"The Pharmaceutical Industry is Both the Architect and a Victim of the Problems of the Current System of Innovation"

Xavier Seuba is a senior researcher and lecturer in the Centre for International Intellectual Property Studies at the University of Strasbourg and a lecturer in the Department of International Law at the Universitat Pompeu Fabra in Barcelona. We took advantage of his recent visit to Barcelona to talk to him about the current model of pharmaceutical innovation.

The current model of pharmaceutical innovation is a patent-based system, but the arguments in support of such a system appear to be more closely related to economics than health needs.

There are two fundamental problems with this: the lack of transparency surrounding this information and the lack of real information about what it costs to develop a drug.

Yes, the current model is to a large extent based on patents, which are the legal instruments that provide the financial stimulus for innovation. Patents are useful if a market exists that is large enough to attract the investment needed to fund the development of a drug. The problem arises when a disease is of little interest to business interests. For example the current system does not stimulate research into neglected diseases since the only market is in a poor country or into orphan diseases for which the potential market is very small. Those disease are irrelevant in a model of innovation based on market incentives.

If that is the case, what tools do poor countries have to gain equitable access to the drugs they need?

There are whole range of possibilities applicable in very different areas. For instance, measures aimed at managing the economic burden of a drug, such as mechanisms for price control or funding, which depend on the negotiating power of the health agency making the purchase. We also have measures relating to the management of intellectual property, including criteria for patentability (setting more or less demanding standards for granting patents), the definition of exceptions, parallel imports, and compulsory licensing. And finally, we have mechanisms that are complementary—some people would say alternative—to the intellectual property model. To cite just a few examples: prizes for innovation, advance purchase commitments, and priority review vouchers.

With the latest generation of drugs, we are seeing that access is no longer just a problem in low-income countries: the case of hepatitis C, for example. How can we tackle this problem?

There are numerous mechanisms for managing the market that could work much better than they do. For instance, the price of a drug is fixed on the basis of information concerning the investment involved in its development, which the manufacturer submits to the health authorities. But there are two fundamental problems with this: the lack of transparency surrounding this information and the lack of real information about what it costs to develop a drug. Studies have been carried out, but in most cases they lacked adequate guarantees of independence, and the methodologies used have been widely criticized. This lack of knowledge severely limits the ability of the authorities to set an appropriate price.

I honestly don't think that anyone has seriously proposed replacing a system that functions on the basis of both public and private resources with a model based on public resources alone.

Another option would be to put in place a much more competitive system for managing intellectual property rights, starting with changing the idea that the possession of a patent is something inherently positive. Really, having a patent does not mean a great deal. In fact, the vast majority of patents are never used, and many of those that are used correspond to innovations of little therapeutic interest. We could start by ensuring that patents are only granted for real innovations and when that goal has been achieved, we could continue by not treating them as something absolute and immutable. The patent holder would enjoy a series of benefits in return for the investment made, but this would not prevent the authorities from using the tools at their disposal to ensure much more competitive management of the drug. Mechanisms exist that would allow them to promote competition, such as the granting of licenses on reasonable terms and the possibility of parallel imports.

How can we bring about changes in the system that will make drugs accessible to everyone who needs them?

There are many ways to do this, some of which are very important even though they attract little attention in public debates: for instance, the rational use of the drug and the appropriate choice of therapy, both in terms of use and of funding. With respect to prices, achieving greater transparency about the real cost of innovation would clearly benefit the end user.

Some experts talk about decoupling the cost of research and development from the end price of the product. Would that be enough?

In my opinion, that is a political slogan rather than a demand, and it is usually accompanied by rather more down-to-earth proposals. People who call for the decoupling of the cost of innovation from the price of drugs often go on to mention many of the possible mechanisms we have discussed here. To date, though, except for the use of public funds, whether to fund the innovation or to pay for the drug, I haven't heard anyone propose measures that would allow us to achieve that goal. At the end of the day, someone has to cover the cost of the financial investment involved, whether the money comes from the price paid for the drug or from taxes. I honestly don't think that anyone has seriously proposed replacing a system that functions on the basis of both public and private resources with a model based on public resources alone.

Are there any signs from within the industry of anyone questioning this single model?

The industry is the first to be affected by these debates because patent wars also affect the pharmaceutical companies themselves. Patent inflation is a major problem in intellectual property rights. Some drugs are covered by several hundred patents, some of which were granted later than others and contribute to indefinitely postponing competition. Another problem is the substitution of one drug for another: two or three years before a patent expires the company replaces the drug with another one in which no major changes have been made but for which a newer patent guarantees many more years of protection. These practices shouldn't be allowed. Are the health authorities blind to the future economic consequences of such substitutions? In such cases, the pharmaceutical industry is both the architect of and a victim of the problems of the current system of innovation.

How could the industry be involved in defining a new business model that would benefit both the industry itself and countries in the North and in the South?

The pharmaceutical industry is both the architect of and a victim of the problems of the current system of innovation.

Several collaborative systems already exist. To address the problem of a multiplicity of patents relating to the same drug, the patent holders can agree to pool their patents and negotiate as a group so as to reduce transaction costs. Everyone wins because all the patentees receive compensation for their patent and the drug is sold at a competitive price. Another, increasingly common, practice is humanitarian licensing, the practice of fixing the licensing fee for a drug according to the country where it is to be sold. For example, the royalty for a particular drug would be lower when it is sold in a sub-Saharan country compared to the fee applied in wealthier countries. The industry itself can also enter into partnerships with local manufacturers in developing countries. This has the added advantage that it encourages local production and technology transfer.

To summarise, patent pools, humanitarian licensing, and real transfer of technology to developing countries are all effective strategies, and also tools that most companies would probably find acceptable.

In your opinion, will the fact that access to treatment has now started to be a problem in developed countries change how things work?

Definitely. The traditional view was that wealthier countries were interested in an intellectual property system that favoured patent holders as much as possible and that developing countries were interested in the most flexible system possible. In fact, neither assertion is true.

Developed countries are interested in a system that effectively compensates innovation but, at the same time, they also want a system that that will result in affordable prices and make it possible to respond on reasonable terms to the needs that arise. Developing countries have also seen that certain instruments inherent in the system do lead to innovations that are relevant to them. There are examples. The Drugs for Neglected Diseases initiative (DNDi) has demonstrated that a given patent system, if administered in a competitive way and not focused solely on the interests of patent holders, can also work for the public good.