This paper examines the question of whether or not it is reasonable that private pharmaceutical companies are awarded full patent protection for publicly funded drug innovations? Backed by an extensive literature review that provides a background on the question—and analyzed through the lens of public policy-theory—the author concludes that the answer is “Yes.” The current U.S. patent regime, coupled with the country’s lacking commitment to health care, creates an environment in which it is reasonable that public funds go into the research behind privately held patents.
Introduction – Who owns “AZT”?
AZT, also known as Zidovudine, is the chemical compound used in the first round of HIV/AIDS drugs, which are oftentimes included in HIV/AIDS antiretroviral treatments. In 1985, when the disease was untreatable, the pharmaceutical company GlaxoSmithKline filed a patent for AZT, set to expire in 2005. They had evidence that the chemical compound could contain HIV, making the virus less deadly. The company sponsored clinical trials to test the drug, and in 1987, the U.S. Food and Drug Administration (FDA) approved it; consequently, Zidovudine was introduced to the U.S. market at the annual price of $10,000 per capita (Broder, 2009: Table 2; Mosesson, 2010).
Since the late 1980s, several new HIV/AIDS drugs with chemical compounds other than AZT have entered the market. Large-scale government programs fund the treatment of HIV/AIDS victims—at a significant cost. In 2012, for example, the U.S. government spent approximately “$15 billion on HIV care and medication, yet funding shortfalls mean[t] that more than 2,000 patients remain[ed] on a waiting list for antiretrovirals” (Maxmen, 2012). The price is anticipated to drop significantly when more HIV/AIDS drug patents expire, and generic drug manufacturing of the medications begin to increase.
As you may conclude, HIV/AIDS drugs are expensive because of lacking competition. A drug patent issued by the U.S. Patent and Trademark Office (PTO) grants the inventor a monopoly on her drug, thus protecting her from others’ unauthorized use and sale of that drug for the duration of twenty years. The pharmaceutical industry argues that patent protection is a necessity if pharmaceutical companies are to recover the cost of discovering, researching, and developing (R&D) novel drugs—such as AZT, for example. (Mossinghoff & Bombelles, 1996). At first glance, the argument makes sense: today, the R&D expenditure for a novel drug is approximately $800 million (Dickson & Gagnon, 2004; ITA, 2010); a cost that only can be recovered after the pharmaceutical company introduces the drug to the market. At that point, it is easy for competitors to imitate and reproduce the drug without having to recover R&D expenditures, which would allow them to set significantly lower prices.
Patent protection as a means to recover R&D costs is complicated by the federal government’s involvement in drug research. Some new chemical compounds (NCEs) are discovered by organizations outside of private pharmaceuticals, like government research agencies or public universities. So what if a pharmaceutical company holds a NCE patent that is not the result of the company’s R&D expenditures, but rather the result of publicly funded research? This, for example, seems to be the case with AZT:
… AZT had been synthesized as potential anti-cancer agents under grants from the National Cancer Institute in the mid-1960s [author’s emphasis] … we found that AZT was highly active against HIV-1 in vitro… (Broder, 2009: 4).
