Intellectual
Property Rights and Public Health:
How
Pharmaceutical Patents Save Lives
J.S.
Liechty
November
28, 2006
Biology
Senior Seminar
Thesis
The
government’s unwavering support of intellectual property rights and patent laws
in the pharmaceutical industry plays a vital role in the development of new
lifesaving drugs.
I. Intro, Rationale
& Background Information
II. Role of Patents
in Innovation
A. The Nature of Research and Development
B. Economic Incentive
for Innovation
III. Threats to
Intellectual Property in the Pharmaceutical Industry
A.
The Cipro Case
B.
NIH and Public Funding
1. Background on NIH
2. Bayh-Dole Act
C.
The Norvir Case
IV. Conclusion: Looking Toward the Future
The continued development of new
medicines and pharmaceuticals plays an essential role in the progress of the
modern day health system. Not only can
the development of new drugs enable new forms of treatment, but new drugs can
also lower overall costs of traditional treatments (Barrett
& Carey, 2001). With the
essential role pharmaceuticals play in our healthcare system, it is evident
just how important continued research and development in this field is. At the current time, the incentive for
private organizations to develop new drugs is twofold. These incentives include: an increased
quality of life for fellow human beings and a large money making
opportunity. The latter has been the
incentive for the most important breakthroughs of our age and will continue to
be so for the foreseeable future. The
role of intellectual property rights and government upheld patents on
discovered drugs are crucial to the continued investment in research and
development by private means. By
upholding patent laws in the pharmaceutical industry, the government has
ensured the intellectual property rights of newly discovered drugs. This has enabled pharmaceutical companies to
invest millions in the costly research and development without fear of losing
their return on the money invested. The
government’s unwavering support of intellectual property rights and patent laws
in the pharmaceutical industry plays a vital role in the development of new
lifesaving drugs. This paper will
highlight the role patents play in the development of new drugs and will argue
the case for the continued support of patent laws in the pharmaceutical
industry worldwide.
In order to fully understand the issues at hand, let us
start by looking into what intellectual property is and what purpose
intellectual property rights and patents serve. The World Intellectual Property Organization characterizes
intellectual property as “creations of the human mind” (World
Intellectual Property Organization, n.d.).
This includes literary, artistic, and scientific works. Scientific discoveries are specifically mentioned
as intellectual property by the World Intellectual Property Organization. Intellectual property falls into two
categories: copyrights and industrial property. The latter is the one that pertains to pharmaceutical
products. Industrial property includes
patents on inventions, scientific discoveries and things of that nature. Patents are considered to be “the right
granted to an inventor by a State… which allows the inventor to exclude anyone
else from commercially exploiting his invention for a limited period.” The
rationale behind patents is that they “provide
incentives to individuals, offering them recognition for their creativity and
material reward for their marketable inventions. These incentives encourage
innovation, which in turn contributes to the continuing enhancement of the
quality of human life” (World
Intellectual Property Organization, n.d.).
Patents act to protect intellectual property and thereby benefit both
the inventor and the general public. By
ensuring intellectual property rights, a state can promote innovation and
development of new products that are beneficial to everyone. Applying this notion to the pharmaceutical
industry, the State encourages the development of useful new chemicals by
giving monetary reward to those who contribute to the development of new
pharmaceuticals.
The
Role of Patents in Innovation
The Nature of
Private Research and Development
In the United States, all producers of
pharmaceuticals are private companies.
As such, these businesses need to make money in order to stay afloat in
the marketplace. The route that most
companies choose to do this is by offering unique products to their
consumers. In order to accomplish this,
pharmaceutical companies must somehow acquire the rights to be the sole
producer of a drug. Whether the company
chooses to do their own research and development or buy licenses to produce
chemicals discovered by others, patents play an important part of the company’s
ability to recover sunk costs. Research
and development of marketable pharmaceuticals is a costly endeavor to
undertake, and will not be done by private means without the chance of turning
the investment into a large moneymaker.
The cost of developing a drug to the marketable stage is estimated to be
between $800 million and $2 billion per drug (Barrett
and Carey, 2001 and Masia, 2006). The hefty price tag for developing a drug
goes to a number of places including laboratory work to investigate and
identify a wide variety of potentially useful chemicals, testing to eliminate
candidates, and clinical trials to pass regulations before being approved for
the market. This whole process usually
takes 12 to 15 years. On top of
recovering costs associated with research that results in marketable drugs,
pharmaceutical companies must also recoup costs from failed research ventures (Masia, 2006).
