5 ML, by Wakalani (<a href="http://creativecommons.org/licenses/by-nc-sa/2.0/" target=_blank>CC</a>).
5 ML, by Wakalani (CC).

Policy Innovations Digital Magazine (2006-2016): Innovations: Reward Pharmaceutical Innovators in Proportion to the Health Impact of Their Invention

Sep 26, 2006

The lives of some 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 medicines 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-maximizing 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-maximizing sale price of the new medicine is typically many times greater than its 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 medicine 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 drug 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 drugs 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, two were commissioned by the military and another five were byproducts of veterinary research.

The solution I propose would add a second scheme of rewards. Pharmaceutical innovators would have the option to forgo the conventional claim to exclusivity in favor of an alternative patent that would reward them, out of public funds, in proportion to the health impact of their invention. Such alternative multi-year patents would make new drugs available at competitive market prices (without the now-customary exorbitant monopoly mark-ups) and would stimulate additional pharmaceutical research especially into serious diseases concentrated 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, any such firm would have incentives to address the diseases that contribute most to the global disease burden. It would have incentives to prioritize prevention over treatment. (The conventional patent system has the opposite effect, with new treatments offering much greater profit opportunities than new vaccines.) It would have incentives to ensure that patients have the knowledge and motivation to use its medicines to optimal effect. It 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. It would have incentives 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 favorable impact on the global disease burden. Rather than ignore poor countries as unlucrative markets, inventor firms would be led to cooperate toward improving the heath systems of these countries to enhance the impact of their inventions there.

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 accessible to the poor. To preserve such monopoly rewards, millions 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 pharmaceutical innovation, 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 and corporations of the affluent countries. It would gain us much good will in the developing world, would create new profit opportunities and 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 and the 2005 avian flu scare illustrate both points: Dangerous diseases can rapidly transit from poor-country settings into cities in the industrialized world; and the current neglect of the medical needs of poor populations leaves us ill prepared to deal with such problems when we are suddenly confronted with them.

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

For a more detailed explication and defense of the reform proposal, see Thomas Pogge: "Human Rights and Global Health: A Research Program," in Christian Barry and Thomas Pogge, eds.: Global Institutions and Responsibilities: Achieving Global Justice (Oxford: Blackwell, 2005): 190–217.

External Links:
Thomas Pogge's website at Columbia University
Incentives for Global Health, Prof. Pogge's project dedicated to developing market-based, systemic solutions to health challenges for the world's poor.

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