Pharmaceutical innovations have saved countless lives. Targeted cancer therapies such as Herceptin and Cisplatin have helped turn diseases that were once virtually-incurable into manageable illnesses. These medications don’t come cheap because they take an average of $2 billion worth of investment to bring to market. In exchange, pharmaceutical companies are given intellectual property (IP) rights to their products that allow them to recoup expenses over a reasonable time-period. A growing group of lawmakers want to replace this system with a free-for-all that would jeopardize innovation and cost lives. Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) have urged government agencies to invalidate patents, allowing rivals to profit off drugs they did not create. And now, the Biden administration wants to (mis)use the Bayh-Dole Act to “march-in” and seize the IP of drug makers. Policymakers can protect patients by rejecting these anti-IP efforts and reaffirming patent rights.
Innovation suffers when these researchers are stripped of their patents and cannot continue to recoup their costs. According to a 2016 analysis in the American Economic Review, the weakening of IP protections for medications leads to lower availability and delayed launch times for new drugs. The authors examined data on the “launches of 642 new molecules in 76 countries during 1983-2002” and found that, all else equal, “longer and more extensive patent protection strongly accelerated diffusion [of new drugs], while price regulation delayed it.” This demonstrates the dangers of not just compulsory licensing, but also price-fixing proposals championed by the Biden administration and lawmakers. A more recent preliminary analysis by Princeton scholars confirms these findings. The issuing of an additional compulsory license “is associated with 5.10% decrease in innovation. Specifically, when the market share affected by compulsory licensing increases by 1%, patenting rates for the licensed disease decrease by 12.7% to 16.3%.”
For all this havoc, compulsory licensing seldom leads to lower prices or greater availability. For example, the Brazilian authorities, “granted a CL [compulsory license] for [HIV drug] Efavirenz in 2007 and the local production of the drug started in 2009. Since then, the price of the local generic manufactured version has not changed while the lowest international price has reduced by 77%. If only imports had been considered, then [the Brazilian government] could have saved approximately 25% more.” Rather than trying to tamper with IP protections, the Brazilian government should have embraced free trade policies and let markets work their magic.
American policymakers could use this as a learning opportunity, but instead, they are choosing to emulate this policy fiasco. The Biden administration mistakenly thinks that it can use its own form of compulsory licensing to take away the IP rights of any drug that was developed using taxpayer dollars. The President and his allies plan on using the language of the otherwise-laudable Bayh-Dole Act to “march-in” and essentially turn brand-name drugs into generic medications.
The “march-in” provisions of the Bayh-Dole Act were intended to be used sparingly and only in rare cases, such as when a private partner threatened to stonewall and subvert the drug development process. This improbable scenario has never come to fruition, and the government has never had to use this right.
Reinterpreting the law to liberally exercise “march-in” authority, and effectively establish price controls on prescription drugs, threatens drug innovation to the detriment of millions of patients. The Biden administration’s guidance not only chills current development efforts, but also jeopardizes future private partnerships with universities. Companies will insist on universities contributing more taxpayer dollars as “insurance” against the risk of future patent takeovers, leading to higher tax bills and more red ink.
The Biden administration and lawmakers should steer clear of this path and commit to continued IP protections for America’s innovators. Instead of killing the goose that laid the golden egg, policymakers should strive to save patients’ lives.
