A new bill would threaten the incentives for drug development.
Lawmakers in Congress have a new approach to lowering drug prices — and it looks a lot like theft.
In the words of the U.S. Constitution, a patent guarantees inventors the “exclusive Right” to their discoveries for a limited time. But under the Medicare Negotiation and Competitive Licensing Act, introduced by Representative Lloyd Doggett (D., Texas), the government could take this right away — and allow competitors to copy medicines that are still under patent.
This would be achieved through the issuance of “compulsory licenses,” so called because they are awarded without the patent-holder’s consent. Trade negotiators and lawmakers have long condemned compulsory licenses when issued in other nations, as they weaken the intellectual-property protections that investors need to dedicate resources to research and development.
Borrowing such a dangerous tactic could slow medical innovation, harm patients, and hurt the nation’s economy. The measure doesn’t make sense.
The link between patents and pharmaceutical innovation isn’t all that complicated. It takes, on average, about $2.6 billion — and more than a decade — to create just one new drug and bring it to market.
For that investment to be worth it, drug companies need to be sure that they’ll have market exclusivity when their new medicines arrive. Patents provide that certainty, ensuring that copies won’t immediately flood the market.
Even with these protections, it’s often impossible to recoup a drug’s development costs. Only one in five medicines earns enough revenue for a drug company to break even.
Representative Doggett’s bill would make the odds even longer. Its enactment would increase uncertainty for investors because the federal government could effectively nullify a drug patent whenever it pleased.
This poses a direct threat to medical innovation. After all, if investors can’t be sure that the U.S. government will honor drug patents, they’ll quickly — and gladly — steer their money to less risky businesses.
I know this from experience. In 1999, after years of working for the Food and Drug Administration, I joined a company that was developing a new treatment for liver cancer. Over time, our largest backer, a Hong Kong–based multinational with a diversified portfolio, began rolling back funding for our research and diverting it to a more reliable investment.
As it turned out, the biggest threat to our research wasn’t a competing treatment for liver cancer or even a treatment for another disease. Our investor also operated a ferry service between Hong Kong and Macau. Reassurances from the Chinese government and new casino licenses in Macau had made it more attractive to expand the ferry operation.
This was true even though the United States enjoyed a robust system of intellectual-property protections. I can’t imagine how much research funding will dry up if Representative Doggett’s bill passes.
Of course, compulsory licenses are nothing new. Countries such as China, India, and Thailand have used them for years to let local generic firms steal from U.S. drug manufacturers. But these policies have usually met with strong opposition from American officials.
Here in the United States, by contrast, lawmakers have traditionally found ways to broaden access to high-tech medicines without ignoring the importance of intellectual-property rights. Both the Hatch-Waxman Act, passed in 1984, and the Biologics Price Competition and Innovation Act, passed in 2010, streamlined the approval process for generic-drug makers while also rewarding innovators by creating predictable, enforceable patent protections.
Representative Doggett’s bill destroys the incentives for drug development created by such reforms and puts the future of American pharmaceutical innovation in danger. And if the pace of medical discovery slows down, patients won’t be the only ones who pay the price.
The drug industry is integral to America’s economy, employing more than 800,000 Americans and contributing nearly $700 billion to our GDP each year. That success is based almost entirely on the ability of drug firms to discover new medicines — a task that will become a lot more difficult if lawmakers reserve the right to give away the hard-won intellectual property of medical innovators whenever it’s convenient.
Making prescription drugs more affordable is a worthy goal. Letting our federal government invalidate patents through compulsory licenses is no way to go about it.