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Pharmaceutical Prices

Lower prices for pharmaceuticals – for all or just for some?

Obtaining a patent gives a company a monopoly in the patented invention, and the right to prevent competition. That inevitably results in a higher price. Although the patent system is intended to benefit the public by encouraging innovation, in the short term there may quite literally be a high price to pay and this often leads to questions about the value of the patent system.

Nowhere is this more evident than in healthcare. Patented pharmaceuticals are expensive, the price falling only once patents expire and generic competition becomes possible. Pharmaceutical innovators justify their prices as the only way they can recoup the huge costs of bringing a new drug to market (as well as the costs incurred in developing drugs that fail in the development stage and never reach the market). A consequence of the high prices, however, is that health service budgets cannot stretch far enough to make treatments available for all patients, or sometimes for any patients, even where those treatments are potentially life-saving.

In developing countries, the disparity between price and available funds may be extreme, and public policy considerations have recently led to substantial curbs on the effectiveness of patent protection obtained by innovative drug companies.

First, in a significant and widely reported case, India’s Supreme Court confirmed the refusal of a patent covering Novartis’ anticancer drug, Glivec (imatinib mesylate). The patent in question concerned a polymorphic form of the drug. In many countries, such developments are patentable provided that they satisfy the usual requirements of novelty and non-obviousness or inventiveness. In India, however, a recent amendment to the law stipulates that such pharmaceutical inventions are patentable only if they show enhanced efficacy in comparison to existing forms of a drug. The standard for patentability is thus harder to reach.

Even where a patent is granted, many of the benefits to the patentee can be lost if the government steps in and orders the grant of compulsory licences. Such powers are built in to most patent systems, but historically have been very rarely exercised. The Indian government has shown itself willing to act, however; last year a compulsory licence was granted in relation to another anticancer drug, Bayer’s Nexavar (sorafenib). The patentee will receive a royalty, but that will amount only to a small fraction of the return that it would otherwise have made.

Now comes news that the Indonesian government, concerned at the prevalence of HIV/AIDS and Hepatitis B in that country, has passed a Presidential Regulation by which compulsory licences will be granted in relation to six antiviral and antiretroviral drugs marketed by such big names as GSK, BMS and Abbott. Royalties of up to 0.5% will be paid – not the level of return to which big pharma is accustomed.

It remains to be seen how widely such measures as these are implemented, and what the reaction of the pharmaceutical companies will be. Will their prices fall, to lessen the likelihood of action being taken against them? Or will they try to compensate for the loss of revenue by raising their prices still higher in those countries where they feel able to do so?

Steve Jones, Director – Chemistry & Life Sciences
28 May 2013

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