AZT is the result of public spending, not private pharmaceuticals’ R&D expenditures. Had the National Cancer Institute (NCI)—a publicly funded government agency—held the AZT patent instead, it is likely that the chemical compound would have been freely licensed to several pharmaceutical manufacturers. This was the case with the antibiotic drug patent Streptomycin; in the 1940s, Rutgers University discovered the NCE, obtained a patent, and freely licensed it to several pharmaceutical manufacturers (Schifrin, 1967: 897). More manufacturers competing in the HIV/AIDS drug market would inevitably result in more affordable prices. In the case of AZT and GlaxoSmithKline, a U.S. Court of Appeals for the Federal Circuit upheld Glaxo as the righteous holder of the AZT patent, though acknowledging the NCI’s scientists were the true innovators[1. Due to some confusion as to who were the “true inventors” of AZT—The National Cancer Institute’s scientists Broder and Mitsuya or Glaxo—two pharmaceutical companies (Barr Laboratories and Novopharm) tried to invalidate the AZT patent by claiming that the it should been filed under the federal government, not Glaxo—and therefore be available to other manufacturers. The case reads: “Barr admitted that its AZT product would infringe the patents, but contended that it did not because Barr had obtained a license to manufacture and sell AZT from the government, which should be deemed the owner of the interest of co-inventors Broder and Mitsuya (NIH) in the AZT patents. Burroughs Wellcome (later Glaxo, author’s note) denied that Broder and Mitsuya were co-inventors and also responded that the assertion of any rights of Broder, Mitsuya, or the government in the patents was barred by laches, estoppel, and waiver”. The court ruled in favor of Glaxo.]; this despite that fact that NCI scientists in 1985 established AZT’s application to HIV[2. ”In 1985, animated by a collaboration with scientists at Burroughs-Wellcome (the sponsor of AZT) and Duke University, my colleagues and I at the National Cancer Institute (NCI) were privileged to study these antiretroviral therapies both in our lab and clinic. In 1985-1986, we helped define an orally-attainable therapeutic range for AZT, thereby providing the first proof that effective inhibition of HIV-1 was possible” (Border, 2009: 2).] and that the clinical testing took place at the National Institutes of Health’s facilities (Burroughs v. Barr Laboratories, 1994; Border, 2009: 35).
It may be argued that the U.S. government and HIV/AIDS victims have paid for the innovation of AZT twice: first, through public spending channeled to the National Cancer Institute and National Institutes of Health; second, by granting GlaxoSmithKline the AZT patent, which allowed them to recover R&D costs associated with an already developed NCE. Zidovudine is only one example of an important underlying policy discussion.
So, what is the issue at hand? Granted the fact that drug patents exist for pharmaceutical companies to recover the R&D costs associated with developing a NCE, one question remains:
Is it reasonable that private pharmaceutical companies are awarded full patent protection for publicly funded drug innovations?
This paper seeks to answer whether or not the U.S. pharmaceutical industry has, through drug patents, occasionally appropriated intellectual property that belongs to the federal government. In order to answer this question, one must take a step back from the issue and understand a range of matters: how the U.S. drug patent system works; how drugs are innovated; the drug development process; how drug patents allegedly drive pharmaceutical innovation; and how U.S. pharmaceutical innovation compares internationally. Consequently, the paper examines the following from an intellectual property rights (IPR) perspective:
- · The Nature of U.S. Drug Patents
- · The U.S. Pharmaceutical Industry and Drug Patent Regulations
- · The Drug Development Process and Market Effects
- · U.S. Pharmaceutical & Health Care Policy Compared Internationally
Finally, the paper analyzes the interplay between these four areas and attempts to answer the paper’s research question. Additionally, it discusses and poses research questions that need further exploration. Methodologically, this paper is a literature review that makes use of a combination of sources, ranging from academic natural science, business, and public policy journals, as well as popular science press and radio. However, this paper makes no attempt to provide a complete description of the pharmaceutical industry, the U.S. patent system, or U.S. pharmaceutical policy—it only tries to map out relevant facts as they relate to the paper’s research question. This analysis is founded upon a public policy-theory perspective, focusing on balancing intellectual property rights in relation to other policy goals (more under section 1). The paper assumes no prior knowledge of the subject matter on the reader’s part.
Section 1: The Nature of U.S. Drug Patents
Article I, Section 8, Clause 8 of the United States Constitution urges Congress “to promote the Progress of Science … by securing for limited Times to … Inventors the exclusive Right to their … Discoveries.” This is the foundation of U.S. patent law and other intellectual property rights, and is one of few rights granted by the Constitution that explicitly states the right’s purpose: “to promote the Progress of Science.” Consequently, policy discussion on patent protection in the U.S. tends to focus on the derived public benefits from patent protection: how patent law should maximize innovation, which society will benefit from. As clause 8 implies, the protection grants the inventor a monopoly on her innovation; in return, the inventor makes her innovation public so that others can build off her discovery.
