Patents, innovation and access to new pharmaceuticals

Journal of International Economic Law

Volumn 5, Issue 4, 2002, Pages 849-860

  Grabowski, Henry ^a  

^a DUKE UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0036908863     PISSN: 13693034     EISSN: None     Source Type: Journal    
DOI: 10.1093/jiel/5.4.849     Document Type: Conference Paper

References (53)

1. Roy Levy and Abraham Wickelgren, 'Competition Policy Issues for Regulators: A US Perspective on Pharmaceutical Industry Cases Before the Federal Trade Commission' in Hannah Kettler (ed), Consolidation and Competition in the Pharmaceutical Industry (London: Office of Health Economics 2001) 106-17.
2. See for example, Frank R. Lichtenberg, 'Are the Benefits of Newer Drugs Worth Their Cost? Evidence from the 1996 MEPS', 20 Health Affairs (September/October 2001) 241-51; Jack E. Triplett (ed), Measuring the Prices of Medical Treatments (Washington, DC: Brooking Institution 1999).
3. See for example, Frank R. Lichtenberg, 'Are the Benefits of Newer Drugs Worth Their Cost? Evidence from the 1996 MEPS', 20 Health Affairs (September/October 2001) 241-51; Jack E. Triplett (ed), Measuring the Prices of Medical Treatments (Washington, DC: Brooking Institution 1999).
4. David M. Cutler and Mark MCClellan, 'Is Technological Change In Medicine Worth It?' 20 Health Affairs (September/October 2001) 21.
5. Adrian Towse (ed), Industrial Policy and the Pharmaceutical Industry (London: Office of Health Economics 1995).
6. Richard D. Levin et al., 'Appropriating the Returns from Industrial Research and Development', Brookings Papers on Economic Activity (1987) 783-820; Wes Cohen et al., 'Appropriability Conditions and Why Firms Patent and Why They Do Not in the American Manufacturing Sector', Working Paper (Pittsburgh: Carnegie-Mellon University 1997).
7. Richard D. Levin et al., 'Appropriating the Returns from Industrial Research and Development', Brookings Papers on Economic Activity (1987) 783-820; Wes Cohen et al., 'Appropriability Conditions and Why Firms Patent and Why They Do Not in the American Manufacturing Sector', Working Paper (Pittsburgh: Carnegie-Mellon University 1997).
8. C. T. Taylor and Z. A. Silberston, The Economic Impact of the Patent System (Cambridge, UK: Cambridge University Press 1973). In a follow-on study, Silberston categorized three groups of industries for when patents are essential, very important or less important based on both survey responses and objective analyses (patent and R&D intensity). He concluded that 'the first category consists of one industry only, pharmaceutical'. Z. A. Silberston, The Economic Importance of Patents (London: The Common Law Institute of Intellectual Property 1987); Edwin Mansfield surveyed the R&D directors of 100 US corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceutical, the value was 60%, while the average across all industries was 14%. Edwin Mansfield, 'Patents and Innovation: An Empirical Study', 32 Management Science (1986) 175.
9. C. T. Taylor and Z. A. Silberston, The Economic Impact of the Patent System (Cambridge, UK: Cambridge University Press 1973). In a follow-on study, Silberston categorized three groups of industries for when patents are essential, very important or less important based on both survey responses and objective analyses (patent and R&D intensity). He concluded that 'the first category consists of one industry only, pharmaceutical'. Z. A. Silberston, The Economic Importance of Patents (London: The Common Law Institute of Intellectual Property 1987); Edwin Mansfield surveyed the R&D directors of 100 US corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceutical, the value was 60%, while the average across all industries was 14%. Edwin Mansfield, 'Patents and Innovation: An Empirical Study', 32 Management Science (1986) 175.
