Patents for Pharmaceutical Innovation – Basic Concerns

Covid 19 seems to have done what public health activists have been crying hoarse about for years – that is, shine a bright spotlight on the various inadequacies of the public health systems around the world, and its related issues. With several public calls for letting patent rights on pharmaceuticals take a back seat vis-a-vis this pandemic, this bright spotlight has also shone on those who’ve been lobbying for ever-restrictive patent rights on pharmaceuticals. For example, as KEI has pointed out, countries with sizeable pharmaceutical industries are still (successfully) lobbying for restrictive usage of IP on vaccines and know-how, such as in their negotiations in the World Health Organization (WHO) Covid 19 resolution. Where the WHO of all bodies should’ve been focused primarily on maximising health benefits, it too eventually allowed for a watered down resolution. For what its worth – several other world leaders and public health activists have signed an open letter clearly asking for any Covid 19 vaccine to be made available in a manner that prioritises health needs over ability to pay.

This post will first look at a bit of the general public health context in which the patent system functions, and then will focus more specifically on broad level questions of the suitability of the patent system to play the role its been given as a pharmaceutical innovation mechanism. (Long post ahead – approx 10-12 min read).

Every morning there are dozens of reports about the infection rates, death rates, and sometimes even a few conversations about recovery rates. Technically speaking though, in terms of disease-centric effects, this is not a new phenomenon, as the table below shows.

In an age when private parties are flying to the moon, why are so many millions of people still dying from diseases that have existed for decades? The reasons are of course varied. For example, diarhheal diseases, which really stand out, taking more than 7 lakh lives a year (data above is for 6 months), are presumably strongly linked to the highly inadequate state of sanitation in the country. One common underlying factor in India at least, is no doubt the grossly inadequate spending on public health.

 BRICS Countries along with a few arbitrarily selected countries selected for comparison. Click here for source

Currently at a measly 1.28% of the GDP, India’s spending on public health is much lower than other BRICS countries as well as many of the poorer countries in the world. For perspective, it was ~1.3% of the GDP in 1990 as well and has more or less been stagnant since then, with minor variations.  What makes this worse, is the context that several diseases (such as those in Table 1 above) have been at worrying levels for decades now. Every now and then, there are noises to indicate that this spending will increase. The National Health Policy 2002 planned to increase it to 2% of the GDP by 2010. In their 12th Five Year Plan (2012-17), the Govt of India’s Planning Commission targeted 2.5% by 2017, and 3% by 2022. The 2017 National Health Policy (PDF) re-targets the apparently elusive 2.5% figure for the year 2025. However, India’s dismal spending on public health is only part of the reason, and most definitely doesn’t explain how the rest of the world has been faring so badly with some diseases at least. 

Where are the cures? The treatments?

With the lack of a cure or recognized treatment for covid19, populations in developed countries are feeling something that the global poor are long since familiar with – desperation, fear, and anxiety over lack of treatment possibilities. After all, whether the reason is the lack of existence of a treatment option, or lack of any chance of finding or affording a treatment option – the end result is there is nothing you can do except wait and hope for the best.

These cries for access to medicines were last really ‘listened’ to (and even then, just to a limited extent, after tremendous effort) during the global HIV/AIDS crisis at the turn of the century, but have nonetheless been going on for decades. As has now become evident, when “important” lives are at risk like today, saying “the system will take care of it eventually” is not really accepted for an answer. Perhaps it will take this new globally recognized crisis to mobilize genuine political will around addressing some of the gross inadequacies of the patent based pharmaceutical innovation system? As is popularly claimed, the patent system encourages innovation especially in the pharmaceutical sector because it provides a mechanism through which investments can be recouped and profit margins attained. With close to 50 million people expected to plunge into extreme poverty due to the ongoing lockdowns, combined with the well known close inter-relationship of poverty and disease, pricing matters are only going to become more contentious. While several public health movements have shown a sharp spotlight on the price concerns brought about by patents, this is far from the only concern, but let’s start with price:

1. Pricing: Once the vaccine/treatment does come along – will it be available, accessible and affordable by the poor as well? Or once the affluent have access to the treatment, are the poor to continue waiting and hoping the same way they’ve had to for so many other diseases. For that matter, what about the next novel disease? Many experts indicate that more such novel diseases will break out, as we continue to live at odds with nature. There’s a new interesting angle at play now – which is that so long as there are no treatments for any novel notable infectious disease, it is (finally) in the affluent’s interests to ensure the poor stay healthy as well! Since they want to reduce their own chances of catching an un-treatable disease.
Nonetheless, as long as we rely on the patent system (or more specifically any market based system) for deciding how drugs should be priced, the price point will always be aimed at profitability first and foremost.

