IPR, &

Innovation
SREENATH NAMBOODIRI
What spurs Contestability Synergies

innovation?
• The prospect of • Combining
gaining or protecting complementary
profitable sales by assets enhances
providing greater innovation
value to customers capabilities and thus
Carl Shapiro Hypothesis - The spurs innovation. spurs innovation.
Contestability and Appropriability
principles relate to the incentive to
innovate. The Synergies principle
relates to the ability to innovate. Appropriability

• Increased appropriability
Carl Shapiro, “Competition and Innovation: Did Arrow Hit the Bull’s
Eye?” Josh Lerner and Scott Stern, The Rate and Direction of Inventive spurs innovation.
Activity Revisited , University of Chicago Press, March 2012
What do we want from Patent?
Increase Contestability & Appropriability towards
R&D

Increase Synergy by disclosure of Technology & its

benefits
 Patent
How do we
achieve it?
• Not a direct incentive – Like Monopolistic
winning a prize. Market
Conditions
• Indirect incentive – Opportunity to
seek profit - MARKET
DEPENDENCE PROFITS, AND
• No minimum guarantee of profits can be
derived??
PROFITS AND
MORE PROFITS
 Parity in
Tech and
HR –Sunk
Cost

Determinants of
Contestability, C.S.
Appropriability
and Synergy A
Structural Vertical
Barriers Integration
 Patents and its Inherent
Contradictions
• Under Protection • Inherent contradiction • Under protection to
• Indeterminacy of of firm interest and upstream research.
Patent Regime social interest. Secrecy • Winner takes it all –
vs Disclosure deters improvisations
• Need v Demand – and synergy.
Human Cost

Probable Cumulative
Social Cost
Incentive Research
 Probable Incentive
Patents protect only those inventions that satisfy certain prerequisites such as novelty and inventive step,
without regard to the fact that even non-patentable molecules require the infusion of significant
developmental costs.

Example: The Viagra case, where a patent claiming a new use of sildenafil citrate as a cure for erectile dysfunction was
invalidated in the U.K. on the ground of obviousness, while being allowed in US and other common law jurisdictions .

Question of Patent Eligibility.

Patent regime is relatively indeterminate.

◦ In terms of the application of patentability criteria such as the “inventive step” test, a highly subjective enquiry: would the
advancement of the prior art in the manner suggested by the patent applicant have been obvious to a person skilled in the art?
◦ Being a cognitive enquiry, this determination for the distance between the prior art and the claimed invention is a matter of
degree and prone to some amount of subjective assessment -particularly of pharmaceutical and biotechnology inventions.
Example: Escitlopram: UK, Germany, Canada, Australia adjudicated Valid but Dutch held invalid for Obviousness.
 Blockbuster
Patent
Social Cost and Patent
Thicket
Cliff
The Supply Side problem
and the Demand Side
Problem Unhealthy
M&A

Supply Side Problem

Life cycle management –
Evergreening & Patent Thicketing
Primary patents on molecule/basic compound.

Secondary patents on most drugs (when allowed in

national patent systems) can be for new forms, new
uses, polymorphs, salts, different dosages or
combinations of existing drugs etc.

This is known as ‘evergreening’ – common practice

of pharma companies to extend their monopoly by
making small changes to existing medicines or
second use of existing substances
 Patent holding companies use numerous
strategies including creating “patent thickets”
Life cycle around a successful drug (in one case up to 1,300
management – patents were filed EU-wide in relation to a single
Evergreening & medicine)
Patent Thicketing In relation to 219 drugs, the European
European Commission Commission found that:
Pharmaceutical ◦ Nearly 40,000 patents had been granted or patent applications
Sector Inquiry 2009 were still pending.
◦ 84% of the patents granted were classified as
secondary.

The EC also estimated a loss of around 3 billion

Euros due to delays in the entry of generic
products caused by misuse of the patent system.
Patent Thicket:
The Ritonavir
Patent
Landscapte
Original patent filing:
1995
805 patent families

Citation map of Ritonovir - https://www.keionline.org/21711

Ritonavir Study
Study on two key antiretroviral drugs for the management of HIV: ritonavir (Norvir) and
lopinavir/ritonavir (Kaletra).

Findings: identified 108 patents, which together could delay generic competition until at
least 2028—twelve years after the expiration of the patents on the drugs’ base
compounds and thirty-nine years after the first patents on ritonavir were filed .
“If the future looks like the past
(and the patent landscape in
other countries like that in the
U.S.) a conservative estimate is
that eliminating secondary
patents could free up 36% of new
medicines for generic production,
since only 64% of drugs in our
sample had patents with
chemical compound claims.
Additionally, for those drugs that
still come under patent because
a chemical compound claim
exists, exclusions on secondary
patents could limit the duration of
patent protection by 4–5 years”.

Kapczynski A, Park C, Sampat B (2012)

Polymorphs and Prodrugs and Salts (Oh My!): An
Empirical Analysis of ‘‘Secondary’’ Pharmaceutical
Patents. PLoS ONE 7(12)
 Patent Cliff &
Blockbuster Drugs

“The top 10 pharmaceutical manufacturers

combined have more than 46% of their
revenues at risk during that time frame, and
five companies have more than 50% of
their revenues at risk, according to ZS
Associates…. However, drug makers can
sustain the lifespan of a brand through
lifecycle-management strategies, and
biologics typically experience less erosion
from biosimilars than small molecules do
from generics.”

From -
The Next Big Patent Cliff Is Coming, And
Time Is Running Out To Pad The Fall :: Sc
rip (informa.com)
 Merger Spree
In 1987 – combined market share of 8 largest drug companies were at 36% (relatively low position).

