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Patent Law 2.0: Not the Answer the Developing World Needs

Written by Dr. Kristina Lybecker
Associate Professor of Economics, Colorado College
Posted: August 18, 2013 @ 8:30 am

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In a recent article in the New England Journal of Medicine, Amy Kapczynski argues that the Supreme Court of India’s strict interpretation of the country’s new patent law provides a model to be followed by other countries.[1]  Kapczynski applauds this “Patent Law 2.0” and argues that it will enhance access to medicines and may improve pharmaceutical innovation.  Unfortunately she is wrong on both counts.

Section 3(d) of the Indian Patent Act forbids the patenting of new forms of known drugs unless the new form significantly enhances efficacy and yields therapeutic benefits.  Accordingly, much of the incremental innovation that is done on existing treatments will no longer be patentable under the so-called Patent Law 2.0.  Three points are worth making.

First, this interpretation removes the incentive for improvements to existing therapies.  Given that first-in-class treatments are rarely optimal, incremental innovation plays an important role in improving health outcomes, frequently becoming best in class and first line therapies.  Incremental innovation may also increase the number of available dosing options, uncover new physiological interactions of known medicines, facilitate reformulations to encourage children’s compliance, and increase the shelf-life or heat-stability of a given medicine to ensure effectiveness in diverse environments.  The incremental developments present in these follow on therapies allow physicians to precisely treat the specific needs of diverse patients and provide treatment options when the initial medicine is either ineffective or not tolerated by the patient.[2]  Second, incremental innovation is critical to the developing world.   Incremental innovations provide for more convenient extended-release dosing and formulations that are do not require refrigeration or are less temperature sensitive, valuable characteristics in developing country settings.  A recent study of the World Health Organization’s Essential Drug List finds 63% of the drugs were follow-on drugs, which points to their value and importance to public health and development efforts.[3]  Moreover, follow-on drugs are becoming more important over time as this share has increased more than 25% over the previous two decades.  Finally, the Indian Patent Office is now bound by the interpretation of “increased efficacy” as therapeutic efficacy.  Given this, it is important to ask how the threshold for “therapeutic benefit” will be defined.  The ambiguity surrounding how this requirement will be interpreted increases the risk and uncertainty of innovation and will reduce the incentives for future innovation.

These are not issues considered by Kapczynski.  Astonishingly, she interprets the impact of this law as follows, “Provisions like Section 3(d) can help reverse this effect [prioritizing incremental innovation over breakthrough drug discovery] and encourage companies to undertake the riskier and more expensive research that is required to generate breakthrough drugs.”  Her analysis is strikingly naïve.  It is laughable to think that weaker intellectual property rights (IPR) protection will incentivize innovative pharmaceutical firms to expend more resources and take on greater risk.  The economics of innovation suggest just the opposite.  Stronger intellectual property protection incentivizes innovation, increasing the likelihood the innovator will realize a return on the tremendous investment of time, talent and financial resources.  It is a stronger IP paradigm that encourages innovative firms to take on risk and invest scarce resources.  Contrary to Kapczynski’s interpretation, enhanced IPRs foster valueable pharmaceutical innovation and speed the development of breakthrough therapies.



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Although Kapczynski correctly notes that India only represents about 1% of the global pharmaceutical market, these issues should still resonate with India and other nations in the developing world.  Importantly, following the adoption of the IP protections in the TRIPS Agreement, research and development in India increased by 20%.[4]  Experience reveals that even in India stronger intellectual property rights encourage innovation and growth.  This linkage is further documented in a growing body of empirical evidence which demonstrates that stronger intellectual property protections, in combination with other policies, increase economic development, foreign direct investment (FDI) and innovation.[5]

