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Drug Patents and the Third World

The discussion of pricing for medicines has been both vigorous and contentious over the last few years. Although much of the focus has been on pricing here in America, particularly for senior citizens who account for a large proportion of the prescription drugs we consume, there is also a growing and legitimate concern over the availability — and pricing, which amounts to the same thing — of life-saving medicines in the developing world. From AIDS to Asthma, from Tuberculosis to Malaria, medicines that could save millions of lives throughout the poorest parts of Africa and Asia are priced above the means of those who most need them.

Recently, advocates for the developing world have begun to demand that drug companies license their patents for no or minimal charge to manufacturers in places like India, which could then make generic equivalents for distribution to the poorest of the poor. Nicholas Kristof of The New York Times wrote a piece advocating an even more basic (and perhaps drastic) solution — that, as a matter of policy, we simply stop enforcing those patent protections entirely within the developing world. His point was that the loss to drug companies within those markets would be minimal — they don’t sell much there anyway — and, as long as we were rigorous about protecting their intellectual property in their large primary markets, such a compromise would be workable.

I think he’s correct — and his solution is just — but I doubt our political will to remain so rigorous. I directed this letter to him for his consideration in case he ever addressed the topic again. So far I have not seen him do so.

For the record, in the interest of full disclosure, I design medical equipment for a living and so have a peripheral interest — to the extent that drug and device companies fail or flourish together — in a healthy environment for drug discovery and marketing. But I actually consider my status as a potential consumer of medical products, concerned about the continued and robust pipeline for medical innovation, a far more compelling interest than my professional one.

18 December 2003

I was interested in your suggestion that patent protections for drugs only be enforced in the large markets, not in the marginal ones. It certainly has economic and moral merit — minimum cost for maximum benefit both for those who hold the intellectual property and for global society as a whole.

But I wonder what you make of the current push to allow Americans to buy drugs from Canada because they are cheaper. The low cost of drugs in Canada is largely a result of the same kind of economic analysis you cited: it is a relatively small market, a marginal and extra revenue stream from the main markets in Europe and particularly in America, so the drug companies can afford to negotiate lower prices there.

If we allow patent violations for the marketing in “poor” countries of generic equivalents to patented drugs, what prevents health care advocates in America from using the resulting availability of generics (and the resulting low prices) in foreign markets as a moral club, either to force the importation of the generics from those countries for sale in our market or to force the imposition of price controls within the American market to make American and foreign pricing comparable. It is happening now — with much sympathy — with drugs from Canada; it would inevitably happen with generics from other countries if we took that route. I suspect the drug companies would not enforce their patent rights so diligently and so vigorously in the third world if they weren’t looking over the horizon at that kind of first-world result coming at them.

It has been my contention all along that, if the “import from Canada” bandwagon actually results in any significant importation of drugs from Canada, the net result will not be lower prices for Americans but higher prices for Canadians, as the drug companies become more and more unwilling to settle for lower negotiated prices in Canada that threaten their domestic profits. If the marginal Canadian market and the primary American market merge due to drug mobility, it will be the Canadian market that is transformed, not the American one. I suspect the same would apply to the third world.

If we want to make drugs affordable in the third world, we must find a way to rein in the health care advocates who would use that as a moral platform to transform the American and European markets. Protected from such a threat, the drug companies would, I’m guessing, cooperate. But as long as Americans agitate to be treated — at least for purposes of pricing — the same as their peers in the marginal markets, the drug companies will do all they can to protect their domestic profits — which, ultimately, protects the pipeline that benefits both the first and third worlds.

© Copyright 2003, 2005, Augustus P. Lowell

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