From a market-competition perspective, monopoly seems counter intuitive; but Judge Posner elaborates on the logic behind this particular monopoly: “it is not a violation of [the antitrust] laws to acquire a monopoly by lawful means, and those means include innovations protected from competition by the intellectual property laws” (Antitrust & IPR, 2007: 2). This is exactly what pharmaceutical and biotechnology companies do in the process of filing for patent protection on their innovations with the U.S. Patent and Trademark Office (PTO). Patents make these companies the exclusive manufacturers and sellers, or licensors, of their patented innovations—effectively prohibiting competition with regard to those particular innovations. The pharmaceutical industry argues that the monopoly is justified:
…The research-based pharmaceutical industry [commits] to innovative … [research and development] investment. Without this investment, most new medicines, vaccines and other biomedical therapies … would not exist. Costly R&D would not [author’s emphasis], however, be possible if the resulting products were not afforded a limited period of freedom from copying. (Mossinghoff & Bombelles, 1996: 37)
“No intellectual property rights” means “no new drugs,” according to the pharmaceutical industry. The industry’s research and development costs legitimize the patent protection for drugs.
There are two distinct types of patented drug innovations, roughly described as: 1) ground-breaking drug innovations and 2) incremental improvements to existing drugs. The first type is essentially a never-before-used “new chemical entity” (NCE) that proves effective in treatments. The second type merely modifies already existing NCEs. These products are called incrementally modified drugs (IMDs), and are basically “product-line extensions” of the original NCE (FTC, 2003: chapter 3, p 4). The pharmaceutical company Abbott Laboratories’ HIV/AIDS drugs serve as a good example of the two types of innovations. Abbott’s patented HIV/AIDS drug “Kaletra” consists of the active chemicals lopinavir and ritonavir, and is deemed a NCE. The company later used the same chemical compound in “Aluvia”, which is merely a heat-resistant version of Kaletra—a simple “product-line extension” or IMD (Wetzler et al, 2009).
The distinction between these two types of pharmaceutical drug innovations becomes important when discussing the value of drug patents. Arguably, some novel NCEs can treat previously untreatable conditions, like how Zidovudine (AZT) contains HIV. The development of a NCE is an expensive process that consumes more time and resources than simply modifying an existing drug (which produces an IMD), but both are equally protected. This reality shines through the FDA’s approvals of New Drug Applications (NDA). “From 1989 to 2000 … [the] FDA … approved 1,035 [new drugs], 361 of which were for NCEs. The remaining 674 … were [IMDs]” (FTC, 2003: chapter 3, p 6). The fact that IMDs reflect less innovation and are less costly to develop than NCEs may question whether both types of drug innovations should enjoy the same patent protection—or if IMD should be granted a shorter patent term (Bloom & Torreele, 2012).
Section 2: The U.S. Pharmaceutical Industry and Drug Patent Regulations
The structure of the pharmaceutical industry and how it innovates
The pharmaceutical industry comprises two distinct categories of companies: the so-called “brand-name” pharmaceutical companies and generic drug manufacturers. “Brand-name” (e.g. Pfizer, Abbot Laboratories) pharmaceuticals research and develop NCEs, for which the companies then obtain patent protection. Generic drug manufacturers, however, generally do not develop NCEs; they copy drugs once their patent protection expires (FTC, 2003: Chapter 3, 14). This paper focuses on brand-name pharmaceutical companies.
