Big Stakes on Drug Patents

March 16, 2015

Dean Baker
The Hankyoreh, March 16, 2015

View article at original source.

Last fall, India’s new Prime Minister, Narendra Modi, met with President Obama in Washington. According to the public accounts, the meeting was friendly with both sides hoping for stronger diplomatic and economic ties. The Obama administration was eager to report that India had agreed to set up a working group to re-examine its patent laws, with the implicit goal of making them stronger.

This item got little attention in the United States, but it was big news in India. India has the world’s leading generic drug industry. It not only supplies the billion-plus population of India; it also provides high-quality, low-cost generic drugs to much of the developing world. 

A large part of the reason for the success of India’s generic industry is its treatment of patents. It had eliminated patents on drugs back in the 1970s in order to promote the development of the generic industry. As required by the TRIPS accord, India reintroduced patent protection in 2005, however it typically applies much stricter standards than in the United States and Europe.

For example, India only awards patents to drugs involving new chemical compounds. Its courts have ruled that combination drugs, which rely on new mixes of known chemical compounds are not sufficiently innovative to warrant a patent monopoly. As a result, many drugs that enjoy patent protection in Europe and the United States are not protected India.

This means that Indian generic producers can sell them at a fraction of the price charged in wealthy countries. Sovaldi, an effective drug for treating Hepatitis-C, costs $84,000 for a three month course of treatment in the United States. The Indian generic version sells for less $1,000. 

This situation has U.S. drug manufacturers quite worried. It is going to be difficult for them to survive in a world where they are charging prices in the United States that can be one hundred times as much as the cost of the drug in India. Either the drugs will go from India to the United States or the people will go to India in search of the drugs. In both scenarios, the drug companies end up losing their monopoly market.

This is why President Obama is pushing India to impose more industry-friendly patent rules. If India can be forced to rein in its generic industry, it would eliminate a major headache for the U.S. industry.

Of course India is not the only country that the Obama administration is pressuring for stronger patent rules. Stronger patent-type protections are a major part of the Trans-Pacific Partnership agreement that the United States is pushing. A major item in the draft intellectual property chapter is rules on data exclusivity to make the protection longer and stronger.

Data exclusivity prohibits a generic company from relying on the test results from a brand drug company which demonstrated its safety and efficacy. This can be a stronger restriction than a patent because it is often possible to invent around a patent. However apart from the expense, it would not even be ethical for a generic company to carry through its own clinical tests for a copy of an existing drug. Such tests would require giving a control group of patients a placebo, in a context where it is already known there is a safe and effective treatment. That would be very difficult to justify.

If the U.S. government succeeds in imposing tighter patent-type monopolies elsewhere in the world, it will not only mean high drug prices. It will lock in a mechanism for developing drugs that is both inefficient and corrupt.

The massive gap between the patent protected prices and the cost of production virtually guarantees waste in the sale and distribution of drugs. In the United States, drug companies employ tens of thousands of marketing agents who travel from doctor to doctor promoting their drugs. When drugs can sell for several thousand percent more than the cost of production, this sort of sales effort can be highly profitable.

There is also enormous waste in the research process because of the secrecy involved in the patent system. Instead of sharing results, which would be the path that would best advance science, drug companies generally keep their research findings tightly under control, publishing only what is necessary to get a patent. This will invariably lead to much unnecessary duplication.

Furthermore, in cases where drug companies do successfully develop a major breakthrough drug, the resulting patent rents will often cause other companies to try to break into the market. While having a second, third, or fourth drug to treat a specific condition dies provide some benefit, we would typically rather see researchers spent their time developing drugs for conditions for which no effective treatment exists.

Finally, the patent system encourages drug companies to misrepresent the safety and effectiveness of their drugs. Since they are the ones who do the research, they can downplay or even conceal findings that raise questions about the safety and quality of their drugs. There have been numerous incidents where such concealment has come to light. For example, Merck paid almost $5 billion dollars to settle charges that it had hidden evidence that the arthritis drug Vioxx could be harmful to people with heart conditions.    

There are many reasons for believing that a system with its origins in the middle ages is not the best mechanism to finance drug research in the 21st century. However if the U.S. government is successful in forcing stronger patent protection on its trading partners, we may be stuck with this system long into the future.

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