Intellectual property (IP) protections promote innovation and spur research and development into life-saving drugs and medical procedures. Indeed, the existence of robust systems of IP rights in Western industrialized nations is one reason the pharmaceutical industry and medical breakthroughs have flourished there. By contrast, drug companies have struggled in the developing world, where IP protections are either nascent or non-existent.
One would think, therefore, that global policy advocates would encourage strong, uniform IP protections to help ensure the continued development of innovate treatments and broader access to health care in emerging markets. But instead of pursuing this sensible course, an obscure United Nations (UN) body called the High Level Panel on Access to Medicines is poised to release a report that is likely to recommend scaling back IP rights worldwide. This would be a tragedy for millions of ailing patients around the world.
There is no doubt that a substantial need exists to improve access to medicines to the developing world. Approximately one in three patients in the developing world lack access to basic treatments. To solve this problem, the UN must focus on substantial barriers to access such as a lack of infrastructure and training. Yet the panel appears ready to ignore these barriers by myopically and mistakenly focusing on IP rights.
Established last year by UN Secretary General Ban Ki-moon to improve global access to life-saving medications, the Panel was tasked with a mandate “to review and assess proposals and recommend solutions for remedying the policy incoherence between the justifiable rights of inventors, international human rights law, trade rules and public health in the context of health technologies.” Consistent with this charter, the sixteen-member Panel has reviewed proposals to address what it perceives to be a “misalignment” between inventors’ rights and “access to medicines, vaccines, diagnostics and health technologies.” The Panel is currently finalizing a report to the Secretary-General, which includes an analysis of the proposals and its recommendations. The Secretary-General, in turn, plans to make the report available to the General Assembly, and undertake unspecified further action.
Many leaks from the group’s proceedings confirm its plan to emphasize perceived problems with IP rights rather than consider other issues that might hinder access to medicine. The rumors became so pervasive that, in June of this year, the Panel issued an “Official Statement on Speculative Media Reports.” The statement merely avers that the Panel is still working on the report, but it does not in any way deny that the group’s focus is on what it perceives to be a disconnect between access to healthcare and IP rights.
The U.S. State Department has encouraged the Panel to shift its narrow focus on IP rights to tackle the real structural and economic problems that prevent access to health care in the developing world. The Panel should heed the State Department’s advice for one simple reason: There is no “policy incoherence” or “misalignment” between IP rights and access to health care.
For starters, the vast majority of medicines that have been designated as essential by the World Health Organization (WHO)—350 of 375—are not even under patents. Rather, these medicines are currently available in relatively inexpensive generic varieties.
In addition, many life-changing breakthroughs in drug research and development are made possible only because of America’s (and other countries’) extensive protections for IP. These protections grant companies a period of market exclusivity for original products, providing an incentive for companies and their investors to invest billions in research and development of the next generation of medications. Indeed, where countries have recently adopted more robust IP protections—such as India and China—pharmaceutical development and partnerships with Western drug companies have flourished and improved access to medicine. Furthermore, strong IP protections reduce the incentives for companies to develop fake or counterfeit drugs, thus helping to ensure quality control in the developing world.
Ultimately, the Panel’s mandate to root out policy incoherence between IP rights and health care begs the critical question—do IP rights promote or hinder access to drugs and medical treatments in the developing world? The empirical evidence shows that IP rights improve access to health care in poorer countries. Therefore, the Panel should reconsider its marching orders and release a report that focuses on addressing the political, economic, and structural barriers to medicine in the developing world, rather than punishing companies that are responsible for putting life-saving products on the market.
Intellectual Property Protections Promote Access to Health Care
Far from preventing people from accessing the medicine they need, IP rights promote access to health care in two principal ways. First, IP rights provide scientists and researchers with the necessary incentives to spend time and money to develop life-saving drugs and devices. Second, patents reduce the incentive to produce counterfeit drugs—a critical barrier to access to safe and effective medicine.