Finally, and perhaps most importantly, Patent Law 20.0 does not address the true barriers to access.  Kapczynski herself touches on some of the most significant barriers to access, barriers that remain unchanged by the stricter interpretation of Section 3(d) of the Indian Patent Act.  While patents are an easy target, and readily identified as barriers to access to medicine in developing nations, the reality of getting medicines to those who need them is much more complicated.  To truly overcome the barriers to access, the focus must be broadened to include other important factors such as reducing poverty, eliminating taxes and tariffs on medicines, eradicating corruption, ensuring adequate distribution and monitoring systems, ending pharmaceutical counterfeiting, and providing sufficient healthcare professionals and infrastructure.  Failing to address these elements inhibits access to medicines, through financial challenges, higher prices, shortages, and spurious products.  Ensuring access to medicines globally requires a more nuanced and comprehensive approach to remove all of the barriers that exist.  To truly improve healthcare in the developing world, the focus must be broader than Patent Law 2.0 and the scapegoating intellectual property rights.  Patents serve a purpose and have incentivized medicines that have enhanced and extend lives on a global scale.  Ensuring that these medicines are available to all necessitates addressing all barriers to access.

 


[1] Kapczynski, Amy. “Engineered in India – Patent Law 2.0,” New England Journal of Medicine, online edition, posted July 17, 2013.

[2]   Wertheimer, A., R. Levy, and T. O’Connor. “Too Many Drugs? The Clinical and Economic Value of Incremental Innovations,” in Investing in Health: The Social and Economic Benefits of Health Care Innovation, 2001, volume 14, pp.77-188.

[3] Cohen, J.,  L. Cabanilla & J. Sosnov, “Role of follow-on drugs and indications on the WHO Essential Drug List,” Journal of Clinical Pharmacy and Therapeutics, vol. 31, 2006, pp.585-592.

[4] Perez Pugatch, M., D. Torstensson and R. Chu. “Taking Stock: How Global Biotechnology Benefits from Intellectual Property Rights,” Pugatch Consilium, June 2012.

[5] An excellent review of this literature is provided by Pugatch, Torstensson and Chu (citation above).  Their study documents the findings of more than 40 studies which demonstrate the positive correlation between intellectual property rights, foreign direct investment, trade and economic development.  These studies examine both industrialized and developing nations from all regions of the globe.


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Posted in: Anti-patent Nonsense, Dr. Kristina Lybecker, Guest Contributors, India, International, 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.

 

 


10 comments
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  1. Good article. I agree completely. Everybody wants things that are inexpensive, and allowing copying seems like an easy answer. However, it removes the incentive of the innovators to develop the breakthroughs that the generics copy. To me, it is sn issue of property rights. There is a word that can be used to describe people who want things to be free–Communists.

  2. India may be trying to get the best of both worlds using a ‘tragedy of the commons’ approach. Knowing that India is only 1% of the pharma market, and that therefore the drug companies will continue to incrementally improve their drugs anyhow under the patent protection of the other 99% of the world; India will get the advantage of the improved drugs and the advantage of low prices from cheap generics.

  3. At risk of coming across as anti-pharma or anti-capitalistic,one solution to deliver low-cost pharma to developing countries is to identify patents filed in highly developed countries, identify a country equipped to mfg the pharma, and ensure there is no IP protection in the mfg country or developing country. This cuts out the R&D process/costs, knocks out many of the marketing costs, and allows ‘knock-off’ pharma to be legally and cheaply manufactured, while providing industrial knowledge and jobs to countries in need. This ‘public’ information can and should be used. See website: Patent Free Zone.

  4. Lyle-

    Why steal patented pharmaceuticals when there are literally millions and millions of people who could have their lives saved by providing extraordinarily cheap generic drugs?

    The challenge to pharma patents is purely philosophical. It has nothing to do with saving lives. Each year, for example, several million children die of diarrheal diseases. There are all kinds of unpatented technologies to prevent that, and all kinds of extraordinarily cheap drugs that could prevent death even if the disease is contracted.

    So why steal pharma rights on patented drugs when this has nothing to do with saving lives?

    Also, taking rights to patented blockbuster drugs would ensure only that no other new blockbuster treatments would be forthcoming.

    -Gene

  5. While I appreciate the attention, I of course disagree with the arguments offered here. It seems not worth rehashing all of the reasons, but I will say that there is nothing “naive” about the innovation point made in the piece. (Also, that kind of invective seems hardly constructive.) As readers here undoubtedly understand, innovation paradigms can be distorting, so that they incentivize the wrong kind of research. For a longer description of the problem in a different context, see my recent article w/ Talha Syed, in the YLJ (“The Continuum of Excludability…”). The answer isn’t “more is always better” (and not just b/c of the dynamic costs of IP). If IP laws are not well calibrated, and reward the wrong kinds of research, then improved calibration – even if the aggregate incentives are lower – can be an improvement from a welfare perspective. There are many reasons to suspect that much of what happens in the realm of secondary patenting is rent seeking or racing, neither of which result in efficiency gains.

