A new approach to pharmaceutical innovations

The lives of about 50,000 human beings, mostly children, are cut short every day by avoidable poverty-related causes. These account for one third of all human deaths - 18 million every year. Hundreds of millions more suffer grievously from such avoidable medical conditions. The lives of even more are shattered by severe illnesses or premature deaths in their families. These medical problems strain the economies of many poor countries, thereby perpetuating their poverty which in turn contributes to the ill health of their populations.

These huge mortality and morbidity rates can be dramatically reduced through improved access to medical interventions (which include preventative measures and treatments) achieved by reforming the way we encourage and reward pharmaceutical innovations.

Under the present regime - the TRIPs (Trade-Related Aspects of Intellectual Property Rights) Agreement, as complemented by bilateral treaties - we grant inventors temporary monopolies on their inventions, typically for 20 years from the time of filing a patent application. With competitors barred from copying and selling any newly invented drug during this period, the inventor firm can sell it at the profit-maximising monopoly price far above its cost of production. This way, the inventor firm can recoup its research and overhead expenses, plus some of the cost of its other research efforts that failed to bear fruit.

This solution solves one market failure (undersupply of medical innovation in a free market). But its monopoly feature creates another: during the patent’s duration, the profit-maximising sale price of the new medical intervention is typically many times greater than the drug’s cost of production. This large differential is socially harmful by causing a “deadweight loss”: It precludes mutually beneficial sales to patients who are willing and able to pay more than the cost of production but not the much higher monopoly price.

There is a further problem inherent in the current regime. Inventor firms have incentives to try to develop a new medical intervention only if the expected value of the temporary monopoly pricing power they might gain, discounted by the probability of failure, is greater than the full development and patenting costs. They have no incentives, then, to try to develop any intervention needed by those unable to afford it at a price far above its cost of production.

Consequently, many diseases mainly affecting the poor (for which medical interventions priced far above production cost could be sold only in small quantities) remain unaddressed. Of the 1,393 new drugs approved between 1975 and 1999, only 13 were specifically indicated for tropical diseases. And of these 13, 2 were commissioned by the military and another 5 were byproducts of veterinary research.

The solution I propose would add a second scheme of rewards. Pharmaceutical innovators would have the option to forego the conventional patent and to claim instead an alternative patent that would reward them, out of public funds, in proportion to the health impact of their invention. By offering such alternative multi-year patents, we would be stimulating additional pharmaceutical research especially into serious diseases that are common among the global poor.

This reform would encourage inventor firms to develop the most cost-effective medical interventions and to ensure that their innovations have maximum health impact. Specifically, such firms would have incentives to address the diseases that contribute most to the global disease burden. They would have incentives to prioritise prevention over treatment. (The conventional patent system has the opposite effect, with new treatments offering much greater profit opportunities than new vaccines.) They would have incentives to ensure that patients have the knowledge and motivation to use their medicines to optimal effect. Any inventor firm would have incentives to sell its new medicines cheaply, often even below production cost, so as to achieve health improvements even among the very poor.

Any such firm would have reason to encourage and support efforts by cheap generic producers to copy its medicines, as this would further increase the number of users and hence the invention’s favourable impact on the global disease burden. Rather than ignore poor countries as unlucrative markets, inventor firms would be led to co-operate towards improving the heath systems of these countries to enhance the impact of their inventions there.

The reform would greatly mitigate the problem of neglected diseases that overwhelmingly affect the poor. And it would open new profitable research opportunities for pharmaceutical companies, which may help overcome their resistance to reform.

The basic reform idea must still be specified into a concrete reform plan. Such a plan must be fully informed by all the relevant facts and insights from science, statistics, medicine, economics, law, and moral philosophy; and it must also be politically feasible and realistic.

To be feasible this plan must, once implemented, generate its own support from governments, pharmaceutical companies, and the general public (taking these three key constituencies as they would be under the reformed regime). To be realistic, the plan must possess moral and prudential appeal for governments, pharmaceutical companies, and the general public (taking these three constituencies as they are now).

Because much of the plan’s cost would be borne by the more affluent countries, it must be supportable by moral and prudential arguments that their citizens would find compelling. The best moral arguments appeal to the catastrophic effects of the present system. By granting monopolies for advanced medicines, this system prevents market competition that would dramatically reduce the price of these medicines and thereby make them more widely accessible. To preserve such monopoly rewards, millions of poor people are paying with their lives. These great ongoing harms are foreseeable. And they are avoidable, as is shown by the enhanced patent regime I have sketched. In order to encourage the development of new medicines, we do not need to violate the human rights of the global poor by denying them access to life-saving drugs at competitive market prices.

Six significant prudential considerations further recommend the reform to citizens of the affluent countries. It would gain us much goodwill in the developing world, would create high-value jobs in pharmaceutical research, and would dramatically lower the cost of patented essential drugs and of medical insurance also in our more affluent countries.

In addition, more rapidly increasing medical knowledge combined with a stronger and more diversified arsenal of medical interventions would facilitate more effective responses to public health problems in the future and would reduce the danger our affluent societies face from invasive diseases. The 2003 SARS outbreak illustrates both points: dangerous diseases can rapidly transit from poor-country settings into cities in the industrialised world (Toronto); and the current neglect of the medical needs of poor populations leaves us unprepared to deal with such problems when we are suddenly confronted with them.

Last, not least, we stand to realise great personal and social gains from working with others, nationally and internationally, toward overcoming the pre-eminent problem of our age: the horrendous and largely avoidable morbidity and mortality among the global poor.