The first thing this means is that rich markets are naturally considered more important that other markets. Looking at new medicines between 2012-2017, US (64.1%), Europe (18.1%) and Japan (7.1%) together account for nearly 90% of the market for sales of new medicines. Overall sales in 2017 indicated that US,Canada (48.1%), Europe (22.2%), and Japan (7.7%) accounted for 78% of the total sales. (source) It only makes business sense to price according to more profitable markets. And what about those Indian generic pharmaceutical companies who have made India famous as the pharmacy of the developing world? The government may declare self reliance as a policy, but the one ‘principle’ all corporations have in common (and in fact have a fiduciary duty towards), is the maximisation of profits – and guess where that will take them, given the opportunity? Even sales within India will be naturally be incentivized to focus on those who can pay more, rather than the vast masses who cannot afford much. Not to mention, that “Indian” or not, generic pharmaceuticals who can collaborate with Big Pharma, will have access to a much bigger markets – so there is a reduced incentive to annoy them with compulsory licences and the like over here, or sometimes a greater incentive to enter into license deals even when not needed. This not only unnecessarily raises prices, but reduces the possibility of weak patents being challenged. Will our current shared empathy over lack of treatment options, continue when some of us start to have access to treatments? Or will access for others then fall back to “the system will take care of it eventually“.

Its also very important to note that despite all the fuss that pharmaceutical companies make about the heavy costs incurred in developing drugs – none of them want to disclose their actual numbers. Researchers have come up with wildly varying estimates as to the cost of new drug development, from near $300 million to near $3 billion, with each set having its own set of criticisms – but no transparency in actual costs still. It has also been pointed out that big pharmaceutical companies don’t actually do much of the research themselves anyway, and prefer to buyout smaller companies instead. (see here and here for eg). Needless to say, this demonstrates weaknesses in the arguments that justify high drug prices based on high capital requirements for innovation. And that takes me to the next major point:

2. Distortion of raison d’etre: With it being easier and often more profitable to acquire small companies that seem successful, rather than do the actual research themselves, several big pharma companies seem to have shifted focus towards acquiring marketable products rather than actual drug innovation. There are also studies showing that Big Pharma companies spend almost $30 billion dollars a year (as of 2016) on marketing in US. If my calculations are correct, India’s public health spending (1.3% of USD 2.8 trillion), is only slightly more, at approx $36 billion! Rather than incentivising pharmaceutical innovation, the overall system seems to be incentivising corporate strategy innovation to capture and sell someone else’s patents/products! And it is doing a great job at elevating the latter at the cost of the former. John LaMattina, former head of R&D at Pfizer (which has also been involved in perhaps the most number of mergers and acquisitions), has notably stated “their impact on the R&D of the organizations involved has been devastating“. Pedro Cuatrecasas, former director of Glaxo also shares similar views: ” I have to stress that the merging of companies has resulted in the loss of excellent established R&D organizations with their high level of manpower, their research programmes and their unique cultures — presumably because these were perceived to be redundant.”

Whether this holds true for the Indian landscape is perhaps difficult to tell. However, as per this 2016 study done by Beena Saraswathy, there are some concerns. On pages 24-25, she indicates that these mergers may lead to disappearing products and raising price levels for domestic consumers. The table below is from the same study.

