Pharmaceutical patents around the World and possible consequences

A patent is a property right to a product and in the case of pharmaceutical companies is

usually in the form of a chemical formula that may not be duplicated by any rival company.
The life of a patent is 20 years from the time the patent is issued. (Lehman, 2003) This gives
the company ample time to profit from its invention.

Patents are enforced by the National Patent Offices, World Trade Organization (WTO) and
evaluated by the World Intellectual Property Organization (WIPO). These organizations
provide the patent protection to those seeking the protection by giving judicial enforcement
of the intellectual property rights. This means that a company could sue a rival if it felt its
patent was being violated and have official documents at the National Patent Offices to
substantiate its claim to a product.

Pharmaceutical companies have the ability to develop new drugs that can prolong life and
provide cures to diseases that affect people worldwide. Patents are especially important to
these drug companies because they can guarantee profit and make all the time and cost put
into developing their new drug worthwhile. A patent is an economic catalyst to these
pharmaceutical companies who push to research new and beneficial drugs on the premise that
they will be able to reap rewards by way of profits. The patent system allows drug companies
to profit from patents by prohibiting any other company from marketing and selling an
identical prescription drug. This system seems to be the best way to provide drug companies
with the reward of potential profit for the research and development spending that in
necessary to develop new and innovative prescription drugs.

Patent protection for pharmaceutical products represents an economic tradeoff. Economic

theory suggests that providing firms with monopoly rights via patents will result in price
increases and an inefficiently low number of pharmaceuticals sold today. Patents allow the
pharmaceutical companies to set prices at a high level, because they have somewhat of a
monopoly on their product and do not have the competitive economic forces present that
normally are able to bring down price. Patent protection allows for a monopoly on the
formula that has been researched and developed by the pharmaceutical company. This is true
in that patents provide the company to sell its product without fear of a rival selling an exact
copy, but it is also true that the possibility of a rival producing a similar product will not
infringe on the patent protection of the company and still be able to take away some of the
company’s profits. The best example of this occurrence is with Pfizer’s Lipitor. After
Mevacor broke the market and its improved predecessor Zocor continued to dominate, there
was a rush to develop an even better anti-cholesterol drug that would take away from some of
Merck’s profits. Pfizer managed to accomplish this task with its introduction of Lipitor in
1996. Lipitor’s sales took over Zocor for first place in the increasingly competitive anti-
cholesterol prescription drug market. This must mean that patents do not stiffly competition.
In fact, they many even encourage it. It also illustrates that once a patent has been granted the
company does have a monopoly on their product but may not be able to dominate the
industry or even sector of the industry, as was the case with Merck’s Zocor. So, patents may
not create a true monopoly since multiple products with patents that are different can be
created to serve the same market.

The pharmaceutical industry in the U.S. is effective and turning out new and beneficial drugs
each year. 2001 saw 402 new cancer medicines, 123 new treatments for heart disease and
stroke, 83 new AIDS drugs and 176 new drugs for neurological diseases. These new
pharmaceuticals are the result of patent incentive with companies expecting to have a return
in their investment on the research and development of these new drugs. The U.S. is the
world leader in pharmaceutical profits and research for the development of new
pharmaceuticals. Without the innovation of the pharmaceutical companies of the U.S. then,
most of the new drugs on the market wouldn’t even exist. This must mean that the system for
granting patents that generate profits for companies who do the research to get the drugs on
the market in the first place is the best way to promote the creation of new drugs. For
example, Bristol-Myers Squibb spends over a billion dollars for research each year. Overall,
drug companies spend more than $10 billion dollars every year on research. This spending
has grown considerably in the past few decades as well, with research and development
spending at only $1.5 billion in 1980. All this spending must payoff for the pharmaceutical
companies, or they will not be making such huge investments in researching new drugs.

For developed countries, it has often been pointed out that suppressing pharmaceutical
patents would entail long-term, dynamic losses in terms of new medicines, which would be
less than compensated by the downward pressure on drug prices. Hence, despite having been
initially very reluctant, most industrialized countries, such as the United Kingdom, France,
Germany, Italy and Sweden, Japan have introduced patent protection for pharmaceutical
innovations. If patents were to impose comparably high prices in developing countries, the
cost in terms of access to treatments would be huge, since most patients could not afford such
medical expenses, partly because of low individual incomes, partly because of the absence of
any health care insurance system. For example, if all AIDS patients in Sub-Saharan Africa
were to be treated through a combined therapy (using Crixivan™, AZT and 3TC) priced on
the American standard, the resulting health expenses would by far exceed the total Gross
Domestic Product (GDP) of these countries. These developing Countries built ambitious
generic programs to provide treatments to their patients seem to fare much better than
countries that bowed to the demands of patent protection from pharmaceutical firms and the
United States. To balance these static deadweight losses, stronger patents in developing
economies should entail dynamic gains in the form of higher investments in research against
AIDS.

The patent system exists to protect the intellectual property of innovators. However, some
brand-name drug companies attempt to patent features of drugs that do not represent true
innovation. Some attempt to bury competition from generic and biosimilar drugs indefinitely
by finding ways to repackage existing inventions in later patents. These “patent thickets” chill
competition by discouraging competitors from entering a market because of the exorbitant
cost of litigating meritless patents.

Once a patent has expired, generic drug companies are free to market and sell the previously
patented prescription drug. The expiration of patents allows the marketing of generics and
reduction in the overall expenditures on pharmaceuticals by all those seeking them.
pharmaceutical companies simply try to move consumers on to a new, sometimes more
effective, version of their drug that lost its patent protection. An example of this happening is
with AstraZeneca’s Nexium. Nexium, known as “the new purple pill,” is AstraZeneca’s
replacement for Prilosec and both are heart burn medications. In Prilosec, AstraZeneca had
the best-selling drug on the market in 2000, approximately $6.2 billion in sales. Prilosec’s
patent expired in 2001 though, and AstraZeneca would be faced with generic competition for
its multibillion-dollar drug, leading to the potential of major profit loss.

During the time a prescription drug company has a patented product, it has a monopoly on
the benefits the prescription drug offers to consumers. When a company has a monopoly on
its product it is free from market competition and can therefore charge whatever price the
market will pay. This price is usually the most profitable price as few companies will choose
do charge less on the basis that they want to help people who need their medicines for a
better, healthier life. This is somewhat of a downside to the patent system in that those who
are receiving the newly marketed drugs are only those who can afford them. There is a
conflict between companies who have rights to make profits on innovative new drugs and
those who wish to direct companies to innovate new pharmaceuticals for developing
countries. The number of new medicines developed over the last 25 years is approximately
1.400. Only 1% of these new medicines have been for tropical diseases, such as new malaria
drugs, that kill thousands of people every year. Developing world’s diseases do not represent
a profitable venture for pharmaceutical companies and that is why innovative drugs for the
people of the developing world are not being developed.