Striking the Balance.Why Intellectual Property and Market Competition are so vital to pharmaceutical R&D

It is easy to see Intellectual Property (IP) and competition law as opposing forces in a case of patent versus patient. But in reality, both are simply different means of boosting innovation and improving medical treatment. IP rights allow companies to recoup sufficient income to reinvest in the development of new drugs, whilst competition puts pressure on companies to innovate in order to keep stride with market rivals. If the right balance is struck, both work together to drive the R&D necessary to find new drugs and treatments.

IP is vital to the patent-rich pharmaceutical sector. The patent cliff is having a devastating impact on revenues as some of the biggest earning drugs lose out to competitive generic companies, whilst the pervading economic gloom is putting a squeeze on finances. With drugs typically taking 12 to 15 years to develop, costing perhaps a billion pounds – and with no guarantee of success – beleaguered pharmaceutical companies are cutting back on expensive and time-consuming R&D and diversifying into more gainful areas. Without IP rights to reward innovation and provide some measure of security in these tough times, the pipelines may run dry.

Austerity measures may place governments under growing pressure to provide more cost-effective and accessible healthcare, particularly in emerging markets with a poor population. In such circumstances, they can sometimes decide to override IP in favour of encouraging competition and driving down price. One example is the case currently being heard at the Indian Supreme Court between drug-maker Novartis and India's patent office, which has refused to grant a patent on the company's cancer drug Glivec. A ruling in favour of Novartis will improve IP protection and encourage companies who have previously been wary of India’s lax IP laws to invest there. But others are concerned that this will jeopardise India’s ability to supply the developing world with affordable generic medicines.

In cases where a government might feel the exercise of IP rights could lead to unfair advantage or run counter to medical need, competition law can come into play. One option is compulsory licensing where a government allows someone else to produce the patented product or process without the consent of the patent owner. One example of this is the landmark decision earlier this year in which India granted its first ever compulsory license for Bayer’s cancer treatment Nexavar. The German pharmaceutical giant was ordered to license the drug to a home-grown generic drug-maker on the grounds that it was failing to make Nexavar accessible to more people.

But there are also more positive ways of ensuring that IP is shared. Many companies are now voluntarily agreeing to cross-license patents with one another or even to participate in industry-wide open innovation patent pools such as WIPO Re:Search which aims to promote the development of new treatments for neglected tropical diseases, malaria and tuberculosis. Patent pools are well-established in the telecommunication and electronics industry, but are less common in the lifesciences sector. The industry’s steps in this direction, however, are to be welcomed as they greatly encourage innovation and open access, particularly in the area of biotechnology.

Striking the balance between IP competition law is complex and there is no one-size-fits-all answer. Several international organisations – including the European Commission and the World Trade Organisation – have attempted to strike this balance but, despite finding that countries agree that IP and competition law are compatible and should co-exist, there is no consensus as to how this could be achieved. Some tension will always remain between increasing supply in the short-term, by opening up access to generic companies, and in the longer-term, by retaining the incentive to invest but, despite this, it is vital to remember that both drive innovation. The equation is a simple one: without IP and without competition, there would be no incentive for companies to invest in the new drugs and treatments that benefit everybody.