Intellectual property rights (IPRs) attempt to balance static and dynamic efficiency. By allowing innovators to appropriate a greater share of the value generated from their ideas, IPRs can create incentives for investment in research and development (R&D). With regard to pharmaceuticals for developing countries, incentives for drug development are critical, since many diseases prevalent in developing countries lack appropriate treatments. However, those in the global health community often allege that prices of new innovative drugs under patent make them unaffordable to most people in developing countries because of the absence of generic competition.
Thus, understanding the effects of IPRs on access and affordability are important for researchers, policymakers, and firms. In December 2014, Margaret Kyle and Yi Qian published a new paper investigating this with the National Bureau of Economic Research. Titled Intellectual Property Rights and Access to Innovation: Evidence from TRIPS, the authors examine the effect of pharmaceutical patent protection on the speed of drug launch, price, and quantity in 60 countries from 2000-2013.
The paper begins by noting that though the introduction of IPRs is an endogenous decision taken by policy makers, developing countries were required by World Trade Organization (WTO) rules to implement a minimum level of patent protection within a specified time period, and it is this requirement that creates a natural experiment for investigation. Kyle and Qian exploit the fact that these policy changes did not affect all drugs in the same way. Drug development has a large random component in the time between discovery (or initial patent date) and completion of clinical trials and regulatory requirements (or initial launch date). Within a country and year, they compare the outcomes of products invented in a year before they were eligible for patent protection meeting all the WTO Trade-Related Intellectual Property Rights Agreements (TRIPS) requirements with those invented just after TRIPS compliance. This allowed them to control for unobservable country characteristics that affect an innovator’s expected profitability and that vary over time, as well as unobservable product characteristics that affect price.
The authors find, first and foremost, that IPRs have a very large bearing on product launch. Indeed, on-patent products are most likely to be launched and to sell in higher quantities, but also command the highest prices. Products with expired patents sell in lower quantities and at lower prices than those that are on patent, but higher prices and quantities relative to those that were never protected. In fact, drugs that are never patented are unlikely to be marketed, regardless of country income level. Thus, it appears that IPRs may increase the availability of new treatments to populations in developing countries.
The authors also explore whether TRIPS changed the value of patents. Overall, drugs are more likely to be launched if they have post-TRIPS patents, as well as to sell in higher quantities. The most surprising result is that the price of such drugs is lower than pre-TRIPS patented products, on average, in the poorest category of countries. However, they interpret these results with caution, because it was driven by a small number of drugs (the TRIPS compliance deadline was 2005, and very few drugs have completed a development cycle by 2013). In general though, post-TRIPS, prices have not significantly increased and quantities have not significantly decreased in poor countries.
These results represent good news about the relationship between IPRs and access to innovative medicines, although considerable work remains to improve the latter. However, it is clear that the TRIPS Agreement and IPRs in general, have not damaged global public health in the way that many in these communities indicate. Moreover, this study joins a growing body of evidence pointing to a deep connection between stronger IPRs and the development of both innovative medicines—and even innovative pharmaceutical sectors—in developing nations. For instance, Georgetown University Professor Michael Ryan has found in a study of biomedical innovations and patent reform in Brazil that patents provided incentives for biomedical technology entrepreneurs to make risky investments into innovation, facilitated technology markets among public-private technology innovation networks, and encouraged entrepreneurs to tap into the rich biodiversity of Brazil to develop innovative medicines that help citizens not just in Brazil but throughout the world. Likewise, the report Policies that Encourage Innovation in Middle-Income Countries by Charles River Associates finds that for countries whose “objective is to develop an innovative biopharmaceutical industry, intellectual property is a necessary building block.”
To be sure, much still needs to be accomplished in the global public health arena; however, these results are a good block to build upon.