If pharmaceutical companies focus on turning NCEs into marketable drugs, then biotechnology companies focus only on the initial stages of drug development, conducting “basic research to identify promising products.” In practice, this means the discovery of isolated genes or proteins that may be useful in pharmaceutical drug development, or as methods to treat diseases. The biotech companies also develop and patent research methods (FTC, 2003: chapter 3, p 17). The biotechnology industry is relatively new, since the original scope of patentable subject matters did not include naturally occurring materials, such as genes or proteins. That is why, for example, penicillin was not patentable when discovered in the 1940—it was a naturally occurring material (Schifrin 1967, 897). However, this changed in the Supreme Court case Diamond V. Chakrabarty (1980). The court concluded that the U.S. Patent Act of 1952 meant to include biotechnological discoveries—which brought about a proliferation in biotechnology companies and research. Due to their nature, biotech companies do not produce products themselves, but depend on IPR to license their discoveries. In some cases, pharmaceutical companies acquire biotechnology firms in order to access and control their patent portfolios (FTC, 2003: chapter 3, p 17; ITC, 2010: 5).
Much like biotechnology companies, public research institutions—such as research agencies or universities—focus on pure research.[3. The Wikipedia.org text on “pure research” accurately describes what distinguishes it from applied research: “Pure research, basic research, or fundamental research is research carried out to increase understanding of fundamental principles … it is (often) the basis for many commercial products and applied research.” Link:_http://en.wikipedia.org/wiki/Pure_research | accessed on Dec. 17, 2012.] As mentioned in the introduction, Rutgers University discovered streptomycin, and the National Cancer Institute’s grant led to the discovery of AZT. Many of the publicly funded research programs, often focusing on pure research, are administered through the U.S. National Institutes of Health (NIH). The NIH holds a substantial research budget; in 2002, for example, the institute spent approximately $20 billion on R&D (Dickson; Gagnon, 2004: 427). The NIH budget may fund research at universities, government agencies, NGOs, or private companies.
In the development of a drug, all of the aforementioned actors collaborate. The Federal Trade Commission’s report, “The Evolving IP Market Place” describes the interplay well:
… To create new products, large pharmaceutical and biotechnology companies often depend upon … universities, start-ups and collaborations with other companies. Start-ups typically develop early-stage technology, perhaps obtained from a university. […] They may partner with … a pharmaceutical company, which tests and commercializes the product. For many large pharmaceutical[s] … a majority of their approved drug products begin with externally developed technology (FTC, 2011: 35).
In this interplay, the main commodities are patents, which are accessed through licenses or acquisitions. Compared to other IPR dependent industries (e.g. the software industry), the pharmaceutical industry deems itself lucky since only “a couple dozen” of patents need to be accessed in order to bring a drug to the market. A “couple dozen” patents may include, for example, NCEs, testing methods, and gene fragments, necessary to carry out clinical trials. Pharmaceutical companies are able to pinpoint the patents they need because drug related patents are clearly defined and easily searchable (FTC, 2011: 91). However, since patent holders have the right to refuse, the process of attaining licenses can be costly and uncertain; author Michael Heller (2008) argues that license refusal sometimes halts much demanded drug innovations. The electronic hardware industry has solved the issue of patent refusal through “patent pools,” which creates a standard technology pool that all manufacturers can access—like in the case of the DVD technology.[4. Michael Heller (2008) wrote: “The greatest successes have come in the electronics industry, where, for example, pools ensure ‘interoperability’ of MP3 or DVD players: you can download a song or video to any player, or stick a disc in it, regardless of brand. … (Pharmaceutical and Biotechnological) pools risk being challenged on antitrust grounds. To qualify for antitrust approval, a pool must assemble ‘essential’ complementary patents, but it is not clear that biotech patents could meet this requirement.” (73)] However, Heller believes the patent pool-solution is ill suited for the pharmaceutical industry, since the pools may be challenged on anti-trust grounds (Heller 2008, 72).
In summary, brand-name pharmaceutical companies are the vehicles that take a NCE through the drug development process, and turn it into a drug ready for the market. Oftentimes, this transpires by assembling several individual patents that different innovators in society may hold.
What regulates drug patents?