With the ever-climbing costs of
research and development and the far off return on investment, investor
confidence plays a huge role in the continued development of new
pharmaceuticals. Unwavering
governmental assurance of property rights is one important way that investor
confidence is bolstered (Wayne,
2006). If investors are unsure that
intellectual property will be protected, they will be hesitant to invest the
money needed to develop new drugs. In
this way, any attack on property rights is also an attack on the future of
private drug development. If private
funding is going to continue to be the driving force behind the discovery of
new drugs, companies and investors alike will have to continue to be able to
make money at what they are doing. If
pharmaceutical companies are to continue taking risks with large sums of money,
they are going to need to continue receiving large sums of money in
return. To investors, the bigger the
risk, the bigger the reward will need to be.
Governmental interference in the pharmaceutical industry will translate
directly into interference in investment and thus development. If the government does not continue to
respect intellectual property rights in all cases, companies will no longer be
willing to invest the large sums of money necessary to develop new lifesaving
(and money saving) drugs. In the early
1990s there was significant pressure on Congress to pass a price ceiling on
newly developed drugs. Professor of
Pharmacy Eugene M. Kolassa says that if the government had placed price ceilings on
drugs, “there would be no new protease inhibitors now.” Those new drugs have cut down on hospital
costs as well as deaths for HIV patients (Barrett
& Carey, 2001). Judith Kaufmann
(2006)
seconds this claim, saying, “Drugs that cure AIDS and many other diseases are
available precisely because of patent protection.” Research into new drugs will be greatly handicapped if price
ceilings are implemented or pharmaceutical patents are no longer honored.
Economic Incentive for Innovation
By using an economic incentive for
discovery and development, the government will most effectively promote the
production of medicines that will be useful for many years to come. As the Assistant Secretary of State for
Economic and Business Affairs puts it, “the inventor is granted an economic
incentive to take risks and create; the public receives the benefit of the
invention, as well as the inventor's knowledge for application in other uses” (Wayne,
2006). With average patent life
spans of only 20 years, it is well worth the pharmaceutical company making an
exorbitant profit (Kaufmann,
2006 & World
Intellectual Property Organization, n.d.).
Even if the price set by pharmaceutical companies is too high for most
people to afford, the company is providing a drug that wouldn’t otherwise be
available. In 20 short years that
product will be opened up to competition and market forces, which will inevitably
bring down the price.
Threats to Intellectual Property in the
Pharmaceutical Industry
The Cipro Case
Over the past few decades there have
been a number of instances in which pharmaceutical patents have come under
threat. One memorable case in which
this has happened is the case of Cipro in 2001. During the anthrax outbreak in September and October of 2001, the
US government became concerned over the availability and price of Cipro, an
antibiotic that has proven especially effective against anthrax. Bayer A.G., the maker of the antibiotic
Cipro, was charging over $4 per tablet at the time. Citing concerns of national security, Secretary of Health and
Human Services, Tommy G. Thompson, threatened to circumvent Bayer’s patent on
Cipro. Barr Laboratories stated that it
could produce a generic version of Cipro for under $1 if the Bayer patent would
be laid aside. Thompson demanded that
Bayer match this price or the government would overrule their patent 3 years
before it expired (Andrews
& Bradsher, 2001). Feeling a
great deal of pressure, Bayer made a special deal with the government. In order to keep their patent, they agreed
to sell millions of tablets of Cipro to the government for 95 cents a
piece. Bayer also donated 2 million
tablets of Cipro to the government free of charge (Bradsher, 2001). This kind of governmental bullying is the
very thing that needs to be avoided if investors are going to continue to
support research into the development of new pharmaceuticals. The government’s role is to uphold patents,
not to usurp them.
National Institutes of Health and Public Funding
The issue becomes more complex when
public funding goes towards laboratory research that later results in a patent
and marketable product. When taxpayer
money has helped to fund the discovery of a marketable product, what rights does
the government have to interfere in price or availability of the product? Does the patent really belong to the
taxpayers themselves? These are
questions that the National Institutes for Health (NIH) deals with. There are many cases in which the NIH gives
money to scientific research which later turns into a product on the
market. The NIH has, for the most part,
refrained from interfering with the marketing of products that it has helped to
develop. Before we delve into any of
these cases, let us first turn our attention to the role of the NIH.
The NIH is a part of the US Department
of Health and Human Services. According
to their official website, the NIH is the “primary Federal agency for
conducting and supporting medical research” (National Institutes of Health,
2006). The NIH does its own
internal research into drug development as well as financially supporting
research at universities, hospitals, and research institutes. When the NIH supports research that results
in a marketable product, the institution that has conducted the research owns
the intellectual property rights under the Bayh-Dole Act.