First, IP rights incentivize research and development. For health care companies, choosing whether to invest in developing and selling a particular medical product or treatment is an incredibly costly gamble. On average, an American company must spend over $2 billion and invest in a decade of scientific and legal research before regulators approve its product for the marketplace. The federal Food and Drug Administration as well as state agencies set out complex and demanding standards by which drugs and medical devices must be tested and developed. Companies must also invest time and money in determining whether their product or some part of their product already exists. And even after all that, only one in 12 health care products actually make it to the market—let alone turn a profit. IP rights therefore provide some legal certainty that a successful company would be able to protect this profit should it materialize.
Experts confirm that companies tend to invest and develop in countries with strong IP protections. As former U.S. Patent and Trademark Office Director David Kappos explained: “Far from being a roadblock, patents can be the currency of innovation that helps disseminate advanced technology in the developing world. Regardless of global destination, most high-tech goods are manufactured in a handful of countries which have functioning patent systems. Delivering innovative products to Africa, Southeast Asia, South America, or elsewhere thus requires legal rights in the manufacturing centers of the world. Patents enable business relationships that are otherwise difficult or impossible by encapsulating these legal rights into manageable assets.”
Recent developments in India, China and Brazil prove Kappos’s observation. Since the mid-1990s, the World Trade Organization’s agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) has governed the international IP system. In 2005, India and China rewrote their domestic laws and became compliant with TRIPS. Prior to this development, Indian and Chinese pharmaceutical companies primarily manufactured generic versions of Western drugs. But since the adoption of TRIPs, with IP protections firmly in place, companies within the two countries have been extremely successful in developing their own products. Indian companies, for example, have developed vaccines for H1N1 influenza and rotavirus. And a Chinese company recently developed a medication for a type of lymph-node cancer. Stronger IP protections have also fostered business relationships between Chinese and Indian companies and Western pharmaceutical companies. Global research and development companies, including Bristol-Myers Squibb, Daiichi Sankyo, GlaxoSmithKline, and Sanofi-Aventis now all have partnerships with Indian companies. The same is true in China: Hutchison China MediTech is now working with AstraZeneca and Eli Lilly to research cancer drugs. Brazil has enjoyed similar successes. After it adopted product patent protections in 1996, numerous pharmaceutical companies began operating there.
Experts also generally agree that patents promote access to medicine in developing countries, rather than hinder it. Health Issues India, an online joint initiative of various consultancy groups with an interest in Indian policy issues, recently commissioned a series of reports on access to healthcare. Health Issues India interviewed 28 public health officials, academics, and advocates in Brazil, Kenya, and Senegal. Of the 28, only one—a Brazilian AIDS activist—identified patents as part of the problem. By contrast, a number of these experts credited patents as indispensable to promoting access to healthcare. As detailed below, most experts agreed that problems such as a lack of infrastructure and education were the principal factors that created barriers to health-care access.
Another study by Margaret Kyle and Yi Qian examined the effect of pharmaceutical patent protection on the speed of drug launch, price, and quantity in 60 countries from 2000 to 2013. The study concluded, among other things, that stronger IP rights can increase the availability of new treatments to patient populations in developing countries. In particular, these experts found that IP protections are associated with a decrease in the price premium of patented drugs, and that patents are generally associated with an earlier launch of new products and higher sales.
In short, far from impeding access to medicine, IP protections have been empirically shown to encourage the development of life-saving drugs, therapies, medical devices, and protocols.
Second, as many experts recognize, strong IP protections inhibit the production and distribution of counterfeit and fake drugs. The WHO estimates that approximately 10 percent of drugs sold globally are counterfeit, and some reports estimate that 50-70% of drugs sold in developing countries are counterfeit. Fake drugs pose a serious health risk: the WHO has found that as many as 20% of the million annual malaria-related deaths may be attributed to counterfeit medicines.
The WHO has also found that it is easier to counterfeit drugs where there is—among other things—a lack of effective IP protections and weak regulatory controls. The threat of government enforcement actions and private suits go a long way in discouraging counterfeiting.
Unsurprisingly, experts have criticized the UN Panel for “undermin[ing] the intellectual property rights architecture that . . . protects patients from counterfeit medicines.” As Dr. Kristina Lybecker—an author of a recent Organization for Economic Co-Operation and Development report—recently stated: “Given the devastating impact of counterfeit medicines on patients and the importance of intellectual property protection in combating pharmaceutical counterfeiting, it is troubling that the UN High Level Panel seems poised to prevent a series of recommendations that will undermine public health under the guise of enhancing access. Without the assurance of quality medicines, access is meaningless.”