A host of regulations evolved over the course of 20th century in response to the growing pharmaceutical market. As it pertains to pharmaceutical patents and intellectual property, Congress has passed three Acts of particular significance: The Patent Act of 1952, The Hatch-Waxman Act of 1984, and The Bayh-Dole Act of 1980. Effective from 2013, provisions in the America Invents Act change the U.S. patent filing system, which may impact pharmaceutical companies’ business operations.
The Patent Act of 1952, or more specifically, the U.S. Supreme Court’s (1980) interpretation of it (mentioned in previous section) significantly broadened the scope of the patentable subject matters. This resulted in a proliferation of biotechnology companies. The ruling also meant that important steps in pharmaceutical companies’ drug development process—like the use of certain DNA strings, proteins, or biotechnological research methods in the early development stage—became patentable (Heller, 2008: 5). Ultimately, this forced pharmaceutical companies to allocate more resources to licensing patents which were previously available for free; now, pharmaceuticals have to obtain access to a NCE patent and patents on DNA strings, proteins, and research methods.
The Hatch-Waxman Act of 1984 allowed for up to a five-year extension to brand name pharmaceuticals’ patents on certain drugs. The extension made up for an inefficient and slow FDA approval process that oftentimes resulted in delayed market entry (more under Section 3). Hatch-Waxman also made it easier for generic drug manufacturers to enter the market of a drug production once its patent expired. Under Hatch-Waxman, generic drug manufacturers can produce and market an identical or slightly modified version of a formerly patented drug, without taking it through clinical trials as part of the FDA review process. Essentially, FDA review and approval for a certain NCE was only needed once—drugs replicating that NCE could “piggyback” on the original clinical trials, which the FDA already possessed. This eliminated the traditional cost and time associated with a drug’s market entry, and spurred generic drug manufacturing (Dickson & Gagnon, 2004: 417; ITC, 2010: 3).
The Bayh-Dole Act of 1980 is based on the idea that publicly funded innovations must be made available to the public, who indirectly paid for it. The act “allows the government to reclaim patents on taxpayer-funded inventions” (Malakoff, 2004). This is called the “march-in right.” Based on four criteria, a government agency that has sponsored the innovation behind a pharmaceutical company’s patent may evaluate if that patent is made adequately available to the public (who indirectly paid for the patent via taxation). Third parties may petition a government agency to utilize its march-in right against a company whose patent the agency has sponsored. However, the decision to ignore a patent ultimately remains with the agency (Cornell Univ., “35 USC 203. March-in rights”). Thus far, the march-in right has never been used; however, the National Institutes of Health has received four petitions since the Bayh-Dole Act came into effect. In 2004, NIH received such a petition from HIV/AIDS groups and members of Congress urging it to use its “march-in rights” to ignore the exclusive patent on the HIV/AIDS drug ritonavir, held by Abbott Laboratories. NIH had helped fund the research on ritonavir in the mid-1990s with a $3.5 million grant (Malakoff, 2004). The petition came as a response to Abbott Laboratories’ price increase on the drug, making it less accessible for vast portions of the public. Nevertheless, the NIH declined to take action since it argued that drug pricing is a political issue that Congress has the power to address (Zerhouni, 2004).
Effective March 16, 2013, the “America Invents Act” (AIA) changes the U.S. patent regime from a “first-to-invent” to a “first-inventor-to-file” system. Forbes contributor John Villasenor writes how the new system encourages disclosure of innovations pre-patent filing, which may invalidate patent applications abroad (Villasenor, 2013).[5. In the new system, the individual who is first to file for a patent becomes the righteous patent holder, as opposed to the one who can prove she was first to invent. However, in order to avoid misuse of the new system, an inventor can still challenge a patent she believes has been given to the wrong individual—if the inventor provides adequate documentation that she, in fact, where the first to invent. This raises some concerns: “… patent rights in the United States under the first-to-file system will depend on the interplay between the dates of filing and of any pre-filing disclosures of the invention … Pre-filing disclosures, however, have a very important downside that wasn’t changed by the AIA: They can eliminate the ability to obtain rights in the many international jurisdictions that do not recognize a “grace period” for disclosures made in advance of filing a patent application.” (Villasenor, 2013).] However, it is unclear if this will change the business operations of pharmaceutical companies, since the industry has rigorous and global patent routines already in place.
