The UN is wrong to think loosening intellectual property regulations will make drugs cheaper for the developing world, write Sean Speer and Richard Owens in the Financial Post.
By Sean Speer and Richard Owens, Sept. 28, 2016
A report by a United Nations panel on the accessibility of medicine in the developing world calls for sweeping changes to intellectual property (IP) policy in order to expand the reach of proprietary medicines in the developing world. The stated goal of the panel, which includes Canadian Stephen Lewis, is to reconcile “the incoherencies between international human rights, trade, IP rights and public health objectives.”
Everyone should support increased access for the world’s poor to patented medicines. But weakening IP laws will undermine this goal. Recommendations such as tougher patentability requirements, controlled pricing and compulsory licensing challenge the root of the whole global patent system. The panel questions whether patent holders should continue to be allowed a period of monopoly, which is crucial for recouping costs, without properly considering the impact on incentives and innovation. It seems to believe that everyone can have immediate access to cheap drugs.
Everyone should support increased access for the world’s poor to patented medicines. But weakening IP laws will undermine this goal.
Firms dedicate financial resources to early-stage research and development on the understanding that, if it’s fruitful, the firm will be able to earn a return on investment due to the protections inherent in the patent system. Far from being antithetical to IP rules, the potential for patent holders to earn outsized returns with the promise of a bonanza (which happens rarely) is inherent to the reward system that drives innovation. Weakening IP rules would risk discouraging new private investment and, in turn, discourage life-saving medical innovations.
Some argue that drug companies earn too much from their discoveries, a mistaken opinion based on the fact that drug companies sometimes rank well on lists of profitable companies. But theirs is a risky and expensive business and one ought to expect that just as some are at the top of these lists, other drug companies are at the bottom of such lists, as a proper risk distribution would predict. We have a profit and loss system with profit based on patents rewarding smart risk-taking and loss punishing wrong-headed risks — risks better taken by private entrepreneurs than government bureaucracies.
Ironically, the panel trades off private activity for public and proposes massive new public investment in medical innovation to make up for any “unmet need.” It is counterproductive to disrupt the one aspect of drug accessibility and affordability that is producing results in order to fund a costlier and less effective response.
That doesn’t deny a role for public or charitable intervention to tackle tropical diseases and bacterial infections. In fact, these interventions do take place, and on a large scale. But they operate as they should, in parallel to, not instead of, the commercial pharmaceutical economy.
In addition to limiting patent protection, the panel contemplates levies on pharmaceutical companies, accountability to meet public-accessibility objectives and disclosure of R&D costs with a view to reducing prices. These measures will not reduce drug prices; they will increase them. Consumers bear corporate costs in the form of prices of goods. When costs increase, prices invariably rise. The alternative is called insolvency. Subsidizing drug access for the world’s poor is an idea to consider. But to choose, out of all actors, the industry that invents these life-saving treatments to provide such subsidies is perverse.
In reality, drugs often are not patented in less developed countries; it is not worthwhile for companies to pursue such patents because the market is so small. Drug companies do have programs that make their patented drugs available to the poor domestically and internationally. And prices are normally lower in poorer jurisdictions; discriminatory pricing of IP-protected goods for different markets just makes sense. But prices cannot be reduced to zero if corporations are to fulfil their fiduciary responsibilities to shareholders.
Subsidizing drug access for the world’s poor is an idea to consider. But to choose, out of all actors, the industry that invents these life-saving treatments to provide such subsidies is perverse.
Rethinking humanitarian assistance programs to better focus them on life-saving drugs is one option for achieving the UN’s objectives. Bulk purchasing and pooling drug purchases to enhance economies of scale is another.
To weaken IP laws and attack drug companies, however, might generate media headlines and emotional responses but will ultimately hurt more than help. Governments would therefore be wise to eschew the panel’s recommendations and instead focus on the slow yet steady progress to a real solution that the existing drug economy provides.
Richard Owens and Sean Speer are Munk senior fellows at the Macdonald-Laurier Institute.