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Economics of Access to Medicines: The Challenges of Pharmaceutical Patents, Innovation and Access for Global Health

Written by Dr. Kristina Lybecker
Associate Professor of Economics, Colorado College
Posted: March 6, 2013 @ 6:45 am

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Free trade is the most efficient and effective way to promote global economic growth and enhance global health.  Investment in medical innovation and breakthrough therapies is more essential than ever.  Each year more than 18 million human lives end in death from poverty-related causes, fully one-third of all human deaths globally.  This amounts to fifty thousand deaths per day from causes such as respiratory infections, HIV/AIDS, tuberculosis, malaria, measles and tropical diseases. The numbers are overwhelming and mandate an examination of the barriers to access medicines in developing countries where the majority of these deaths occur.  Admittedly this is an immense and complicated issue and the economics behind pharmaceutical innovation and access is but one facet of a complete understanding of the problem.

Fundamentally, without the protection provided by the patent system, innovators would have little incentive to invest in new technologies that are easily replicated by their competitors.  Such free riding on the initial investment constitutes a market failure that would stymie most innovation.  Patents correct this market failure, providing the innovative firms with a limited period of market exclusivity to both incentivize the investment required for innovation and to make public the knowledge gained in the process.  In essence, in exchange for granting the innovator a limited period of monopoly power, a temporary static loss, society gains complete knowledge of the innovation, a permanent dynamic gain.  Through this tradeoff, the existing patent system corrects the market failure. The TPP can ensure that although innovation is difficult, risky and expensive, firms continue to invest.  International trade agreements such as the Trans-Pacific Partnership must ensure that innovation is protected, that breakthrough therapies are incentivized and that intellectual property protection is strong and enforced.

While it is easy to point to patents and blame the industry and international trade agreements for barriers to access to medicines in developing nations, the reality of the situation is more nuanced and not nearly so straightforward.  In the debate over barriers to access, the focus must be broadened to include other important factors such as poverty, taxes and tariffs, corruption and pharmaceutical counterfeiting.  Each of these elements inhibits access to medicines, through financial challenges, higher prices, shortages, and spurious products.  For the most vulnerable populations it is essential to address all of the key barriers to access, and improve procurement and monitoring systems.  Without a wider focus and a solution to these problems, it is unlikely that efforts to improve access will succeed.

For the half of the world’s population living on less than $2 per day, even pennies per dose for the drugs they need is too costly.  The economics behind the debate over access to medicines should shed some light on the complexity of this issue, the magnitude of the problem, and the importance of a solution.  Patents serve a purpose and have incentivized medicines that have enhanced and extend lives on a global scale.  This innovation necessitates protection and this protection necessitates a tradeoff.  Patents provide that, market exclusivity in exchange for continued investment in innovation.  While the international patent system is flawed and in need of improvement, it is overly simplistic to blame drug patents, international trade agreements and the global pharmaceutical industry for the access problem.  The reality surrounding the challenges of access to medicines is more nuanced.  Free trade begets growth, health and development.

The Trans-Pacific Trade Partnership has the potential to enhance all three.  We must seize that opportunity.


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Posted in: Guest Contributors, IP News, IPWatchdog.com Articles, Patents, Pharmaceutical

About the Author

Dr. Kristina M. Lybecker is an Associate Professor of Economics at Colorado College in Colorado Springs. She earned a B.A. from Macalester College, with a double major in Economics and Latin American Studies, and received her Ph.D. in Economics in 2000 from the University of California, Berkeley. Kristina’s research analyzes the challenges surrounding intellectual property rights protection in innovative industries: incentivizing pharmaceutical research and development especially on neglected diseases, addressing the difficulties of strengthening intellectual property rights protection in developing countries, battling the problems related to pharmaceutical counterfeiting and the unique nature of protection for biotech therapies. Recent publications have also addressed alternatives to the existing patent system, the balance between pharmaceutical patent protection and access to essential medicines, and the markets for jointly produced goods such as blood and blood products. Kristina has testified in more than a dozen states on the economics of pharmaceutical counterfeiting. She has also worked with US Food and Drug Administration, Reconnaissance International, PhRMA, the National Peace Foundation, the OECD, the Fraser Institute, the Macdonald Laurier Institute, and the World Bank, on issues of innovation, international trade, and corruption.

 

 


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