By end of 1991 (first wave of mergers) it became 42%. That grew to 53% in 2012 (result of second
wave) and by this from 60 companies what remain are 10.

“Although this marketplace was better for innovation, drug companies were drawn to merging because of the
lure of increased market power, improved synergies, larger economies of scale and more diverse product
portfolios.”

https://www.washingtonpost.com/outlook/2021/04/06/drug-companies-keep-merging-why-thats-bad-
consumers-innovation
“Is this going to have a big effect on our business
model? No, because we did not develop this
product for the Indian market, let’s be honest. We
developed this product for Western patients who
can afford this product, quite honestly. It is an
expensive product, being an oncology product.”
Marjin Dekkers (Bayer, CEO, 2013)

DEMAND SIDE PROBLEM

Lessons on Demand Side Socio–
Economic Cost of Patent
Affordability & Problem of Dead Weight
Loss

Market led research priorities

Rent Seeking Behaviours of Pharma

 Affordability –
The problem of high price
Affordability &
Problem of
Dead Weight
Loss
Generally, the price of an item
under monopoly is higher than it
would be under conditions of
competition. This means that some
people who could afford the item
under conditions of competition are
unable to afford the item when sold
at a higher, monopoly price.
Economists refer to the lost sales as
dead weight loss.

Patent does not give any rent on
its own itself – but it provides an
opportunity to derive rent from
the market by providing a
legitimate monopolistic
conditions to the inventor.
Invention that does not meet the
pleasure of market cannot derive
profit.
To meet the pleasure of market is
to make products in demand.
And demand is not need rather it
is need with buying capacity.
Therefore, health products is
made not to meet health needs but
rather to meet the demands of the
pharmaceutical and health
industry market.
Patents implicitly discourage any
R&D investment towards low-
profit segments like infectious
diseases, antibiotics, tropical
diseases, etc. = Market Failure

Market led research priorities

High Price + Market
led R&D priorities =
Market
Failure
• Ebola epidemic in West
Africa, claimed more than
11,000 lives. No dearth of
basic research - In 2009,
seven Ebola vaccines which
gave promising results when
tested in monkeys But only 1
reached to human trials.
 Cumulative Research
1. Ex-post bargaining problem: discourages downstream innovation when patents are present

2. Coordination problem among downstream potential innovators: discourages innovation when

patents are absent

Trade-off is between greater bargaining failure with upstream patents versus coordination
failure without upstream patents.
The production cost of vaccines,
from the industry’s perspective,
could be from US$ 500 million
to US$ 1 billion, which is
exclusive of the cost for
building manufacturing plants
to make necessary doses. When
compounding the profitability,
vaccines are predominantly
required in the developing and
least developed countries
(except in rare occasions such
as we face today) that have very
low purchasing power, limiting
high profit in single sales.
Public Funding in Pharma R&D
Policy Cures Research’s G-FINDER project has conducted since 2008 an annual survey mapping
global public, private, and philanthropic R&D expenditures for neglected diseases, defined as: “those
predominantly affecting developing countries, for which products are needed but there is an
insufficient commercial incentive to stimulate R&D”.

The last survey conducted in 2017 included R&D investments in 33 diseases from 197 organizations,
amounting to a total of $3.5 billion of which $2.3 billion (65%) came from the public sector, $692m
(19%) from philanthropic funders and $554m (16%) from the private sector.
 Let’s look at
the case of
COVID19
vaccine.
Pfizer, BioNTech and Moderna will
make pre-tax profits of $34 billion this
year between them, which works out as
over a thousand dollars a second,
$65,000 a minute or $93.5 million a
day.

The monopolies these companies hold

have produced five new billionaires
during the pandemic, with a combined
net wealth of $35.1 billion.
Cross S, Rho Y, Reddy H, et al. Who funded the research behind the Oxford–AstraZeneca COVID-19 vaccine?
https://www.vox.com/2015/2/11/8018691/big-pharma-research-advertising
World’s most
expensive drug
Zolgensma was licensed-out to
AveXis by France’s Genethon, a
non-profit lab funded mostly through
tax-deductible donations and the
French National Research Institute
INSERM.

•US$15mio (licensing deal from

Genethon to AveXis)

•US$8.7bio (buyout by Novartis)

•US$2mio (cost of one injection in

the US and France)
Thank You
 AIDS medicines crisis on the wake
of WTO, and with it the TRIPS
◦ TRIPS set out global standards for the protection of IP. - Created
People who had access to
mandatory product patent in all fields of technology for 20 years. - ART drugs in 2000
◦ many developing countries did not grant pharmaceutical product patents and/or they limited
patent terms, which allowed a generic pharma to flourish.
◦ 1996, medical breakthroughs ushered in highly active antiretroviral
therapy (HAART) – from death sentence to manageable life.
◦ BUT life-saving medicines were purchasable only from originator
companies - produced them in small quantities - price tags of US$
10,000 to US$ 15,000 per person per year. Medicines were
controlled by the patents to maintain their monopoly.
 24,500,000 &
8000/day

That’s how many people died by 2000, at last

when world took notice of the crisis.

Generic manufacturers offered help – but

PATENTS!! Importing medicine from India
into a country where those medicines were
patented proved to be a problem.

In 1998, 39 pharmaceutical companies along

with the Pharmaceutical Manufacturers
Association of South Africa sued the South
African government over its medicines act,
which included provisions to increase access to
lower-priced medicines. Why? The act was not
in accordance with the TRIPS agreement. By
then, nearly a fifth of the South African
Rent Seeking Behaviours

Blockbuster Drugs & Patent Cliff

Merger Spree
HIV Pandemic