How the patent system fails to encourage potentially valuable drugs

The following originally appeared on The Upshot (copyright 2015, The New York Times Company).

Hillary Rodham Clinton’s prescription drug policy proposal, released last week, would hold drug manufacturers accountable to their level of investment in research. But there are some potentially valuable drugs we’ll never get drug companies to invest in — those that cannot be patented.

By granting temporary monopolies to innovators, the patent system is widely credited with protecting and promoting innovation. But when it comes to pharmaceuticals, it may be preventing valuable therapies from coming to market.

To see evidence of this, just look at the behavior of pharmaceutical firms. When Benjamin Roin, assistant professor of technological innovation, entrepreneurship, and strategic management at M.I.T., did so, he discovered that drug companies discard many potentially good ideas because they’re unpatentable. By interviewing academic researchers and industry insiders and scouring medicinal-chemistry textbooks, Mr. Roin learned that “pharmaceutical companies systematically screen their drug candidates to exclude the ones lacking strong patent protection.”

It’s obvious why drug innovators would avoid unpatentable ideas: Bringing a drug to market is expensive. In addition to the costs of scientists and laboratories to discover and sift through potentially therapeutic compounds in the first place, demonstrating efficacy and safety to the Food and Drug Administration requires costly clinical trials. Without F.D.A. approval, a drug cannot be marketed.

The expense of prescription drugs has come to the forefront in the presidential campaign with proposals by Bernie Sanders and Mrs. Clinton to rein in drug prices.

Patent law also plays a big role in the debate over drug prices, though it is not directly addressed by the two Democratic candidates. Drug manufacturers say that they need to recoup the high cost of drug development by charging high prices during the period they hold effective monopolies. A recent estimate, though contested, put the price of developing a drug from scratch as high as $2.6 billion. Other estimates suggest it could be as low as $161 million. Either way, it’s a lot of money. Without regulatory constraints, results from such an investment could be used by anyone to develop and market drugs.

And that’s why pharmaceutical innovators pursue leads that can be patented. A drug patent, along with subsequent F.D.A. approval and granting of market exclusivity, offers the patent holder a period of time during which it may market the drug without competition. Even though the information about the efficacy and safety of the drug is available after clinical trials have been run, no other organization may use it to secure F.D.A. approval during the patent protection period. Typically, a drug reaches the market with about 13 years left on its original patent, though in some cases it can be extended longer.

During the granted period of market exclusivity, pharmaceutical manufacturers can price drugs higher than they could if there were competition from firms marketing the same molecule. By doing so, they recover their investment and make a profit. Though many people are shocked by the high prices of some prescription drugs — like Gilead Sciences’ Sovaldi, a new and effective treatment for hepatitis C that can cost $84,000 per treatment — they’re the inducement for innovation.

Profits made during their period of market exclusivity are, in large part, why new drugs exist, though an argument could be made that the rewards far outstrip development costs. Nevertheless, few companies will sink hundreds of millions of dollars into even a potentially lifesaving idea without the promise of a return on investment, nor should we reasonably expect them to.

That’s why we provide patents for good ideas (and, yes, some not-so-good ideas, too).

Except sometimes we don’t. By law, patents can be denied for ideas that may be good, but are not novel or are obvious. This sounds completely sensible, until you think through the consequences. It means that even potentially great drugs might not come to market because they were disclosed in the past — so they’re now not novel — or because they are a natural extension of existing knowledge — so they’re now obvious.

Prior disclosure can come in the form of an obscure research article; an old, expired patent; or inclusion of a chemical structure in a giant online database, for example. (When it comes to obviousness, there’s a tension. We don’t want to provide patent protection for profit-increasing activities that do not benefit patients, like “me too” drugs — drugs that are only trivially different from existing ones. But some things that are obvious also might be beneficial, and for those we’d want to encourage development.)

The crux of the problem is this: For pharmaceuticals, patent protection is used as a means for innovators to recoup the costly investments that drug development requires. But the patent system was not devised to solve this specific problem. It’s a broader system intended to encourage innovation, which it does, while at the same time permitting individuals and firms to exploit obvious and old ideas freely, which is generally a valuable protection.

When it comes to drugs, some of those obvious, old ideas that cannot be patented have not been clinically tested, as required for F.D.A. approval. That takes money, which nobody will invest without a patent. It’s a Catch-22 that ends up excluding potentially valuable drugs from ever even being considered for development.

There’s evidence that the provision of patents only for nonobvious and novel innovations affects drug development. In a paper published in theTexas Law Review, Mr. Roin documents many examples of patent invalidation on these grounds — importantly, even for ideas that had never been developed into drugs and that still required clinical trials for F.D.A. approval. For example, the patent of an anti-inflammatory drug was invalidated because it had been disclosed in a prior academic article. A patent for a hypertension drug was invalidated because it was deemed to have been created by a well-known process.

There are ways out of this bind. Kevin Outterson, a Boston University law professor, has called for greater government funding of clinical trials for public-domain drugs.

Mr. Roin, the M.I.T. professor, describes another approach: to provide a period of market exclusivity — long enough to motivate investment in clinical trials — to any organization addressing an unmet medical need with a drug that isn’t patentable. If it invested in securing F.D.A. approval for a drug based on active ingredients not found in existing drugs, an organization would be granted such a period of market exclusivity and the stream of profits that usually accompanies it, even if the drug was considered obvious and not novel. That idea has been included in congressional legislation, but has not made it into law.

If we want drug companies to invest more in drug development — as Mrs. Clinton has proposed — we might first consider reasons that, even with some good ideas, they don’t.


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