Distorting Innovation: Fixed Patent Terms and Underinvestment in Long-term Research

By Dr. Kristina Lybecker
November 5, 2015

businessman-maze-335Heidi Williams is a genius. According to the MacArthur Foundation, that is.[1] She also researches how the design of intellectual property rights protection shapes innovation.[2] In the context of healthcare and drug development, her work provides important evidence on how IP policy decisions influence the direction of research and ultimately the biopharmaceutical medicines that are developed. Specifically, in a recent study, Williams and colleagues find that biopharmaceutical firms underinvest in long-term research on treatments for early-stage cancers due to the increased time and expense required to engage in such research. Drugs for the treatment of late-stage cancers are less expensive to develop, in part because late-stage drugs extend patients’ lives for a shorter period of time such that clinical trials are concluded more quickly. This means that such drugs require less time to research, develop, test and bring to market than drugs that treat earlier stage cancers, providing the innovator with a longer effective patent life. In essence, less research and development investment is directed toward drugs that treat patient groups requiring lengthy clinical trials, those with longer commercialization lags.

Williams et al. proxy the commercialization lag with a higher five-year survival rate which translates into a shorter effective patent life. They find that, for a given diagnosis, a ten percent increase in the five-year survival rate is correlated with an 8.7 percent reduction in R&D investment. The study includes over 200 subcategories of cancers, detected at differing stages of development. Utilizing data on clinical trials that use mortality vs. those that use “surrogate endpoints” (biomarkers)[3] to establish effectiveness, in addition to a host of complementary evidence, the study suggests that the distortions in R&D investments that stem from variations in effective patent lives, generates an underinvestment in long-term cancer research. Given this, current R&D investments fail to deliver as many potential life-years saved as they might if research and development on early-stage cancers and cancer prevention were incentivized with longer effective patent lives.

The study then proposes three policy changes for correcting this distortion, to generate additional research in long-term cancer therapies. They consider surrogate (non-mortality) clinical-trial endpoints, targeted R&D subsidies, and patent design. According to Roin, one of Williams’ colleagues and a coauthor on the study, “when you have good surrogate endpoints, you see a dramatic increase in R&D investment, which means lives saved.”[4] In the context of additional public funding for the research and development of anti-cancer drugs, these efforts could increase research on long-term cancer therapies since this type of funding is available without the short-term shareholder demands to produce returns. Notably, the number of cancer drugs that are preventative in nature total six, and every single one has been developed with public funding, or relied upon surrogate endpoints. Williams points to the connection between these two policies (surrogate endpoints and public funding), stating, “No individual private firm wants to come in and provide all of the evidence that you need to validate a surrogate endpoint, because once one is validated, that’s going to be used by all of the firms on the market.”[5] In addition, the study takes note of the fact that surrogate endpoints and targeted R&D subsidies would address the distortion regardless of the source, while only the patent design change addresses the fixed patent term distortion.

The third policy suggestion put forth by the paper would be changing the terms of drug patents, which typically begin on the date of patent filing, to instead begin on the date when the drug hits the market. The change would provide firms with the incentive to invest in longer-term research since they would be able to do so without burning through valuable patent life. In the context of early vs. late-stage cancer research, Williams et al. have convincingly demonstrated why some types of research get more attention – and research dollars – than others. These results, however, clearly have implications for other types of medical innovation as well.

With the disappointing IP protections available to biopharmaceuticals in the recently negotiated TPP in mind, and in an age of harmonizing to the least-common-denominator, it is critical to examine market incentives for innovation and the public policy choices that are being made. In the words of David Ridley, a prominent health economist at Duke University’s Fuqua School of Business, “It’s worthwhile to ask whether a ‘one-size-fits-all’ patent policy is optimal.”[6] Williams provides hope for how we can think creatively about patent protection in an effort to incentivize the innovation we want and push the frontiers of modern medicine.



[1] Williams is a 2015 MacArthur Fellow, a.k.a. a recipient of a MacArthur Foundation Genius Grant. The Foundation provides the following description of Williams and her work: “Heidi Williams is an economist unraveling the causes and consequences of innovation in health care markets. Williams combines finely grained empirical observations and custom-designed data collection methods to build entirely new datasets about technological changes in health care. In addition, her creative methods for determining causal inference, and keen understanding of regulatory law, biological science, and medical research, have allowed her to trace the interplay among institutions, market behavior, and public policy–relevant outcomes. Leveraging the race to decode the human genome by private and public institutions as a model, Williams reveals how the timing and nature of intellectual property restrictions affect subsequent innovation.” (https://www.macfound.org/fellows/951/)

[2] Several of William’s recent papers may be found here, here, here, and here.

[3] Fundamentally, surrogate endpoints are outcome measures that reflect important milestones, though they are not of direct practical importance. Consider the following examples: measures of cholesterol may be used in clinical trials where cholesterol reduction is used as a proxy (surrogate endpoint) for reduced mortality; blood pressure is frequently used as an outcome in clinical trials since it is a risk factor for stroke and heart attacks.   Physiological or biochemical markers are frequently used as surrogate endpoints since they are quickly and easily measured and are assumed to predict important clinical outcomes.   (www.medicine.ox.ac.uk/bandolier/booth/glossary/surrog.html ) According to the Williams et al. study, “A major factor determining the duration of a clinical trial is the amount of time needed to observe statistically significant differences in treatment outcomes among enrolled patients, known as the “follow-up period.” The length of the follow-up period largely depends on two factors: the natural progression of the disease, and the clinical trial endpoints required by government regulators. . . Conventionally, clinical trials evaluate whether a candidate product provides a clinical benefit to mortality—be it overall survival or a closely related measure such as “disease free survival,” which measures time until cancer recurrence. However, in recent years there has been increased interest in using surrogate endpoints as a substitute for the standard clinical endpoints in a drug trial. In the case of hypertension, for example, lower blood pressure is accepted as a surrogate for the clinical endpoint of preventing cardiovascular complications. . . blood cell counts and related measures have been accepted surrogate endpoints for hematologic malignancies (leukemias and lymphomas).”

[4] Dizikes, Peter. “Study suggests firms ‘underinvest’ in long-term cancer research,” MIT News, 28 July 2015.

[5] Ibid.

[6] Ibid.

The Author

Dr. Kristina Lybecker

Dr. Kristina 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.

Dr. Lybecker'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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There are currently 1 Comment comments.

  1. T2 November 6, 2015 7:52 pm

    Drugs currently already receive special patent adjustments in the US, getting half of the clinical development time, plus the whole NDA review time added to the patent term under the Patent restoration provisions of the Hatch-Waxman Act. They also receive various forms of non-patent based exclusivity through regulatory affairs provisions (e.g. 5 yrs mkt exclusivity for a NCE, etc) The comparitively high prices Americans pay for drugs vice ROW incent all sorts of new drug development.
    ‘Prevention’ is different. For ‘prevention’ indications, the challenges are 1) mainly the enormous sample size needed to statistically prove a prevention effect, combined with 2) a very low probability of success. Though still costly, it is much scientifically straight forward to test a treatment for a given condition, rather than pursue prevention as a primary indication.