Sourced from here (Table 9, page 18)

A prominent example of focusing on corporate strategy is the story of Sovaldi. This is a treatment for Hepatitis C that was developed by Pharmasset, a small biotech company led by two University professors with mostly federal funding. Pharmasset’s development of Sovaldi was funded largely with federal funds. Gilead bought the whole company for $11.2 billion in 2012, and started selling Sovaldi for $84,000 per treatment regiment. In 2014, its first year on the market, it made $10.3 billion from Sovaldi alone, along with an additional $2.1 billion from the sales of Harvoni (a combination of Sovaldi with ledipasvir), nearly all from US markets alone. That year, India and China had about 483,000 and 760,000 new cases respectively, of acute Hepatitis C, compared to US’ 111,000 cases (as per the Global Burden of Disease 2017 study). Gilead has continued to make big sales in the years that followed. Soon enough, a substantially cheaper version of Sovaldi was made available in India but that too came with its own share of problems.
Not actually doing the R&D – check; pricing it prohibitively high – check; making very high profits – check; maximising health benefits – hmm?

3. Distortion in Research Direction:

On the question of whether those high prices lead to better research or more drug innovation – As per this report, of the 59 new drugs launched in US in 2018, 38 (64%) of them were patented by emerging biopharma companies (defined as <$500million or R&D spend <200million) , and only 15 (25%) were patented by large pharma companies (defined as >$10billion). Additionally, various studies (like this and this for example) seem to indicate that drugs coming from public sector funding tend to be more innovative than drugs coming from private sector funding.

When investment is tied to profits, it is clear that even the focus of research, will be on profitable markets rather than addressing health concerns. Till recently this was very stark. For eg, around 2010 annually more money was channeled into treatments for male pattern baldness ($2billion) as compared to malaria ($547million), due to the simple fact that the average balding old man in US or EU could pay much more than the malaria patient in a developing country. This was what was known as the 10/90 gap – that is only 10% of the world’s health research expenditure would go towards diseases that afflict 90% of the world’s population (ie communicable diseases that mostly affect those in the developing world). This is also a major reason that so many communicable diseases, mostly prevalent in the developing world, have had so little R&D investments, despite the tremendous number of lives they’ve taken. Massive amounts of charity and huge protests have moved this needle a bit – but is charity a business model on which millions of lives should depend?

This is now changing though, due to two reasons: the slowly increasing market power of emerging markets, and the changing disease burden of the world. As per WHO, rapid unplanned urbanization, globalization of unhealthy lifestyles and population ageing are leading to populations in the developing world being now facing a heavier burden from non-communicable diseases (NCDs) such as cancers, heart diseases, chronic respiratory diseases, etc, which were earlier more limited to the developed world. (which takes one back to the pricing issue).

Earlier, investments into ‘me-too’ drugs (usually drugs that are largely duplicative of existing blockbuster drugs, with minor modifications to their chemical compositions such that they too can be patented) were lucrative earlier – since it meant very little R&D needed to be done to tap into an already proven hungry market. As long as chemical drugs continue, patents will continue to incentivize research towards ‘me-too’ drugs. In general, a long exclusivity period incentivises attempts to gain such rights at minimum cost – thus also resulting in the pushing of weak patents wherever/however possible, not to mention continued spending of resources on lobbying for laws which allow weak patents. And this would mean continued high prices and delayed barriers to entry for cheaper generics, while offering little therapeutic benefit. The pharmaceutical industry is now starting to shift focus from chemical drugs to biological drugs (“biologics”). Will research here too be incentivized towards me-toos over drugs that offer more / new therapeutic benefits? It’s not as clear. Biosimilars (drugs which seek to establish similarity to established biologics) are not like chemicals in that there is still high cost and some risk attached to their development.

Biosimilars versus ‘Biobetters’ – A Regulator’s perspective – by Rene Anour. Available here

Nonetheless, as this paper suggests, biologics may bring with them the dual problems of me-too biologics, as well as originator companies weaponizing “bio-betters” close to patent term ends, against the price-drop possibilities posed by biosimilars. (see snippet on left).

