Compulsory licensing threatens pharmaceutical innovation
On Monday, India’s Controller General of Patents authorized Natco Pharma, an Indian company, to produce and sell a generic copy of Bayer’s patented cancer drug Nexavar. This decision is the first compulsory license of a patented drug issued in India and is certain to have wider implications for the pharmaceutical industry and developing countries. The tension between economic policy and health policy is a longstanding dilemma, but one that was brought to the fore with the World Trade Organization’s (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement in 1994. In response to sustained and significant pressure from civil society groups, the members of the World Trade Organization agreed to the Declaration on the TRIPS Agreement and Public Health (the Doha Declaration) in 2001 which clarified that countries unable to manufacture the needed pharmaceuticals could obtain more affordable generics elsewhere if necessary. The Indian decision noted that Bayer charged a price for Nexavar that was unaffordable to most of the nation.
Generic drug manufactures and advocates for cheaper generic medicines happily embraced the decision asserting that it would grant more patients access to the drug. While this is undoubtedly true, their focus is dangerously short-sighted. In presenting their case, Bayer argued that the determination of a ‘reasonably affordable price’ should reflect development costs not solely the purchasing power of the Indian population. It is these research and development costs that are at the heart of this issue. The pharmaceutical industry has long argued that intellectual property protection is essential for innovation. New medical therapies are incentivized by their prospective profit. Pharmaceutical innovation is an expensive, risky, uncertain process, yet firms invest because of the potential return. Future medical breakthroughs depend on incentivizing innovation.
In the longer term compulsory licensing programs threaten the cycle of innovation. Without secure ownership of their intellectual property and the ability to appropriate the returns to innovation, the incentives to invest in pharmaceutical research are diminished. While the promise has yet to be realized, it was hoped that the TRIPS Agreement would eventually incentivize research on neglected diseases. The recent Indian decision seems to be a step backward.
Ultimately, pharmaceutical companies may remove neglected diseases from their research agendas. They may choose instead to focus only on drugs for developed world patients, thereby leaving the residents of less developed countries without treatment alternatives at any price. Realistically, this is exactly what is currently happening. Nevertheless, creating additional obstacles to attracting research attention to neglected diseases cannot benefit developing countries and should be avoided whenever possible. For better or worse, this is the only paradigm that has consistently discovered, researched, and developed new medicines. Patients in all nations, industrialized and developing, who are hoping for and depending on therapeutic advances and next-generation drugs will certainly be worse off without continued innovation.