Expensive Medicines Increase The Pressure

By Simon Schmid

This article first appeared in the Neue Zürcher Zeitung (in German), here.

When Gilead brought its new antiviral medicine – Sovaldi – for the treatment of Hepatitis C to the US market for USD 84,000, it triggered a storm of protest. Demand for this revolutionary treatment was so high that the price (despite reductions) became an enormous burden on the American healthcare system. Although the product is cheaper in Switzerland at CHF 48 307, treatment is rationed for reasons of cost.

Gregg Alton from Gilead’s senior management explained at the WTO in October 2015 that the costs incurred for acquisition, research and development did not play a central role in the company’s internal discussions on price. He stated that Gilead had offered a better price in the USA for Sovaldi (with more than a 90 per cent chance of a cure and with almost no side effects) than the former standard of care for a cure had cost (a regime of peginterferon and ribavirin with only a 60 per cent chance of a cure and often with very strong side effects). This statement, however, leads to the question of whether the price of the previous standard of care had been justified.

The Sovaldi case is seen by many critics of intellectual property as confirmation that the patent system is the main culprit of rising health costs. They believe a patent equals too high a price and thus see a weakening of the patent system as the easiest solution to curbing health costs.

The reality, however, is much more complex because the patent system actually encourages the development of new and needed medicines and, through its disclosure requirement, fosters the spread of knowledge – which in turn also benefits the healthcare system. So even though a patent gives its owner a state-sanctioned monopoly, it is limited in terms of time and territory. And most health authorities negotiate prices with suppliers in a heavily regulated healthcare industry, even when negotiations between governments and producers are made difficult not least due to information asymmetry.

It is clear, however, that venture capital is financed via the patent system through monopoly revenues, which in the short to mid-term is reflected in the prices of medicines. In the long term, however, the patent system nurtures a pipeline of new generic products that are usually less expensive. And this is how the system is kept in balance. However, if the prices of new products are felt to be excessively high for the healthcare system, this leads to pressure on producers and a systematic criticism of the patent system.

This is why it is worth considering how to best address these criticisms. One example in this respect is the optimisation of licensing agreements.  The Medicines Patent Pool (MPP) based in Geneva has already negotiated a number of such agreements for HIV medicines with owners of patents for these drugs. It should be emphasised here that Gilead was the first pharmaceutical company to enter into a licensing agreement to promote access to HIV and Hepatitis B medicines in poorer countries. The goal of the MPP licensing agreement is to boost the generics market for poorer countries, which leads to lower prices, as well as to promote the development of new products. In 2015, the MPP expanded its business model to also include Hepatitis C and tuberculosis. This raises the question of whether access to medicinal products for other illnesses can in future also be improved in this way.

A further case in point is that of AstraZeneca, Merck and Novo Nordisk who have increased the transparency of their patent portfolios.  This creates legal certainty for manufacturers of generic products and procurement authorities and is therefore in the interests of public health. Such a step also gains these companies points on the Access to Medicines Index, which regularly analyses the 20 largest global pharmaceutical companies for their efforts to improve access to medicines.

Worldwide, the high cost of medicines and their burden on national healthcare systems is being intensively discussed, with critics of the patent system being spurred on by the current situation.  In international discussions, the Swiss Federal Institute of Intellectual Property (IPI) focuses on conveying an understanding of the role patent protection plays in improving public health.  It is important and correct that public interest is taken into consideration when exercising patent claims. However, it is also necessary for critics of the patent system to consider that there must be a balance in order for the incentive system to be able to continue to attract venture capital, which is also in the interests of the public.

Simon Schmid is Advisor, IP, Innovation & Public Health, at the Swiss Federal Institute of Intellectual Property (IPI).