While biosimilars can bring down prices as compared to the extremely high priced originator biologic, they can still be priced very highly. For example, the world’s top selling biologic drug, Humira costs about $4500-$5000 a carton (~$72,000 a year), and is expected to bring in $21 billion in 2020; and despite its core patent having expired in US in 2016 and biosimilars being present, the price is still in fact rising (common to other biologics as well) because of patent thickets, as this link describes.  In India, the situation is playing out very differently though, with more than 7 biosimilars launching, and the average cost price being less than 1/5th of the US version as this link describes. Even assuming this type of situation becomes the prevalent type, it doesn’t change the fact that at even 1/10th the price, this amounts to more than INR 5,00,000 a year – far, far above the average of INR 120,000 that nearly half the country’s regular workers make. How this will play out in India, with the increasing presence of biosimilars – we will need to wait and see.

4. What the patent system does not incentivize:

Among pharmaceutical products – vaccines, by far, give the most health benefits to human lives, as they give benefits not only to those who take them but also to those who haven’t taken them but are still protected (including future generations) by virtue of wide-spread vaccine usage in an area. Therefore, it would make sense for a pharmaceutical innovation system to strongly incentivize vaccines. As is known though, the patent system does not incentivize the creation of a vaccine for infectious diseases, until the infection hits populations (or governments) who can pay well for it. So regions most prone to infectious diseases (i.e., the developing world) rarely incentivize the creation of new vaccines. If they are made, they are usually done by the public sector (for non-patent reasons) or, are unaffordable until patent expiry, when generics bring the prices down. Even in situations like the current pandemic, it has been argued (see this paper) that patents are a redundant incentive, as there is already a guaranteed captive world-wide market, aside from non-tangible effects such as being part of the solution to Covid 19. (Side note: if you’re interested in how a pharmaceutical firm tried to classify coronavirus as a rare disease, check here)

The patent system does not incentivize public health goods that have social value (even if tremendous) if they are not translateable into monetary value that can be captured. This paper (PDF here) starts off with the ‘humble checklist’ example and discusses this concept in much more detail. The ‘humble checklist’ (it is what it sounds like) was a simple non-proprietary public health intervention which resulted in highly reduced infection rates in US hospitals by stopping infections before they could happen, even as patent-incentives were instead driving heavy investments into creation of antibiotics for the same infection problem. Both may have their roles, but this shows the clear difference between focusing on maximising health benefits, and focusing on the market for health benefits. Similarly, information from clinical trials could be very useful information goods for society, if they were treated as global public goods (see this proposal for instance) rather than data which private corporations prefer to keep secret due to the market advantages it gives them (not to mention the controversies and ethical lapses that can stem from that).

Conclusion: While this post has touched upon several issues thrown up by a patent dependent / market-centric pharmaceutical innovation system, it is not an exhaustive one. For example, how many patients are not getting access to medicines due to a system which incentives the lobbying for further exclusion rights such as data exclusivity or patent-regulatory linkages? How many new therapeutic uses of existing drugs are not being explored because the patent has expired? What are the health effects on the patient population when a side effect of focusing on market profits is increasingly lax drug regulation? Even supposed ‘solutions’ within this patent framework, such as compulsory licensing, tighter patentability requirements, etc hardly seem to have any impact in the real world, other than to give areas for proponents of more restrictive IP rights a topic to coalesce over. Not to mention, in the limited real world scenarios where they are actually used, they can only at best tackle the price issue and not issues of research distortion, etc.

This post has attempted to lay out some of the first level issue areas with the patent system in pharmaceutical innovation, and if nothing else, shows that there is much to be improved at a systemic level. But are there any actual possibilities for change or is this too idealistic? Many policy makers, activists and scholars have looked into creative partial solutions, including alternative systems, which place health maximisation, (rather than markets or patents), at the centre of pharmaceutical innovation mechanisms. Certainly, they may not, and probably cannot, address all these concerns, and will likely have other criticisms of their own. Needless to say, all the issues mentioned here are much more nuanced than described in this first level description. And all its criticisms notwithstanding, the patent system does certainly act as a decent proxy for a pharmaceutical innovation system with several points working in its favour. But it is high time that we stop simply accepting that this is the best we can do, and work towards systems that will be at least slightly more health-need centric in their outlook. Part II of this topic, will come out soon, looking more closely at some of the partial solutions and alternative possibilities put forward by various scholars and policy makers.