10. C. T. Taylor and Z. A. Silberston, The Economic Impact of the Patent System (Cambridge, UK: Cambridge University Press 1973). In a follow-on study, Silberston categorized three groups of industries for when patents are essential, very important or less important based on both survey responses and objective analyses (patent and R&D intensity). He concluded that 'the first category consists of one industry only, pharmaceutical'. Z. A. Silberston, The Economic Importance of Patents (London: The Common Law Institute of Intellectual Property 1987); Edwin Mansfield surveyed the R&D directors of 100 US corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceutical, the value was 60%, while the average across all industries was 14%. Edwin Mansfield, 'Patents and Innovation: An Empirical Study', 32 Management Science (1986) 175.
11. Joseph A. DiMasi, 'Success Rates for New Drugs Entering Clinical Testing in the United States', 58 Clinical Pharmacology and Therapeutics (1995) 1-14.
12. Joseph A. DiMasi, Trends in Drug Development Costs, Times and Risks', 29 Drug Information Journal (1995) 375-84; Kenneth I. Kaitin and Joseph A. DiMasi, 'Measuring the Pace of New Drug Development in the User Fee Era', 34 Drug Information Journal (2000) 673-80.
13. Joseph A. DiMasi, Trends in Drug Development Costs, Times and Risks', 29 Drug Information Journal (1995) 375-84; Kenneth I. Kaitin and Joseph A. DiMasi, 'Measuring the Pace of New Drug Development in the User Fee Era', 34 Drug Information Journal (2000) 673-80.
14. When R&D costs are capitalized to the date of market launch at an 11% discount rate, capitalized R&D costs are equal to $802 million. Joseph A. DiMasi, Ronald W. Hansen and Henry G. Grabowski, The Price of Innovation: New Estimates of Drug Development Costs (Boston, MA: Tufts University Center for the Study of Drug Development 2002). For an earlier study using the same methodology for 1980s new drug introductions, see Joseph A. DiMasi et al,. 'The Cost of Innovation in the Pharmaceutical Industry', 10 Journal of Health Economics (1991) 107-29.
15. When R&D costs are capitalized to the date of market launch at an 11% discount rate, capitalized R&D costs are equal to $802 million. Joseph A. DiMasi, Ronald W. Hansen and Henry G. Grabowski, The Price of Innovation: New Estimates of Drug Development Costs (Boston, MA: Tufts University Center for the Study of Drug Development 2002). For an earlier study using the same methodology for 1980s new drug introductions, see Joseph A. DiMasi et al,. 'The Cost of Innovation in the Pharmaceutical Industry', 10 Journal of Health Economics (1991) 107-29.
16. I b id.
17. US Congressional Budget Office, How Increased Competition from Generic Drugs Has Affected Prices and Returns in the Pharmaceutical Industry (Washington, DC: US Government Printing Office 1998); David Reiffen and Michael Ward, 'Generic Drug Dynamics,' Bureau of Economics, Federal Trade Commission Working Paper 248 (February 2002).
18. US Congressional Budget Office, How Increased Competition from Generic Drugs Has Affected Prices and Returns in the Pharmaceutical Industry (Washington, DC: US Government Printing Office 1998); David Reiffen and Michael Ward, 'Generic Drug Dynamics,' Bureau of Economics, Federal Trade Commission Working Paper 248 (February 2002).
19. Henry Grabowski and John Vernon, 'Returns to R&D on New Drug Introductions in the 1980s', 13 Journal of Health Economics (1994) 383-406; 'A New Look at the Returns and Risks to Pharmaceutical R&D', 36 Management Science (1990) 804-821.
20. Henry Grabowski and John Vernon, 'Returns to R&D on New Drug Introductions in the 1980s', 13 Journal of Health Economics (1994) 383-406; 'A New Look at the Returns and Risks to Pharmaceutical R&D', 36 Management Science (1990) 804-821.
21. Henry Grabowski and John Vernon, 'Longer Patents for Increased Generic Competition: The Waxman Hatch Act After One Decade', 10 Pharmaco Economics (1996) 110-23; Henry Grabowski and John Vernon, 'Effective Patent Life in Pharmaceuticals', 19 International Journal of Technology Management (2000) 98-120.
