[A2k] Do Patents Kill Innovation?

Pranesh Prakash pranesh at cis-india.org
Wed Aug 13 22:08:30 PDT 2014


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#  [Random Thoughts: On R&D, Innovation, IP and
IT](http://innovip.blogspot.in/)

Zakir Thomas' Blog

Wednesday, August 13, 2014

#  The Limits of the Patent System

## Do Patents Kill Innovation? ##

Do patents kill innovation? Evidence is piling up that they do. This
time the
evidence is from the pharmaceutical industry itself. The strongest
case for
patent has been made out in the pharmaceutical industry. Since
pharmaceutical
research is inherently risky and requires substantial investment, it
is argued
that the sector requires a strong patent protection.

It is in cancer drug discovery that evidence has come out that patents
destroy
R&D. A [paper](http://economics.mit.edu/files/8651), "Do fixed patent
terms
distort innovation? Evidence from cancer clinical trials" by Eric
Budish of
University of Chicago, Benjamin N. Roin of Harvard Law School and Heidi
Williams of MIT demonstrates, through empirical study, how patent system
distorts R&D for cancer therapy. The paper finds that patents generate
distorted R&D incentives, in the case of cancer. Cancer research,
particularly
for early stage cancer, which is curable, requires long clinical trials.
Therefore industry prefers to invest in R&D for metastatic cancers, which
requires less duration trials, but the therapy may prolong the life by
only a
few months. This is of significant concern from a medical
perspective.

Surprisingly, the authors note that there has been no empirical study on
patent protection and innovation.

Although theoretical models often assume a relationship between the
strength
of patent protection and the level of innovation, there is a
remarkable dearth
of empirical evidence on this link. For example,
[Lerner](http://www.nber.org/papers/w8977) (2002) and [Sakakibara and
Branstetter](http://www.nber.org/papers/w7066) (2001) find little evidence
that stronger intellectual property rights induce more innovation.

Patent exclusivity is for a limited period of 20 years. There is usually a
considerable gap between the filing of patent of the invention and the
ultimate commercialisation. This may be referred to as a commercialisation
lag. Normally for a drug the commercialisation lag is estimated to be
about
10-12 years. Firms have to recoup their research investment and the profit
during the patent period.

Cancer has a paradox from a patent perspective. The survival has to be
measured over long periods of time. To explain, let us understand the two
types of cancer. When it starts cancer is mostly localized (the
primary site).
At this stage it could be curable in many cases. At an advanced stage, the
cancer spreads to other parts of the body. Metastatic cancer is a
cancer that
has spread from the primary site, where it started, to other parts of the
body.

The authors cite the example of two studies reported in New England
Journal of
Medicine in 2011. A first study, de Bono et al. (2011), analyzed a
treatment
for

metastatic prostate cancer (an advanced stage of prostate cancer with
a five-
year survival rate of the order of 20 percent). The study tracked patient
survival for a median time of 12.8 months, and estimated statistically
significant improvements in survival (a gain of 3.9 months of life on
average). A second study, Jones et al. (2011), analyzed a treatment for
localized prostate cancer (an early stage of prostate cancer with a
five-year
survival rate of the order of 80 percent. The study tracked patient
survival
for a median time of 9.1 years, estimating statistically significant
improvements in survival. Both the above cases have different patient
follow-
up times and this translates into a large difference in clinical trial
length:
3 years for the metastatic cancer patient trial versus 18 years for the
localized patient trial.

A private for profit firm will not carry out a trial for 18 years and
bring a
drug to the market when patent term itself is 20 years. As may be
expected,
the authors found that a private firm funded the study of the metastatic
cancer patients with the shorter duration trial whereas the National
Cancer
Institute funded the study of localized cancer patients requiring long
duration.

To find a real cure for a primary cancer, R&D is required over long
periods of
time. To demonstrate that cancer is cured, you need longer clinical trials
with long commercialisation lag. The 'for profit' firms have very little
incentive to do this. Therefore they focus on metastatic cancers that
require
only shorter clinical trials, where cures would amount to prolonging
the life
by few months.