  6. “To me, it is an issue of property rights. There is a word that can be used to describe people who want things to be free–Communists.”

    The whole anti-patent debate has its roots in anti-property rights ideology.

  7. “So why steal pharma rights on patented drugs when this has nothing to do with saving lives?

    Also, taking rights to patented blockbuster drugs would ensure only that no other new blockbuster treatments would be forthcoming.”

    Gene – I wasn’t suggesting ‘stealing’, but identifying publicly available knowledge that could be used in developing countries. So long as there is a demand, a cheaper manufacture and delivery (no R&D, less marketing), and there are no rights being infringed, it’s hard for me to understand how producing low cost drugs for a developing country wouldn’t save lives. Isn’t this the same as your suggestion of “providing extraordinarily cheap generic drugs”?

    It’s also difficult to imagine how a pharma company would be disinclined to continue with R&D when their market has not been diminished – is selling a knock-off to the developing world cutting significantly into their profits?

  8. Lyle,

    Point one: existing patent right enforcement regime.
    Let’s set the profits made from some level of sales in a developing country, let’s call it X.

    Point two: your suggestion.
    Profits made by the patentee when someone else can sell the knock-off: ZERO.

    What level of X do you consider to be “an acceptable” loss to the patentee? Would you personally take this loss?

    Remember now that patents are personal property – you are very much advocating the wanton taking of personal property.

    Remember as well the real world effect that once such knockoffs enter the market (in the developing world) that they WILL travel to non-developing nations – especially if the patentee turns around and decides not to suffer any losses by charging more in non-developing nations. Your ‘generosity’ has the unintended consequnce of fueling at least a secondary market and most likely a black market.

    Sorry if this does not sound ultruistic, but I most definitely am not interested in paying jacked up prices for my meds in order to subsidize the developing countries. I would much rather structure the system to dissuade such reallocations, thank you. Let me pay the same rate and then let me decide what to do with any extra cash left in my pocket.

  9. Anon –

    While I agree that selling a knockoff in the developing country will have residual effects on the sale of pharma worldwide (no sales in developing, some knock-offs exported from developing), I take issue with your characterization that I am advocating “wanton taking of personal property.”

    If an inventor (or a company) owns a US patent, this intellectual property right to exclude only exists within the borders of the US, and, in exchange for this right, the US govt makes the intellectual property available to the public. This trade-off is similar in all countries which extend IP patent rights. Using this public knowledge in a country in which no rights exists (and therefore no property) is a sensible business idea, not “wanton taking” (for wanton taking, simply look at the smartphone market, whose companies are forced to progress under the motto “it’s better to ask for forgiveness later than permission now”).

    An “acceptable” loss would be one that would not significantly diminish the incentive for pharma to keep researching and developing breakthrough treatments. In other words, if the risk is still acceptable to pharma to allocate significant resources into R&D, then I believe the benefits gained by legally using their research in unprotected areas is well worth considering.

  10. Lyle,

    One not so small correction: “and, in exchange for this right, the US govt makes the intellectual property available to the public after the limited time.”

    As for ‘all countries that [note the restrictive use] extend IP patent rights” which [note the universal aspect] most every single modern advanced – or desiring to be advanced – country does. You are correct tha twanton taking would not occur in countries that provide no IP protection. But such countries guarantee their state as developing countries by NOT having Intellectual Property protection. Your presecription for a cure invovles killing the patient.

    You also still have some non-zero (and likely substantial) loss that a corporation will not likely willingly suffer on their own and thus will shift the cost to those countries where protection is afforded. I repeat (after my own personal well consideration): No thank you as I do not wish to subsidize the developing countries.

    Your thinking falls along the lines of ignoring the basic (and rational) human nature. It’s just as bad as the ill-advised forays into communism. Sure, in a perfect world, communism would be great. But we live in this world.