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E-DRUG: impact of patents on prices

E-DRUG: impact of patents on prices

There is a seminal paper on the subject: "Patents and Pharmaceutical Drugs
- Understanding the Pressures on Developing Countries" by Julio Nogues,
World Bank Working Paper No. WPS 502, September 1990. Although almost eight
years old, its analysis is still valid today. Some excerpts: 

"Lengthen effective patent protection in industrial countries and press
developing countries to introduce patent protection. These two tactics have
become important parts of the R&D-intensive pharmaceutical industry's
strategy to regain losses in market share associated with more stringent
drug safety regulations and increased competition from generic drug
companies." (Summary)

"Table 3 from Levin, et. al. (1987) answers a similar question to that
raised in Mansfield (1986), namely what is the inter-industry importance of
patents for appropriating the returns from innovation. Again the answers
are rated on a one to seven scale. The figures in this table show that
patents are most important to protect the process and product innovations
of the drug industry; these patents were rated 40% and 51% higher that the
industrial averages for processes and products respectively. Furthermore,
'... only five of 130 industries rated product patents to prevent
duplication higher than six (out of seven) points ...' (Levin, et. al.,
1987, p. 795). Drugs were one of the five." (pp. 13-14)

"Disentangling the role of patents on drug prices is a difficult task,
particularly when other regulations--including price controls--are imposed.
Furthermore, although patents provide a monopoly, prices will also reflect
the extent of competition among different patented drugs in given
therapeutic classes. In spite of the difficulties of analyzing the impact
of patents on drug prices, two patterns tend to appear quite neatly. First,
generic drug prices are well below brand name prices; also, an important
share of the market is taken by generic drugs. Second, the price of drugs
appears to be systematically lower in countries that do not provide patent
protection for pharmaceuticals." (pg. 26)

"... the time dimension of patents suggests that for a similar level of
income, the introduction of patent protection in developing countries is
worth more to brand name companies than the extension of patent protection
in industrial countries." (pg. 37)

Finally, while not discussing the patent issue, an article in The
Economist, 'Too clever by half - even drugs firms with first-class research
need the business basics', September 20, 1997, concludes "And yet
price-competition is coming inexorably to the drugs industry. One reason is
simply that governments and managed-care organisations want lower drugs
bills. The other is that leaps in technology have increased competition.
Firms are now quicker to come up with me-too products than they were: an
innovative pill in the 1960s could expect ten years on the market without a
rival; now an AIDS drug gets only a few months' lead (see chart). The
boffins in the boardroom may not like it, but in the future they will have
to spend more time worrying about the bits of their business that don't win
Nobel prizes."

George Oswald <goswald@online.ru>

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