 Policy Debate: Should there be a shorter period of patent protection for prescription drugs?
Issues and Background
The overwhelming evidence from around the globe supports the thesis that the protection of private property is
central to improving economic performance. This protection must extend to intellectual property and patents on
drugs. Attenuation of patents therefore goes further than simply making developing country disease an
unattractive avenue for pharmaceutical research and development; it undermines economic growth and human
health.
~Roger Bate and Richard Tren
The inefficiency stemming from the patent is both large and indisputable. The most basic principle in
economic theory is that goods should sell at their marginal cost of production (including a normal profit).
In the case of patented drugs, prescriptions that are produced for as little as $1-2 each can sell for
hundreds of dollars as a result of patent protection. The rationale for this gap is that the firm has to be
able to recover its research costs, which are often quite significant.
~Dean Baker
Concerns over bio-terrorism during the Fall of 2001 raised questions in the U.S. and Canada
about the length of patent protection for Cipro, the only medication approved by the
Food and Drug Administration (FDA) for the treatment of inhalation anthrax. While there were
many advocates in both countries for the elimination of this patent protection, both countries decided
to maintain the patent (partially because low-cost generic alternatives such as penicillin
were known to provide alternative effective treatment for this illness). The high cost of effective medications for malaria and AIDS have also lead to
calls for a relaxation of patent protection for these medications in low-income African countries.
Under current patent law, the patent holder for a pharmaceutical product has the exclusive
right to supply the product for 20 years from the granting of the patent. One problem with this,
from the perspective of the pharmaceutical companies, is that the 20-year period begins with
the granting of the patent, not with FDA approval of the drug. As the time required for drug
approvals lengthened substantially due to requirements for more elaborate clinical trials, the period of market exclusivity provided by
the patent declined. The Hatch-Waxman Act of 1984 provided an extension to the patent period
equal to one-half of the time from the beginning of clinical trials to the end of the drug
approval process. This extension can last for at most five years and the total period of market
exclusivity cannot exceed 14 years. To receive this extension, a pharmaceutical company must
display "due diligence" in the approval process.
Since patent protection provides the company holding the patent with some degree of monopoly
power, the price is higher and the level of use is lower than it would be in a competitive
market. Patents exist, however, because there would be no incentive for firms to engage in
research and development of new drugs if patent protection did not help to ensure a return
that is large enough to make this risky venture profitable.
A difficult tradeoff faces society in determining the length of patent protection for
prescription drugs. A shorter
period of patent protection results in lower prices and higher levels of use for
medications that improve the quality of life (and often help to extend lifespans). A reduction
in the length of patent protection, however, would also be expected to result in the development
of fewer medications. An increase in the length of patent protection would increase the incentives
for research and development, but would make medications more difficult for patients to afford.
Once the patent for a prescription drug expires, other companies may submit generic equivalents
to the FDA for approval. When a generic equivalent to a particular medication is approved, it
receives 180 days of market exclusivity before any other generic equivalents to this medication
are allowed to enter the market. The purpose of this 180-day market exclusivity period is to
provide a return on the cost of the drug approval process.
Patent protection is not always a sure means of maintaining a monopoly during the life of the patent. Once a new drug
appears on the market, other drug companies are often able to engage in a reverse engineering
process that allows them to develop products with similar therapeutic benefits that are sufficiently
different chemically to not violate the original patent. It is quite common for the development of
a new product to result in the release of several other similar products within a few years. This
results in a significant reduction in the return that will be received by the original developer.
Prescription drug prices have been increasing more rapidly than the overall increase in medical
costs. As the population ages, the share of GDP devoted to pharmaceutical products is likely to
continue to expand. It is quite likely that drug company patents and profits will continue to
be an issue of concern for the next several decades.
Primary Resources and Data
- Food and Drug Administration
http://www.fda.gov/
The Food and Drug Administration (FDA) is the U.S. federal government agency charged with
approving the use of prescription drugs for specific applications. The FDA website contains
an extensive collection of information about new drug treatments, research studies, and other
related issues.
- Center for Drug Evaluation and Research
http://www.fda.gov/cder/
The Center for Drug Evaluation and Research is the part of the FDA that deals with
prescription drug approvals. This website contains information about specific drug approvals,
research studies, and a useful description of the drug approval process.
- United States Patent and Trademark Office
http://www.uspto.gov/
The U.S. Patent and Trademark Office website provides extensive information on the patent
process in the U.S.
- Canadian Drug Manufacturers Association, "Brand Name Drugs vs. Generic Drugs: What’s the Difference?"
http://www.cdma-acfpp.org/en/resource/if_brandvsgeneric.shtml
This online document, provided by the Canadian Drug Manufacturers Association, contains
information on the relationship between generic and brand-name drugs. It is noted that generic
drugs are used to fill over 40% of all Canadian prescriptions. (This document is in Microsoft
Word format and may be read only if Word or an appropriate viewer program is installed on your
computer.)
- Gerald J. Mossinghoff, "Overview of the Hatch-Waxman Act and its Impact on the Drug Development Process"
http://www.fdli.org/pubs/Journal%20Online/54_2/art2.pdf
Gerald J. Mossinghoff, in this 1999 article appearing in the Food and Drug Law Journal, provides
a detailed history and a discussion of the key provisions of the Hatch-Waxman Act. This Act provides
for an extension of the length of patent protection to compensate for time spent during clinical
trials and the new drug approval process. (The Adobe Acrobat viewer plugin is required to view this document. You may download
this viewer by clicking here.)
- Prescription Drug Pricing Pathfinder, "Statutory Protection"
http://www.law.berkeley.edu/library/classes/alr/pathfinerexample2/StatutoryProtect.html
This webpage provides a useful overview and history of the patent law affecting prescription drugs.
Different Perspectives in the Debate
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