22. Henry Grabowski and John Vernon, 'Longer Patents for Increased Generic Competition: The Waxman Hatch Act After One Decade', 10 Pharmaco Economics (1996) 110-23; Henry Grabowski and John Vernon, 'Effective Patent Life in Pharmaceuticals', 19 International Journal of Technology Management (2000) 98-120.
23. I b i d.
24. Grabowski and Vernon, 'Effective Patent Life in Pharmaceuticals', see above n 13.
25. The data for Figure 1 were compiled from US PDA and Paul de Haen databases. Consensus NCEs are defined as new drugs approved for marketing in at least six of eleven major country markets over the period 1970-1985. See Henry Grabowski, 'Innovation and International Competitiveness in Pharmaceutical' in Arnold Heertje and Mark Perlman (eds), Evolving Technology and Market Structure: Studies in Schumpeterian Economics (Ann Arbor, MI: University of Michigan Press 1990), P. E. Barral has expanded on this analysis for the 1973-94 period using different criteria to measure the innovative importance of new drugs emanating from the pharmaceutical industry in different countries. His analysis also indicates a strong concordance between innovating performance in a country and its degree of patent protection. P. E. Barral, Twenty Years of Pharmaceutical Research Results Throughout the World (1975-94) (Paris: Foundation Rhone-Poulenc Sante 1995).
26. The data for Figure 1 were compiled from US PDA and Paul de Haen databases. Consensus NCEs are defined as new drugs approved for marketing in at least six of eleven major country markets over the period 1970-1985. See Henry Grabowski, 'Innovation and International Competitiveness in Pharmaceutical' in Arnold Heertje and Mark Perlman (eds), Evolving Technology and Market Structure: Studies in Schumpeterian Economics (Ann Arbor, MI: University of Michigan Press 1990), P. E. Barral has expanded on this analysis for the 1973-94 period using different criteria to measure the innovative importance of new drugs emanating from the pharmaceutical industry in different countries. His analysis also indicates a strong concordance between innovating performance in a country and its degree of patent protection. P. E. Barral, Twenty Years of Pharmaceutical Research Results Throughout the World (1975-94) (Paris: Foundation Rhone-Poulenc Sante 1995).
27. Ian Neary, 'Japanese Industrial Policy and the Pharmaceutical Industry', in Adrian Towse (ed), Industrial Policy and the Pharmaceutical Industry (London: Office of Health Economics 1995) 12-29.
28. Compulsory licensing in Canada was replaced with a system of drug pricing controls administered by the Canadian Patented Medicine Review Board. As part of this change, the pharmaceutical industry agreed to locate in Canada drug R&D activities roughly proportional to Canada's share of their world sales. For an analysis of the Canadian situation, see S. R. Shulman, The Canadian Patented Medicine Review Board: New Rules and New Statues', 6 Pharmaco Economics (1994) 71-79. See also Patricia M. Danzon, Pharmaceutical Price Regulation (Washington: American Enterprise Institute 1997).
29. Compulsory licensing in Canada was replaced with a system of drug pricing controls administered by the Canadian Patented Medicine Review Board. As part of this change, the pharmaceutical industry agreed to locate in Canada drug R&D activities roughly proportional to Canada's share of their world sales. For an analysis of the Canadian situation, see S. R. Shulman, The Canadian Patented Medicine Review Board: New Rules and New Statues', 6 Pharmaco Economics (1994) 71-79. See also Patricia M. Danzon, Pharmaceutical Price Regulation (Washington: American Enterprise Institute 1997).
30. Robert E. Evenson and Sunil Kanwar, Does Intellectual Property Protection Spur Technological Change (New Haven: Yale Economic Growth Center Discussion Paper, No 831; June 2001.)
