When Patents Suppress Innovation

When Patents Suppress Innovation

Last week, Niskanen hosted a webinar on drug patents and COVID-19, where Brink Lindsey, Kodiak Hill-Davis, and I discussed the role of the patent system and its effects on potential cures and treatments for COVID-19. Following the panel, someone reached out to ask us about the role of patents in the relative lack of innovation in contraceptives.

In the case of contraceptives, a number of roadblocks to innovation can play a role. Some high-profile cases of contraceptive products causing injury and death–like the Dalkon Shield, the producer of which filed for bankruptcy in the 1980s following several lawsuits–will make risk-averse firms less likely to invest in new technologies. Plus there’s always the risk of their being caught in the culture war’s crossfire. But none of these have to do with patents.

However, there is a reason R&D in contraceptives lags behind other healthcare technologies that’s related to patent law, albeit an indirect one.

In 2019, contraceptives were a $7 billion industry in the U.S. One year earlier, sales of Humira (one of the most egregious case studies in abuse of the patent system) totaled $20 billion. When one product brings in more money than an entire industry, it’s not hard to see why there’s underinvestment in the latter.

Though it doesn’t mention the patent system, this article from Bloomberg explains the dynamic quite well:

The reason there aren’t more and better options for women is simple: money. In the era of $20 billion blockbusters such as the arthritis drug Humira and $2 million-a-patient gene therapies to treat rare diseases, the pharmaceutical industry doesn’t see a big payoff in rolling out products that don’t have record-breaking potential. Bayer AG’s Yaz family of medicines, one of the best-selling lines of birth control pills, ­generated about $1.4 billion in revenue at its sales peak. Evofem estimates its birth control gel could top out at just under $1 billion in annual U.S. sales. “Pharmaceutical companies don’t really see the benefit,” says Emma Gargus, who leads ­contra­ceptive projects at Northwestern University’s Woodruff research lab. 

This explanation for a dearth of innovation in contraceptives is the same reason we see underinvestment in emerging infectious diseases: the opportunity cost is too high. 

Would saner patent laws totally fix the problem? Likely no, but reducing the rents associated with blockbuster drugs would encourage investment in other products.

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By |2020-06-26T10:29:23-07:00June 26th, 2020|Blog, Intellectual Property|