Eli5: What is the purpose of patents in the pharmaceutical industry and what kind of impact do they have on drug pricing?
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Developing new drugs is expensive because you have to do a ton of clinical trials and studies before you are allowed to sell the drug on the market. Developing new drugs also takes entire teams of highly-trained, highly-educated scientists that usually demand a generous wage or they’ll move elsewhere.
So, suppose you spent all that money over years and years to find the recipe for a drug against a given disease. Then some other company shows up, nabs your recipe, and sells your drug for a fraction of the price it would take you to make back the cost of researching it in the first place. Bang, you can close your business.
THAT BEING SAID: It is equally true that many pharma companies abuse patents because a patent for rare diseases can give them a monopoly over the only drug that is suitable for treatment. Meaning they (theoretically) can put the price as high as they like. And especially in the US, many pharma giants do exactly that. Together with the finicky American healthcare system, there are more than enough people who have to die not because there wouldn’t be a chance to save them, but because they can’t afford the necessary drug.
The purpose is that drugs cost a huge amount to develop, often fail to produce a viable result and patents ensure this investment has a period of time during which the developer can profit from their investment.
The purpose of a patent is the same in all cases. They …
1. Protect the property of the owner.
2. Encourage investment in innovation with the understanding that the fruit of the investment will not be stolen by others.
3. Give the patent holder the ability to license their property.
When it comes to the Pharma it can have an undesirable effects of
1. Stifling innovation by encouraging trolling in lawsuits
2. It encourages “evergreenimg” taking a patent making a small change to the formula and all a new patent to be issued. Also done by the combining of two expired patent medications into a single medication and getting a new patent.
3. India has a history of the extensive use of medical plants. Pharma has taken these plants found the active ingredient and then patented. India has wisely told them tough crap about patenting these and refuse to honor them.
Generally the impact on prices is not for the general benefit of mankind but that is what would be expected.
The biggest challenge world-wide is the effort to increase the durations of patents, trademarks, copywriters and IP laws. Combined with the immortality of corporations and you can see that these might need to be a rethinking of patents.
So I work in drug development and safety, so I can give a solid answer.
The idea behind new drug development is a company has to work out how to isolate and/or make, a brand new molecule that is the basis for a drug. Once they work that out, they have to do all the research to determine if it works as they hope, if it’s safe, what the dose to be effective is, the delivery system (pills, IV, cream, etc). Then, once they have all that, safety and stability testing can start. Meaning someone has to test that the container it’s packaged in doesn’t affect the product, how long and at what storage conditions does the drug stay safe and effective, making sure the final drug product matches the dosing listed on the package, all that. The patent for a new drug gets filed as soon as the new molecule is created, way at the very start of all of this process, because the patent is for the molecule itself. The patents are usually only good for 20, maybe 25 years. All the work to determine if the drug works and can be brought to market can take 10-15 years, and cost tens, if not hundreds, of millions of dollars for all the work that’s needed. And not all molecules that get patented turn into successful, marketable products, only about 1/100 goes all the way to market. So for all that money that goes into a new drug, to fund the continued research for the next compound, companies have to price such that they can make back all the money they invested in the first place, plus at least some level of profit so investors can also make some money, making them more willing to invest again, fueling the next thing. So when the company can truly start selling a new product, they have a window of maybe 5 years to make all their millions back, so the price of the drug reflects all the work that goes into producing it. Once the patent expires, other companies are free to start producing generic versions, often for far less money.
It’s to allow the company that spend many years and millions or billions of dollars to develop the drug to recoup that R&D investment and profit from their creation. It obviously means higher drug prices, but that’s typically better than no drug at all. Once the patent expires and generics can hit the market, prices come down due to the competition.
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