31. I b i d.
32. For an analysis of the scope of relevant industrial policies pursued in several leading countries and their impact on pharmaceutical innovation, see Adrian Towse (ed), Industrial Policy and the Pharmaceutical Industry, previously cited above in n 4.
33. Bernard Pecoul, et al., 'Access to Essential Drugs in Developing Countries: A Lost Battle?', 281 Journal of the American Medical Association (1999) 361-67.
34. F. M. Scherer and Jayashree Watal, Post-TRIPS Options for Access to Patented Medicines in Developing Countries, WHO, Commission on Macroeconomics and Health, available as Working Group 2 Papers on the web at www.cmhhealth.org/cmh_papers&reports.htm.
35. Jean Lanjouw also provides a recent analysts of the benefits and limitations of these various options. In her paper, she advocates a new mechanism of differential patent protection. This mechanism is designed to facilitate access in developing countries to new products targeted toward global diseases, while preserving the incentives for R&D on diseases specific to third-world countries. See Jean O. Lanjouw, Intellectual Property and the Availability of Pharmaceuticals in Poor Countries, Center for Global Development, Working Paper no 5, April 2002 (forthcoming in Innovation Policy and the Economy, vol 3, 2002).
36. Jean Lanjouw also provides a recent analysts of the benefits and limitations of these various options. In her paper, she advocates a new mechanism of differential patent protection. This mechanism is designed to facilitate access in developing countries to new products targeted toward global diseases, while preserving the incentives for R&D on diseases specific to third-world countries. See Jean O. Lanjouw, Intellectual Property and the Availability of Pharmaceuticals in Poor Countries, Center for Global Development, Working Paper no 5, April 2002 (forthcoming in Innovation Policy and the Economy, vol 3, 2002).
37. Mark Schoofs and Michael Waldholz, 'Price War Breaks Out Over AIDS Drugs in Africa as Generics Present Challenge', Wall Street Journal, 7 March 2001.
38. Controls over illegal division are generally more feasible when non-governmental organizations (NGOs) play a primary role in the distribution of the drug products.
39. Scherer and Watal, above n 23.
40. Jeffrey Sachs, 'The Best Possible Investment in Africa', New York Times, 10 February 2001.
41. Hans Binswanger, How to Make Advanced HIV Treatment Affordable for Millions in Poor Countries, US Conference on AIDS, Atlanta, GA, October 2000.
42. Peter Wehrwein, 'Pharmacophilanthropy' (1993) available at http://www.hsph.harvard.edu/review/summer_pharmaco.shtml
43. Scherer and Watal, above n 23
44. Ibid, Section 6.4, 54-59. Since the US corporate income tax rate is 34%, a deduction of twice the cost would only cover 68% of a firm's overall costs. Scherer and Watal point out that inventory costs include some fixed costs and hence are greater than a firm's marginal cost of production. But this is not usually sufficient for firms to fully cover marginal costs under existing law. For that to occur, one would need to increase the cost basis for tax deductions or medicines. Senator Lugar has introduced a bill to increase the cost basis for in-kind donations of food supplies (S37IS, Good Samaritan Hunger Relief Tax Incentive Act, introduced into the US Senate on 22 January 2001).
45. Scherer and Watal, Section 7, 63.
46. Wehrwein, above n 30.
47. Wehrwein, above n 30, and correspondence with Jeff Kemprecos and Jeff Sturchio at Merck.
48. Wehrwein, above n 30, and private communication with James Russo, Executive Director of the Partnership for Quality Medical Donations (www.pqmd.org).
49. Sheila R. Schulman et al., 'Implementation of the Orphan Drug Act: 1983-1991', 47 Food and Drug Law Journal (1992) 363-403.
50. Frank R. Lichtenberg, The Effect of New Drugs on Mortality from Rare Disease and HIV (New York: Columbia University 2001).
51. I b i d.
52. Michael Kremer, 'Creating Markets for New Vaccines', 1 Innovation Policy and the Economy (2001): 35-118.
53. Details of the agreement can be found on the Alliance website www.tballiance.org.