Authors of the paper analysed the data from a clinical trial registry
that has
cataloged cancer clinical trials since the 1970s. They found the
correlation
that privately financed trials favoured shorter survival terms. The
authors
found that R&D investments on cancer treatments are strongly negatively
correlated with expected survival time. They observed lower levels of R&D
investment on inventions that required longer commercialization lags. This
coupled with corporate [short
termism](https://faculty.fuqua.duke.edu/~qc2/BA532/1989%20QJE%20Stein.pdf)
poses significant challenge to cancer research.

They also found that all six FDA-approved cancer prevention drugs
(that are
under-incentivized by the patent system), either relied on the use of
surrogate endpoints for shorter trials or were approved on the basis of
publicly financed clinical trials.

The authors point out that in the pharmaceutical industry, "drugs treating
patients with short life expectancies can move through the clinical trials
more quickly -and thus receive longer effective patent terms - than drugs
treating patients with long life expectancies". They provide several
evidences
showing patents distorting cancer R&D away from drugs targeting
early-stage
cancer patients or cancer prevention to late stage management.

In essence, the innovation that happens is not what is medically
mandated, but
driven by the industry's ability to extract maximum during the patent
term.


## Another area where Patents are ineffective: Neglected and Orphan
Diseases ##

Patents are a market driven tool. It works where there is a market
from where
it enables recouping of investments. Where market is absent, patents
do not
generate innovations.

Take the case of orphan diseases and neglected diseases. Remember, the
United
States is the largest pharmaceutical market of the world. Even there,
if you
have a disease which does not command a huge market which interests
pharmaceutical companies, you don't have innovation. The [Orphan Drugs
Act](ht
tp://www.fda.gov/regulatoryinformation/legislation/federalfooddrugandcosmetica
ctfdcact/significantamendmentstothefdcact/orphandrugact/default.htm) of US
characterizes orphan diseases as those diseases that affect small
numbers of
individuals residing in the United States that the diseases and
conditions are
considered rare in the United States. It goes on to state that:

	* because so few individuals are affected by any one rare disease or
condition, a pharmaceutical company which develops an orphan drug may
reasonably expect the drug to generate relatively small sales in
comparison to the cost of developing the drug and consequently to
incur a financial loss;

	* there is reason to believe that some promising orphan drugs will
not be developed unless changes are made in the applicable Federal
laws to reduce the costs of developing such drugs and to provide
financial incentives to develop such drugs; and

	* it is in the public interest to provide such changes and incentives
for the development of orphan drugs.

This enactment recognizes the limits of the patent system and
therefore a policy instrument other than patents have been used to
spur innovation.

Compared to the small number of patients affected by Orphan diseases,
neglected diseases affect a large number of individuals. Neglected
Disease are
mostly tropical infectious diseases affecting a large number of
people. They
earn this sobriquet as pharmaceutical companies generally neglect R&D
in them.
Take the case of Tuberculosis (TB). TB is second only to HIV as the
leading
infectious disease mortality, worldwide. 1.5 million people died of TB
in 2012
alone. Someone dies of TB every 25 seconds somewhere in the world. Yet the
current drugs in use for TB hail from the 1950's and 1960's. The
therapy is
lengthy and toxic. No new drugs that shorten the regimen have been
introduced
despite the enormous progress made by pharmaceutical industry during this
time; that is the story of innovation for neglected diseases. TB is only
illustrative. Malaria, dengue fever, dracunculiasis, leishmaniasis,
lymphatic
filariasis, onchocerciasis, schistosomiasis, soil transmitted
helminthiasis,
trachoma and trypanosomiasis, so the list goes on, all affecting the
poor in
the tropical regions. These diseases may be affecting different parts
of the
world. But they have one thing in common - no innovation.

