Nova workboard

a blog from young economists at Nova SBE

Are patents blocking Health Care innovation ?

Pharmaceutical Industry may be described ambiguously as innovative but also guilty for blocking innovation when patents and trademarks enter the scene. Are the high profit patents involved in the commercialization of new health care solutions (drugs, medical devices, even empirical knowledge or molecules) fare?

Since we were born we have been confronted with social and media pressure towards such organizations, acclaimed hazard and cause of negative economic and political influence (e.g. many Hollywood movies are based in this fact) sustained by lobbies and recurrent scandals  .

Such corporations rely their business on a strategy of impetuous R&D in order to overpass their direct competitors and enjoy the benefits conceded by the trade related aspects of intellectual (or physical) property rights, rather than primary target ethical and social care since they are profit organizations.

The existence of rewarding patents serves a meritocracy system for innovative ideas and physical developments, but the question that arises here is how to define this plan and how to correctly implement a system that does not harm who invests but should not at the same time overprotect it.

Currently, a development in ‘fields of technology’ is granted by 20 years of enforceable public interests[1] which is converted in a stimulus for R&D, but at the same time prevents physicists/scientists from accessing to innovative patented materials/methods – this problem of obstructing innovation is entitled “anticommons problem”[2].

In the specific case of Health Care we can see such repercussions worldwide as the development of a new drug that for example fights cancer will be protected by a 20 year range and grants the owner a uniqueness point of sale worldwide; while this procedure representing an innovative treatment should directly be administrated in public hospitals and supported by public taxes it arises one important question:

Why should people pay higher costs in order to convert previous R&D investment into huge revenues for patent owners?

From my point of view it is important to redefine this limit.

Concerning the Portuguese case, the 2 main areas of health expenditure are oncology and AIDS, areas where it is visible the existence of a monopolist competition caused by differentiated products that are perceived (and stated by medical studies) as better treatments for such pathologies and can be figured by the following numbers:

– 53% of oncology treatments is delivered by Roche and Novartis – market value of 225 MM €

– AIDS treatment is half provided by three drugs: Truvada; Herceptin and Kaletra; representing a market value of 197 MM €

Both values are partly subsidized by universal taxes and compete against other laboratories that provide different treatments (observably the supply of cutting edge treatments is not targeting everyone).

There is in the Portuguese market a new trend of centralizing purchases in order to reduce total spending which implies that hospital administrators must choose one alternative.

While screening the treatment protocols; one of the most important factors is its price. As we cannot find generics or other producers with similar drugs appearing in these markets it delivers all the binding power for the supply side. This is a mere example of an industry that is highly protected by patents that forces tax payers; hospitals and users are paying more than what the price market should be in a regulated market (where differences in some cases are disturbing).

My final suggestion goes towards the regulation of this market based on a reallocation or an adjustment of the premises used to compute the economic calculus of compensating patents.

One reduction on time like releasing the patent after 10 years and other producers/users of the development would have to pay a fee to the patent owner, this fee would suffer a gradual reduction over the years in order to grant surplus for innovative ideas but at the same time not struggling the market and not discarding social and health care. The war for patents would exist still and the system would obviously compensate the ones who innovates (e.g. exemption or reduction on taxes), but the economic calculus to compute the protection granted should be urgently revised.

André Oliveira Martins

Sources:

–          WTO Report 2010

–          2000 Panel Report: Canada – Patent Protection of Pharmaceutical Products.

–          “WTO TRIPS implementation”International Intellectual Property Alliance. Retrieved 22 May 2012.

–          “Hospitais incapazes de baixar custos com medicamentos”. Jornal de Negócios. Retrieved 2 March 2012

–          www.news-medical.net


[1] Article 27 and 33 of General Agreement on Tariffs for World Trade Organization

[2] R&D is inhibited by the presence of many intellectual property owners’ exclusive and possibly conflicting rights over devices and methods needed to perform R&D on biomedical products.

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Author: studentnovasbe

Master student in Nova Sbe

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