Abstract
In this paper, we argue that lower prices for pharmaceuticals can be achieved by fostering a new type of competition in the pharmaceutical industry. Lower drug development costs, and hence prices, can be brought about by abolishing national drug administrations and replacing them with private certification boards that compete on the basis of safety, efficiency and cost of their drug approval process. A major benefit of this type of privatization is that it would not necessitate limits on data exclusivity in order to achieve lower prices. Drug approval privatization could achieve the same positive results as generic competition, in terms of lower costs and prices, without the negative effects of intellectual property rights violation and the consequent discouragement of innovative activities.
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Notes
The Association of the Pharmaceutical Research and Manufacturers of America (PhRMA) reported an estimated $33.2 billion on R&D expenditures in 2003. The European Federation of Pharmaceutical Industries and Associations (EFPIA) reported R&D investment of 21.1 billion euros for the same year.
In general, firms that produce easily copyable goods, like pharmaceuticals, chemicals, and software are more concerned with IPRs than firms investing in products that are costly or difficult to imitate, like computer hardware or electronic assembly equipment (see Levin et al. 1987).
The link between IPRs, innovation and economic growth is exhaustively examined in Lerner (2002), where it is found that relatively wealthier countries are more likely to have patent systems, to grant longer patents, and to respect other countries’ patent rules. See Hassett and Hubbard (2002) for a review of the literature that links profit variables with the level of business fixed investment (such as R&D). See also Griliches (1992) for the importance of R&D investments in explaining economic growth throughout the 20th century.
Belgium, France, Germany, Italy, The Netherlands, Sweden and the United Kingdom have a 10-year limit. Austria, Denmark, Finland, Ireland and Luxemburg have a 6-year limit. Greece, Spain and Portugal have a 6-year limit or until expiration of the patent, whichever comes first.
See: http://www.fda.gov/fdac/graphics/newdrugspecial/drugchart.pdf, last accessed December 2004.
See Abrantes-Metz et al. (2003).
Because of their novelty, fewer studies on duration and probability of success have been conducted for biological drugs. Biological drugs first appeared in the market in 1984, and by 1994, only 29 biological entities were marketed in the U.S.
See BLS “Pharmaceutical and Medicine Manufacturing,” NAICS 3245.
As a consequence, the Medicines Control Agency (MCA) was able to raise half of its income from fees charged to the pharmaceutical industry.
Note that AIDS groups are now lobbying for a relaxation of drug approval requirements. See for example the Gay Men’s Health Crisis (GMHC) at http://www.aegis.com/pubs/gmhc/1996/GM100503.html.
Many big food companies demand certification from KCBs with the highest standards in order to appeal to the largest number of potential consumers.
This figure includes monoclonal antibody and recombinant protein products. (SMD, rDNA and mAb therapeutics).
Recent technological advancements may render animal testing obsolete in the near future. In the UK alone, $477 million per year is spent on developing new technologies that could replace the need to perform animal-trials.
Reiffen and Ward (2002) estimate that considerable price reductions occur after 8 to 10 generic firms have entered the market.
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Acknowledgments
We thank two anonymous referees, the editor and Julian Morris of the International Policy Network for valuable comments that helped improve the paper. The International Policy Network partially funded this research.
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Sauer, C., Sauer, R.M. Is it possible to have cheaper drugs and preserve the incentive to innovate? The benefits of privatizing the drug approval process. J Technol Transfer 32, 509–524 (2007). https://doi.org/10.1007/s10961-007-9036-0
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DOI: https://doi.org/10.1007/s10961-007-9036-0