Effective Intellectual Property Rights Indispensable for the Pharmaceutical Sector

Published:

Effective Intellectual Property Rights are Indispensable for the Pharmaceutical Sector

 

Introduction

Effective intellectual property rights for medicines are indispensable for innovation in the pharmaceutical sector. This innovation will in turn create high-quality health care and economic growth, while also contributing to a sustainable medicines budget.
 

The Situation

Despite the clear rationale and proven effect of both patent protection and incentives, these concepts are not always undisputed in the Netherlands. As the Pharmaceutical Committee of AmCham, we therefore would like to explain why we believe that effective intellectual property rights are so important in the constant quest for new medicines.
 

Expensive, Full of Risk, and Time-consuming

Drug research is expensive, full of risks and time-consuming. Indeed, facts speak for themselves:

  • No sector spends more on research, both in absolute terms (the total research budget) and relative terms (the percentage of income spent on R&D).1 Indeed, out of every five euros spent on all forms of research in Europe, one is spent by the pharmaceutical industry.2
  • Only a few sectors confront a higher research risk than the pharmaceutical sector.3 Contrary to some claims, these risks are only increasing: Deloitte found that in seven years time, the return on money invested in research by several large pharmaceutical companies decreased from 10,1 to 3,2 percent.4
  • The development process of new medicines can take up to twelve years.5 This period only seems to become longer as the stipulations for registration increase. In addition, more and more countries have set up a lengthy process to determine if a medicine should be reimbursed, which causes further delays.
  • Research responsibilities do not end after market approval. Indeed, the European Medicines Agency (EMA) often requires companies to set up further studies or to set up registries to monitor the use of a medicine in the real world setting.

The Importance of Patents

This clearly illustrates why patents are indispensable in the pharmaceutical sector. To develop a medicine, companies and their shareholders need to make large, long-term and risky investments. They will only be motivated to do this if it is possible to generate revenues from a medicine for a fixed period. A patent provides this right to new innovations. This not only enables companies to recoup their expenditures; investors (including pension funds) also want a return on that investment, especially when investments have been this large and risky. And these investors are needed; without their financial support, companies could invest less money in the development of new medicines.

This system of companies, shareholders, profits and patents is effective: for decades, it has ensured that new and better medicines become available. Indeed, since the nineties, more than a thousand new medicines have entered the European market.

Companies are required to publish their patents (through a large European database), and other companies can utilize this scientific progress. They complement their own research or develop a similar medicine. Indeed, direct competitors can leverage the information provided by patents to further adjust the scientific path for development of their own medicines.

High-quality Care, Economic Growth and Affordable Medicines

This system functions well and has contributed significantly to the improvement of health care. Indeed, medical breakthroughs are often the result of new medicines. This not only applies to well-known examples as cancer, HIV, hepatitis and heart diseases; this trend is visible throughout a wide spectrum of diseases. Indeed, between 2000 and 2009, medicines were responsible for seventy percent of the realized health gains.6

The pharmaceutical sector also contributes to economic growth. The Dutch sector, for instance, represents 65 thousand jobs.7 This not only concerns affiliates of foreign companies; the Dutch biotech industry is rapidly developing. This ensures a steady uptake in the number of pharmaceutical jobs in the Netherlands, also in comparison to neighboring countries.8

New medicines also contribute to the affordability of medicines. That might sound like a paradox, but both during and after patent protection, new medicines generate competition and thereby lower prices.

The hepatitis market is a good example of this dynamic. In a short period of time, several new medicines were introduced. This caused companies to increase their discounts, which saw net prices in Europe decrease by 15 to 20 percent.9 After patent expiration, this competition further increases as other companies are allowed to copy a medicine and bring it to the market. The resulting price competition often causes significant price decreases.

Incentives

The system in which commercial companies develop medicines is not always effective, however. For instance, it used to provide insufficient incentives to develop medicines for rare diseases (“orphan drugs”) or pediatric populations. The European Commission therefore introduced special incentives, and they turned out to be remarkably effective. Indeed, before the introduction of incentives for orphan drugs in 2000, only eight orphan drugs had ever been launched in Europe. In 2017 alone, however, this number reached 15.10 Incentives had a similar effect on the number of pediatric medicines.11

Indispensable

Effective intellectual property rights are thus indispensable for the pharmaceutical industry. And this not only applies to international pharmaceutical companies, it certainly applies as well to the Dutch biotech sector. Indeed, this is the sector that (together with medical technology) applies most often for new patients. What’s more, the number of applications continues to increase, while it is decreasing ins surrounding countries.12

We believe that research into new medicines could be stimulated even further. The Netherlands has an excellent basis for high-quality research and development with eight university hospital, 26 top clinical hospitals, many (bio)pharmaceutical laboratories and a booming biotech-industry.

As American-based pharmaceutical companies, we very much want to contribute to this. However, we firmly believe that effective patent protection and incentives are simply indispensable for innovation in the pharmaceutical sector. And that innovation will contribute to high-quality care, economic growth, as well as a sustainable pharmaceutical budget.

 

Published: October 30, 2018
Authored by: Pharmaceutical Committee AmCham.
Michel van Agthoven, Chair Pharmaceutical Committee American Chamber of Commerce (AmCham) / Janssen, Pharmaceutical Companies of Johnson & Johnson.
Ad Antonisse, Co-Chair, Pharmaceutical Committee American Chamber of Commerce (AmCham) / AstraZeneca.

 
References:
  1. European Commission, EU R&D Scorecard 2016, http://iri.jrc.ec.europa.eu/scoreboard16.html, page 49 en 55.
  2. Within the European Union, companies annually spent 193 billion euros on R&D; 37.3 billion of which is contributed by pharmaceutical companies. European Commission, EU R&D Scorecard 2016, page 62.
  3. De New York University has assessed the ‘beta’ for each sector. The beta is the risk of investment in comparison to the market as a whole. The whole list can be found on pages.stern.nyu.edu/~adamodar/pc/datasets/betaEurope.xls
  4. Deloitte, A new future for R&D? Measuring the return from pharmaceutical innovation 2017, page 4.
  5. JA Dimasi et al. Innovation in the pharmaceutical industry: new estimates of R&D costs. J Health Econ 2016, 47: 20-33.
  6. Frank Lichtenberg. Pharmaceutical innovation and longevity growth in 30 developing and high-income countries, 2000-2009. Health Policy Technol. 2014;3: 36–58.
  7. PwC, Economische Footprint Nederlandse Geneesmiddelensector, 30 May 2017, page 7.
  8. PwC, Economische Footprint Nederlandse Geneesmiddelensector, 30 May 2017, page 15.
  9. EFPIA, EFPIA response to Draft Opinion on Innovative payment models for high-cost innovative medicines, 7 december 2017, page 9.
  10. EMA, Orphan Medicines Figures 2000-2017, page 10: http://www.ema.europa.eu/docs/en_GB/document_library/Other/2015/04/WC500185766.pdf.
  11. European Commission, State of Paediatric Medicines in the EU, October 2017, page 24: https://ec.europa.eu/health/sites/health/files/files/paediatrics/docs/2017_childrensmedicines_report_en.pdf
  12. PwC, Economische Footprint Nederlandse Geneesmiddelensector, 30 May 2017, page 16.
  13. European Patent Office en European Union Intellectual Property Office, Intellectual property rights intensive industries and economic performance in the European Union, October 2017, page 6.