The Panel Is Poised To Ignore Real Access Problems
The Panel’s misguided focus on patents has led the U.S. State Department to encourage the Panel to abandon its “narrow mandate” and instead focus on actual obstacles that stand in the way of persons obtaining life-saving drugs. Echoing the WHO, the State Department has pointed to four main reasons that the developing world lacks access to healthcare: (1) an inability to select and use medicines rationally; (2) unaffordable drug prices; (3) unreliable health and supply systems; and (4) inadequate financing. None of these barriers are directly related to patents.
First, irrational drug use is a serious barrier to access. The WHO defines “irrational use” as any use that is not “appropriate to [patients’] clinical needs, in doses that meet their own individual requirements, for an adequate period of time, and at the lowest cost to them and their community.” Two recent studies conducted in Africa illustrate this problem. One study conducted at Kapiri Mposhi District Hospital in Central province, Zambia found a high prevalence of irrational drug use. Fifty percent of 680 patient records surveyed showed some form of inappropriate drug use. And a study in Sudan found that 73% of participants reported to have acquired and used medication without a prescription at least a month prior to the study.
Second, there is no doubt that affordability is a barrier to access. But patent protections are not to blame. In fact, patents do not protect the vast majority of essential medicines, which the WHO defines as “those drugs that satisfy the health care needs of the majority of the population.” 350 of these 375 “essential medicines” are available in generic versions and are thus sold at a much lower price point. Moreover, data shows that patent-holding companies do not frequently make use of patent laws in developing countries, even where they could.
Moreover, patent rights do not explain the high cost of drugs in the developing world. The WHO itself points out that taxes, tariffs and other government policies play a significant role in keeping drug prices high in emerging markets. And, in fact, reports have concluded that excessive tariffs and taxes on imported medicines may inflate the cost of medicines by up to one-third. When combined with taxes on medicines, government-imposed levies account for an additional 55% in India; 40% in Sierra Leone; 34% in Nigeria; and 29% in Bangladesh.
In any event, contrary to the Panel’s suggestion, patent protections ultimately help keep the costs of drugs low. To be sure, patented drug prices will often decline only after a patent expires. But the decline in price after patent expiration is not evidence that the drug manufacturer charged too much for the product. To the contrary, the decline in price of a formerly patented medicine is consistent with an efficient market. Patents expire after a certain period of time fixed by law. As economists have explained, during this period, prices will reflect both the costs of production and the company’s research and development costs. The exclusivity period that the patent creates attracts investment, which enables the innovator company to recoup its research and development costs. Once the patent expires, other companies may create generics that are priced lower. But these lower costs reflect the fact that copycat companies only need to recoup production costs, not research and development. In other words, a patent’s provision of an opportunity for an innovator company to recover costs enables it to produce the medicine in the first place. And the patent’s eventual expiration allows for robust competition that drives prices down.
Third, as many experts point out, structural and economic barriers are a significant barrier to access to medicine in the developing world. Poor infrastructure and weak healthcare systems plague third-world countries. Several countries’ medical centers are located in remote areas that may only be reached through impassable roads. Also, many drugs and vaccines must be stored at certain temperatures. But many developing countries lack reliable electricity and sanitary facilities to enable proper storage. In India, for example, a quality-control study followed a series of vaccine vials through the supply-chain delivery process. The study found that 76 percent of the vaccines could not be used because they were stored in substandard storage facilities.
Fourth, experts also acknowledge that developing countries tend to underinvest in health. In 2001, for example, African leaders met in Abuja, Nigeria, and pledged to allocate 15 percent of their national budgets to health. The 2015 DATA Report found, however, that between 2011 and 2013, just eight of the 47 countries for which there was data available spent 15 percent or more on health: Uganda, Rwanda, Malawi, Swaziland, Nigeria, Ethiopia, Liberia, and Togo. Twenty countries did not reach even the 10 percent level. If anything, patent protections could incentivize further investment in health in these countries.
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The UN has a real opportunity to address the critical issue of healthcare access. As it stands now, however, it seems poised to do more damage than good.