It is in this sector that the 90-10 gap was noticed by the Commission on
Health Research for Development which published the report [Health
Research:
Essential Link to Equity in
Development](http://www.cohred.org/sites/default/files/ComReports_0.pdf).
90%
of the innovation in healthcare relates to the diseases of a mere 10%
of the
population of the world. Pharmaceutical companies who make substantial
profits
from global sale of drugs prefer innovation in lifestyle diseases to
that of
neglected diseases.

Patents as a public policy tool has completely failed to drive
innovation in
neglected diseases.


## Limits of the Patent System ##

All these point to the limits of patent as an instrument of public
policy to
drive innovation. It does not induce innovation in cancer nor does it in
neglected or orphan diseases. Patent induced innovation works only in
a narrow
space where all other propitious conditions are present. Beyond this
narrow
market driven space, say cancer or neglected diseases, it simply fails to
drive innovation.

Patents have been characterized by many as the 'be all' and 'end all' of
innovation. There are many who argue and even believe that patents are the
sine qua non of innovation. Provide the strictest of patent laws
innovation
will follow, so goes the argument. This argument has been adopted,
post TRIPS,
by most policymakers as a given.

But the reality is different. It is only one of the components of a
complex
ecosystem that makes up the innovation ecosystem. We have a tendency
to assume
many more functions for patents.

Patents perform a limited function. Patent system is a market based
mechanism
for capital accumulation. It acts as an instrument to grant a limited
exclusivity to the innovator for a limited period. It does not fix
other gaps
in the innovation ecosystem and its presence on its own does not spur
innovation. On its own it does not attract either innovation or
technology or
investment. A counterfactual proves this assertion. If it was indeed
the case,
some of the sub Saharan African nations who have the strongest of the
patent
laws should have been the most innovative as well. In any case, post
TRIPS we
have more or less uniform patent laws around the world but that has
not spread
innovation or investment across the world.

Public policy making is not always evidence based. That is the
tragedy. It is
most of the time based on beliefs. And the predominant beliefs of the age
always find its place in the policies, without much evidence to
support such
beliefs, whether good or bad. Sometimes evidence emerges to the
contrary but
they are ignored if it is against the current belief.

Corporate short termism and limits of patent puts a limit on
humanities quest
to find cures for many diseases. There has to be other public policy
instruments that would drive and support innovation in cases where patent
system does not work, or worse, provide perverse innovation as in the
case of
cancer.

## Call for Reform ##

Do patents kill innovation? Even the conservative journal like The
[Economist](http://www.economist.com/blogs/freeexchange/2014/08/innovation)
thinks so. The Economist has recognized the limitations of the patent
system
and has called for reform. This is what the [Economist
says](http://www.economist.com/blogs/freeexchange/2014/08/innovation):

A one-size-fits-all patent system does not cater to the specifics of
innovation in the pharmaceutical industry. But tailoring patent law may
encourage lobbying and corruption. A careful&nbsp_place_holder;[reform
of the
patent system is
necessary](http://www.economist.com/news/business/21591206
- -congress-takes-aim-patent-abusers-trolls-hill): outright abolition of
patents
will not be enough to save cancer patients' lives.

In 2014, we are moving to 20 years of TRIPS. If many in the developing
world
ask, "what have we gained", there is very little to answer to them in
terms of
better medicines for their diseases. If we accept that all lives have
equal
value,&nbsp_place_holder; it is time for policy makers to take a
comprehensive
look at innovation in the pharmaceutical sector and abhor the myopic
view that
patent cures all.

- -- 
Pranesh Prakash
Policy Director, Centre for Internet and Society
T: +91 80 40926283 | W: http://cis-india.org
- -------------------
Access to Knowledge Fellow, Information Society Project, Yale Law School
M: +1 520 314 7147 | W: http://yaleisp.org
PGP ID: 0x1D5C5F07 | Twitter: https://twitter.com/pranesh_prakash
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