When it comes to the challenge of ensuring access to medicines in developing countries, three distinct issues often get conflated: innovation, availability, and affordability. Recent research from CGD alums offers new insight into the complicated dynamics at play at the core of a hot debate.
Pharmaceutical companies argue that the temporary monopoly provided by patents is the only way they can recoup the costs of researching and developing new drugs. Critics contend that patents are ineffective in stimulating research in diseases that afflict lower income countries, and forcing those countries to provide patent protection leads to high prices that deprive poor people of essential medicines. These difficult trade-offs, with important ramifications for the lives of the global poor, are just the kind of dilemma former CGD fellow Jean (Jenny) Lanjouw tackled. Now, 10 years after her much too early death, we have another important contribution from Jenny and her coauthors, Iain Cockburn and Mark Schankerman. Their long-delayed article on patents and drug availability was published in the American Economic Review (gated) in January. Here’s why it matters.
Affordability ≠ access
It is generally accepted that patents alone are not very effective in spurring research on drugs for tropical or other neglected diseases in developing countries. The markets are too small and too poor to attract sufficient private sector investment. Jenny’s creative proposal for globally differentiated patents was one response to that problem. CGD’s detailed proposal for an advance market commitment was another.
For diseases that affect lots of people in all kinds of countries, pharmaceutical companies have ample incentives to invest in innovation. The problem is not a lack of innovation but rather affordability, given patent-protected drug prices are often too high for many in poorer countries.
What the new AER article demonstrates is that prices don’t matter if drugs are not available at all. The authors analyze 20 years of data (1983-2002) on new drug launches in 76 countries. They show that there are often long lags in drug launches, which tend to be worse in countries with smaller markets, weak patent systems, and price controls. Even if sales in richer countries cover the costs of research and development for a new drug, drug companies still have to foot the bill for the local costs of launching a new drug—running clinical trials and navigating the regulatory process, setting up distribution channels, and more. Where that proves difficult, it can take years to introduce a new drug.
Jenny and her coauthors show that extensive price controls delay the launch of new drugs, even in countries with strong patent systems, which creates an obvious dilemma for resource-constrained governments and consumers. Although they did not have the data to explore the price effects of these policies, they note that finding ways to “mitigate the adverse effects of this tradeoff remains a major challenge.” They suggest that developing countries consider ways to lower launch costs such as creating mechanisms to conduct clinical trials at the regional level rather than country by country.
Stronger IPRs ≠ higher prices?
Interestingly, recent research by another CGD alum, Thomas Bollyky, suggests that the price effects of stronger patent protection may be less of a problem for access than previously thought. In a Foreign Affairs article (gated), Tom examines data on drug expenditures before and after countries signed trade agreements with the United States that required stronger intellectual property rights (IPR) protection. He finds that overall drug spending, as well as prices for drugs that could have been affected by the terms of the trade agreements, stayed flat or declined in most cases. This does not prove that the trade agreements had no impact on the affordability of drugs, but it does suggest that they may not be the major factor.
I am still not convinced that the US approach to intellectual property rights is optimal—either for Americans, or for the citizens of developing countries that sign trade agreements with the United States. But Jenny’s research is, thankfully, still helping to enrich the debate and make us all think harder about how the world works and how to make it better.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.