In order to promote the
commercialization of technologies that have sprung from publicly funded
research, the US Congress passed the Bayh-Dole Act in 1980. This act gives universities and other
research institutes intellectual property rights to any invention that comes
out of publicly funded research. This
act relates specifically to the pharmaceutical industry as NIH funded research
leads to the marketability of a drug.
Under this act, the government reserved what are termed as “march in
rights” on the products. March in
rights allow the government to step in when it feels that an institution is not
using their invention to further human well-being. The NIH is limited as to
where it may interfere with the private sector concerning patents under the
Bayh-Dole Act. As long as the product
is widely available to those seeking it, the NIH can’t interfere with the
marketing of any product that falls under Bayh-Dole. The NIH states that they have no authority to control pricing of
drugs, and that drug pricing is an issue to be addressed by Congress (Connolly,
2006). As it stands, the
government’s only legal interference with publicly funded drugs is to ensure
that they are made widely available. In
short, the private sector may profit from public investment. The NIH trusts that the taxpayers will get a
return on their money with the availability of a new useful product on the
market (National Institutes
of Health, 2001).
The Norvir Case
One instance in which these issues have
been played out was the case of Norvir in 2004. Norvir is an antiretroviral drug produced by Abbott Laboratories
that has proven especially effective in combating AIDS. Late in 2003, Abbott Laboratories raised the
price of a daily dose from $1.75 to $8.57 (Connolly,
2006). This is of special note
because the NIH gave a $3.5 million grant towards the research that resulted in
Norvir. AIDS activists filed a petition
for the NIH to invoke their march in rights to counter what was described as
unfair pricing on an essential product.
The movement to interfere with Abbott Laboratory’s marketing and pricing
was based on the grounds that Norvir was supported with public funds and is now
making private profits. The NIH decided
that Abbott’s price hike was outside the realm of their jurisdiction. In addition to the NIH petition, the Bush
administration was also asked to nullify the patents held for Norvir so that
generics could be produced and put on the market at a lower price (Connolly,
2006). While the government has
made provisions under the Bayh-Dole Act to commercialize products such as
Norvir, there is still a significant threat to the patent holders in such
cases. The purpose of the Bayh-Dole Act
is to promote research to be developed into something that is useful to
society. The NIH argues that with the
Bayh-Dole Act in place, products such as Norvir would never have been developed
and wouldn’t be available to anyone (National Institutes of Health,
2001).
The use of public funds to support
research that results in private profit does raise some serious questions. Should the NIH be the patent holder of any
discovery that comes out of NIH funded research? What rights should the taxpayer have to the product it helped to
finance in development? Should the NIH
receive royalties from successful patents?
While these questions remain to be fully answered, one thing that is
certain is the need for the unwavering backing of patents. The threat of governmental circumvention of
pharmaceutical patents as seen in the cases of Cipro and Norvir is something
that must not be taken lightly. The
federal government must abstain from interfering in such cases in order to
preserve the future of drug discovery.
While the future of the pharmaceutical
industry remains to be seen, a few conclusions can be drawn from its past. Prices of developing new drugs as well as
costs to the consumer are clearly on the rise (Barrett
& Casey, 2001). While new
scientific techniques have greatly expanded the tools available to drug
developers, research costs have increased correspondingly. While the pharmaceutical industry deals with
the issue of rising development costs, the question has been posed “How can we
encourage research and still keep prices within reach?” (Barrett
& Casey, 2001). This is a question
that is not easily answered, and even less easily accomplished. While the world struggles to solve this
problem, one fact remains sure: the current pharmaceutical industry (and health
care system) relies very heavily on intellectual property rights and
patents. As long as the private sector
is responsible for developing new drugs, patents must be upheld at all
costs.
The role of the government in assisting
private institutions in developing new lifesaving drugs is one that cannot be
overstressed. Simply put,
governmentally upheld patents in the pharmaceutical industry have saved
countless lives (and dollars), and will continue to do so for as long as they
are in place. Any threat to
pharmaceutical patents is a threat to the future of our health care
system. We cannot afford to overstep
the intellectual property rights in the pharmaceutical industry for any reason,
including special circumstances of national security. If the government appropriates patents that are particularly
needed or extensively used, they are also taking away the incentive for
companies to develop other important drugs.
By ensuring intellectual property rights in the pharmaceutical industry,
privately funded research will continue to develop new lifesaving drugs that
will be greatly beneficial to society.
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