Section 3: The Drug Development Process and Market Effects
From chemical compound to prescription drug
From a corporate pharmaceutical perspective, intellectual property rights fund the lengthy and expensive R&D process that precedes the introduction of a new drug into the market. Due to increasing regulations on the U.S. drug market, U.S. pharmaceuticals’ R&D expenditures have soared from about 5% of total sales in 1964, to stabilization in 1996 at around 20% (Schifrin, 1967: 898; Mossinghoff & Bombelles, 1996: 40; ITA, 2010: 2). The main reason for the increased R&D cost is the lengthy and comprehensive drug approval process required by the law, which includes clinical trials and FDA review. The new drug application (NDA) process was imposed to ensure that drugs were safe for the public, before the drug made it to the market. Therefore, long-term clinical trials became a crucial part of the approval process, so that long-term effects of a drug were discovered in a controlled trial environment, rather than through public consumption.
The time to develop a drug with a novel NCE has increased from an average 8 years in the 1960s to 13 years in the 1990s. And R&D costs have also increased. For a NCE, the typical pharmaceutical company invested on average $231 million in 1987; in 2000, it had to invest $802 million (Dickson & Gagnon, 2004). Additionally, the “effective patent life”—i.e. the time during which a drug is patent protected while in the market—is an average of 11.4 years, since a drug patent is filed upon NCE discovery, before clinical trials and FDA review begins (Dickson & Gagnon, 2004; FTC, 2003: Chapter 3). The increase in R&D costs—due to the regulatory environment—reemphasizes the pharmaceutical companies’ function as a vehicle for commercializing drugs, taking it from chemical compound to a consumer product.
As mentioned in section 2, the task of developing a new drug is a collaborative one, which uses licenses from several patent holders. This, too, has increased the R&D cost. Michael Heller (2008) illustrates the rationale behind it:
Each patent holder viewed its own discovery as the crucial one and demanded a corresponding fee, until the demands exceeded the drug’s expected profits (5).
This rationale is supported by the 2011 FTC report: “pharmaceutical companies will not enter into new drug investigations unless they’re confident up-front that they have a patent portfolio that will cover those drugs” (79 [footnote 33]).
What drugs make it to the market in the current patent regime?
As you may have noted, the task of bringing a drug to the market is not straightforward. Based on an extensive literature review, taking a drug through the FDA’s approval process and to the market does not necessarily yield profits. The industry claims that only two out of ten drugs approved make a profit. These two drugs are called “blockbuster drugs” (in reference to Hollywood) and carry the costs of unprofitable drugs and failed drug development projects (Bloom & Torreele, 2012). The industry also abandons drug developments at an earlier stage: from after approximately five years into the development in the 1980s, to after only three years in the 1990s (Dickson & Gagnon, 2004: 419).
The expensive R&D costs associated with NCEs, coupled with the 11-year effective patent life, seem to have driven pharmaceutical companies to adopt two business strategies to maximize their profits. The first is to invest in less expensive drug innovations that the companies know the market already demands—that is to say product line extensions, IMDs (FTC, 2003: chapter 3, p 8). The second strategy is to maximize the profits of blockbuster drugs with a “whatever it takes”-mentality. In recent years, AstraZeneca, Bayer, and GlaxoSmithKline (to mention but a few), were all fined billions of dollars in fraud settlements due to the aggressive marketing of their blockbuster drugs (Rost, 2008: 139-150). Aggressive marketing means that the pharmaceutical companies marketed drugs to audiences for purposes not approved by the FDA. In 2009, Pfizer was fined $2.3 billion for fraudulent marketing of several blockbuster drugs, making it the largest fraud settlement in history (Dept. of Justice, 2009).
