economists Sara Ellison and Wallace Mullin estimated that the threat of Clinton health care reform reduced the market value of pharmaceutical firms by 44 percent during the period from September 1992 to October 1993.
We would therefore expect to observe an industry-wide decline in the rate of growth of pharmaceutical R&D investment at the time of (or soon after) the threat of pharmaceutical price controls. The facts bear this out: the growth rate of pharmaceutical industry R&D investment was much lower during the period 1993-95 than it was during any other period since 1987.
Read the rest of this article on pharmaceutical patent protection.
The Value of Pharmaceutical Patents & Strong Intellectual Property Protection
Table of Contents
- Overview of patent system
- Patents provide incentive to innovate
- Process of innovation is long, risky and expensive
- Patents help save lives, enhance life
- Strong IP protection is needed to ensure pharmaceutical innovation continues
- IP: The key to innovation and growth
Overview
- Abraham Lincoln said that patents “added the fuel of interest to the fire of genius.” But, it was not genius alone that Lincoln and our founding fathers desired from a patent system. Rather, their objective was innovation. Innovation is why we protect intellectual property.
- The founding fathers felt so strongly about the importance of innovation that patent and copyright protection is the only right expressly mentioned in the original articles of the Constitution.
- Patent protection in the United States gives inventors the exclusive right to sell an invention for up to 20 years before others may copy and sell it. However, the effective patent life, which only begins to run when the patent is granted and the invention can be marketed, is closer to 18 ½ years. For pharmaceuticals, the effective patent life is actually closer to 11 or 12 years since federal law requires a company to test its product for safety and efficacy and secure regulatory approval before marketing it, a process that can take years.
- Patents are a kind of agreement in which an inventor is given a limited period of time of exclusivity to make and sell a product incorporating an invention in exchange for agreeing to make his or her invention public, thus enabling and encouraging the continuation of scientific discovery.
Read the rest of Innovation.org’s pharmaceutical patent paper (pdf).