NBER Working Paper #16213 by Heidi L. Williams

Abstract:

This paper provides empirical evidence on how intellectual property (IP) on a given technology affects subsequent innovation. To shed light on this question, I analyze the sequencing of the human genome by the public Human Genome Project and the private firm Celera, and estimate the impact of Celera's gene-level IP on subsequent scientific research and product development outcomes. Celera's IP applied to genes sequenced first by Celera, and was removed when the public effort re-sequenced those genes. I test whether genes that ever had Celera's IP differ in subsequent innovation, as of 2009, from genes sequenced by the public effort over the same time period, a comparison group that appears balanced on ex ante gene-level observables. A complementary panel analysis traces the effects of removal of Celera's IP on within-gene flow measures of subsequent innovation. Both analyses suggest Celera's IP led to reductions in subsequent scientific research and product development outcomes on the order of 30 percent. Celera's short-term IP thus appears to have had persistent negative effects on subsequent innovation relative to a counterfactual of Celera genes having always been in the public domain.

The paper is here.

Is this the end of gene patenting?

For real insight on how DC works, read this piece on Billy Tauzin link here. The ex-Congressman from Louisiana has been the best known lobbyist for the drug industry. He now seems to have been fired because he gave too many profits away to Obama in the cap on drug spending in the health reform bill. The companies are now wobbling in their promised support for the bill.

The longer this goes on and the larger the loss in potential company profits, the less likely any reform seems. Consider now that none of this would be happening if drugs weren't patented.

A nice post by Jeffrey Miron on drug reimportation. I don't think we have him completely convinced about patents yet, but we're getting there.

Just a remark on drug reimportation. There seems to be this naive view in Congress and by lobbying organizations that if we allow drug reimportation from Canada that means we get cheap drugs. Which is more likely: the pharmaceutical companies suffer a large drop in profits on the large US market, or that they just raise prices to Canadians?

The Washington Post has a business article today entitled "Crackdown targets counterfeit drugs" which leaves out most of the truth link here. There is no mention that some of these drugs are generic and perfectly legal in the country where they are made. And that the US has for some years stopped enforcing imports of such drugs by individuals. That policy seems to have changed now, if this story is to be credited. However the amount of spam from sellers of such drugs doesn't seem to have abated.

The story begins, "In highly orchestrated raids around the world this week, Interpol officers in Europe, drug agents in the United States and task forces from Sweden to Singapore hunted down counterfeit prescription drugs in an effort to stem a rapidly growing criminal business preying on financially pressed consumers looking for bargains.

"The operation, code-named Pangea, is expected to be disclosed Friday in an effort to put fraudulent businesses on notice that police around the world are fighting back against what has become a $28 million industry in the United States alone." That seems like peanuts compared to the cost of such enforcement operations. And no attempt is made to separate the benefit of the drugs for people who otherwise could not afford treatment. Or the incremental loss to others who use them but must now pay the monopolist's price. For context, note that other news articles report a rise in drug prices of 9% in anticipation of the passage of a health care reform bill. The industry is hardly suffering.

Who is picking the public pocket? The article doesn't say, but the Pharmaceutical Research and Manufacturers of America (PhRMA) is probably behind this, though how a global operation was arranged remains an open question. Maybe we'll find out more later today, as the article promises.

Dean Baker writes frequently about patents and copyrights but his blog is billed as "Beat the Press" because he picks up on factual errors in discussions of public policy, mainly in the main stream media. Today he writes about Corruption in Drug Research: The Fruits of Patent Protection link here. Most of us agree with him (or vice versa), but it is nice to find good company.

This is particularly timely now as we struggle to get a decent health care reform bill.

Arlene Weintraub writes that the drug companies are lobbying to get expanded protection for new generic biologic drugs link here.

First a definition. According to the Sino-American Biomedical and Pharmaceutical Professionals Association (SABPA) in a 2006 pdf, biologics are protein or carbohydrate based, extracted from a living entity, posessing a complex physicochemical structure, and are defined by the manufacturing process link here. In 2005, it reports the five leading drugs sold under Part B of Medicare were biologics, valued at more than $4 billion.

In what follows, I am uncertain that I have matters right, but here goes. According to SABPA, biologics cannot be regulated as generics since they can't be shown to be chemically identical to previous approved drugs--the chemicals may be the same, but their structure differs. They must therefore have efficacy and safety data submitted separately, an expensive and time-consuming process. This is the Pharmas justification for asking that a patent's life be extended.

The SABPA definition is notable in that it seems to open the way for defining and patenting such a drug according to one or more of these terms, an almost infinite set of possible patents. The big Pharmas mouths must be watering.

The issue according to Weintraub is whether TEVA and other generic makers, can limit the patent extension beyond the initial monopoly or whether the extension is granted for 10 or more years as the big Pharmas would like. "Right now, the U.S. Food & Drug Administration has no mechanism for reviewing or approving these complex medicines. But several bills introduced this year seek to clear the way and Teva Pharmaceuticals, the world's largest generic-drug manufacturer, is working like mad to make it happen."

Mike Masnick fails to see any justification for a longer patent. He has written on the subject several times, most recently here link here.

Given the amounts of money and the importance of controlling health care costs, we are sure to hear more on this.

By Alistair Kelman...

Once upon a time, there was a little red hen who scratched about the barnyard until she uncovered some willow bark. She chewed on this and found that it could reduce her arthritic pain. "Ah"she said "There is a compound in this willow bark which could be helpful in eliminating pain. Who will help me extract the compound and turn it into pain killing tablets?"

for the rest here and follow the link.

I have just written an editorial - to appear in Expert Review of Pharmacoeconomics and Outcomes Research -- that argues that stronger patents likely will not reverse the productivity slowdown in the pharma R&D enterprise.

http://individual.utoronto.ca/grootendorst/pdf/Editorial_Grootendorst.pdf

The good news is that there are some promising mechanisms that might work. One of these are the research consortia that are doing the basic scientific research needed to design drugs that have a hope of surviving clinical trials. This research enterprise is far too large for any one firm to conduct on its own. These consortia include the International HapMap Project

http://www.hapmap.org/index.html.en

and the Structural Genomics Consortium

http://www.sgc.utoronto.ca/

Both groups involve collaborations of industrial and academic scientists, working at various sites. Funding comes from industry, governments and private foundations. All discoveries are placed in the public domain, with no restrictions placed on their use. I am heartened by how much work that they have accomplished on very modest budgets. (Sometimes its hard to get academics to play nice together!)

Of course the basic research is only the first step in the process of getting a useful drug to market. The next step is to use this basic research to develop and identify drug candidates. I am not familiar with any consortia doing work in this area. Once a candidate has been found, however, David Levine suggests that firms bid for the right to pay for and conduct clinical trials on the candidate. Bids consist of royalty rates that would accrue to the winner from all firms selling the drug, should the drug clear all the clinical trials. The lowest royalty rate wins.

Nicholas Gruen has an interesting post about patent extensions in Australia. It boils down to: they manage to make sure all the generics for export get made somewhere else...