Section 4: U.S. Pharmaceutical & Health Care Policy Compared Internationally
The United States has one of the strongest intellectual property rights regimes in the world, in order to promote innovation and public access to it. The U.S. government’s policy towards the health care industry in general, and the pharmaceutical industry in particular, has been one of non-intervention: “In contrast with most other countries, the United States does not employ a form of drug price regulation … mainly because of concern that regulatory controls … discourage the flow of capital to support the development of new molecular entities [i.e. NCEs, author’s note] ” (Keyhani et al., 2010: 1075; Leung, 2009).
Nevertheless, this does not mean that the U.S. Government is inactive in promoting innovation. Through many of its research grant programs, the National Institutes of Health funds pure research needed to discover novel NCEs. But even with the pharmaceutical industry’s own definition of innovation—i.e. the distinction between NCEs (representing high innovation) and IMDs (representing low innovation)—the U.S. ends up with higher drug prices and less innovation; as mentioned under section 1, only 35 % of new drug applications the FDA approved between 1989-2000 can be classified as NCEs (FTC, 2003: chapter 3, p 6). In the United Kingdom, drug prices are lower compared to the U.S. because of government regulations, but “the [British pharmaceutical] industry continues to be very profitable and innovative [in terms of NCEs, as opposed to the less innovative IMDs, author’s note] … [and] companies in the United Kingdom invest proportionately more revenue from domestic sales into research and development activity than do their US counterparts” (Keyhani et al. 2010: 1078-1079). The proportionally higher degree of innovation per drug price unit persists throughout the rest of the OECD countries (i.e. member of the Organization for Economic Co-operation and Development). They seem to get more novel drug innovation (i.e. NCEs) for less money.
There is a stark distinction between the U.S. and a majority of the OECD in terms of health care and drug policy. The U.S. lacks a political commitment to provide health care for its citizens, since it does not generally regard health care as a government responsibility. The rest of the OECD countries, however, have moved towards greater government responsibility for their citizens’ health, including their access to pharmaceuticals (Keyhani et al., 2010). Even countries that have gained democratic independence more recently than the U.S., and have therefore had the opportunity to craft their constitutions in modern times, tend to include health care as fundamental right and a government responsibility. Such examples include Argentina (constitution from 1853) and Thailand (current constitution from 1932) (Bentolila, 2003: 62; Wetzler et al, 2009).
Discussion: To answer the Question and suggest further studies
The issue of health care as a political commitment matters since it seems to impact the ability of the United States to “promote the progress of useful science” in the pharmaceutical context. The lack of a national health care policy provides little guidance for the U.S. pharmaceutical industry as to where to focus innovation. The absence of a political commitment to health care also fails to frame the policy discussion on drug patents from a health perspective. In the U.S., the discourse on drug patents tend to be framed in the general context of commerce, market economy and “how to promote innovation”—as if the pharmaceutical industry was comparable to, for example, the software industry.[6. The name of the FTC reports from 2003 and 2011 both illustrate the direction of the U.S. drug patent discourse well: “To promote innovation: The proper balance of competition and patent law and policy” and “The Evolving IP Marketplace: Aligning patent notice and remedies with competition.”] Drug patents and the U.S. pharmaceutical industry are rarely discussed in terms of public health. In countries where political commitments to health care do exist, pharmaceutical innovation is focused on and fulfills a policy purpose. The U.K. achieves a higher degree of innovation for less money; the Thai government issues compulsory licenses on select drugs, which compel pharmaceutical companies to lower their prices (Wetzler et al, 2009; Ogan, 2007).
Let us return to the research question: is it reasonable that pharmaceutical companies are awarded full patent protection for publicly funded drug innovations? The answer is dual – Yes, and No.
Yes—within the current U.S. patent regime and a lack of political commitment to health care—it is reasonable to award pharmaceuticals full patent protection, even in cases where public funds are involved in the development of the drug. It makes little sense for the government to extract “its” part in the patent bundle that makes up a drug, in order to freely license that part. There is no policy or strategy as to “how” or “why” such actions should be executed.
In the current system, pharmaceutical companies are the vehicles responsible for turning research findings into functional drugs. This effort is a collaborative one, where the pharmaceutical company is the coordinator. “[Pfizer’s] innovations come from a lot of sources: Internal research, contracts with third parties, collaborations with universities and biotech companies and with other pharmaceutical companies,” Pfizer’s CEO testified (FTC, 2011: 218 [Footnote 14]). In the process of gaining drug approval, the FDA imposes a rigid NDA process, which has drastically increased pharmaceutical companies’ overall R&D costs. The public share of sponsoring the discovery of a NCE is only a fraction of the total cost associated with commercializing that NCE; clinical trials and the FDA review process is an expensive effort carried out by the pharmaceutical company alone. Again, there is no point for the government to make a patent claim, or diminishing a drug’s patent protection, without an overall policy or strategy since the federal government lacks the competence to commercialize a NCE.
Additionally, through the Hatch-Waxman act, the government has made it clear that clinical trials and FDA approval for a NCE should only be carried out once, in order to eliminate duplicate R&D expenditures linked to the same NCE. To freely license a NCE would either discourage pharmaceutical companies from commercializing the drug—since it would create a horserace among brand-name companies—or it would create parallel, thus excessive, R&D spending, which the Hatch-Waxman Act sought to eliminate.
In fact, the Bayh-Dole Act of 1980 already grants the government the “march-in” right to disregard a pharmaceutical’s exclusive patent, if the government believes the patented innovation it partially (or fully) paid for is not made available to the public. However, no government agency has yet utilized this right—and when the NIH is urged to do so, it justifies inaction with a reference to politics: “the issue of drug pricing is one that would be more appropriately addressed by Congress” (Zerhouni, 2004). Yet again, it is the lack of a national health care and drug policy that makes it difficult for government agencies to use the Bayh-Dole Act. A drug’s price, however unreasonable it may be, will never effectively make it “not available for the public” as long it’s on the shop shelves. After all, Congress explicitly refrained from intervening in the pricing of drugs, and consequently, there is no such thing as “too expensive drugs.” The rationale is that the price reflects the drug development reality, thus it is just. Now, had the case of Abbott Laboratories’ ritonavir patent been set in the U.K., where drug prices are regulated, the NIH could have made the claim that the drug price itself effectively makes the patent unavailable for the public.
In the current patent regime, coupled with the lack of political health care commitments, it is reasonable that pharmaceutical companies are awarded full patent protection even for publicly funded drug innovations. That is how the system functions. So in what scenario is the answer to the question no? It is not reasonable that pharmaceutical companies are awarded full patent protection for publicly funded drug innovations in a scenario where the U.S. government adopts a policy commitment to public health. Then, “the essential question [could be] how to reduce the wasteful outlays … and the excessive profit margins … without impairing new product development” (Schifrin, 1967: 912). With a clear commitment, the U.S. government could take responsibility for its innovation by creating a freely licensed patent portfolio, attached with price regulations on the final drug product. The U.S. government could also co-sponsor, or reduce burden, in the FDA’s NDA process for pharmaceutical companies that pursue politically prioritized drug goals, again, attached with commitments to the public in terms of access, patent scope, and prices.
As you may have concluded, part of the issue of publicly funded drug patents held by private companies stems from the U.S. government’s political commitment to its citizens’ health—or lack thereof. If the U.S. government wishes to change regulations on drug patents to make them more accessible, it would first have to adopt a national health care and drug policy to guide the discussion and process. In such a situation, for example, the U.S. government would probably not find itself spending “$15 billion on HIV care and medication,” as it currently does (Maxmen, 2012).
The pharmaceutical industry makes the argument that drug patents drive drug innovation, which is what this paper focused on. Future studies on this topic could examine factors other than patents that could impact the level of drug innovation, in order to broaden the understanding of what the true cause of novel pharmaceutical innovation is.
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