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The Impact of the Patent
System on Research
Investment for Developing
Countries
Dr. Harvey E. Bale, Jr.
Director General
International Federation of
Pharmaceutical Manufacturers
Associations (IFPMA)
• Diverse situations
• Different levels of poverty, resources,
infrastructure, difference between
rich and poor, levels of educations
• Varying potentials for prosperous
R&D sector
• Desire for economic growth
• Access to medications and health care
• Developing new drugs needed to
treat locally prevalent diseases
The Need for
Pharmaceutical Patents
• Recoup initial cost input of research $800 million
• Recoup initial time input - 12 years, 1
in 5 - 10 000 molecules
• Continued innovation – new infectious
diseases, drug resistance, cures for
chronic disorders
“Patents and Innovation: An Empirical Study”
E. Mansfield, Management Science
(February 1986)
Industry
% that would
not have been
introduced
Pharmaceuticals
Chemicals
Petroleum
Machinery
Fabricated Metal Products
Primary Metals
Electrical Equipment
Instruments
Office Equipment
Motor Vehicles
Rubber
Textiles
65%
30
18
15
12
8
4
1
0
0
0
0
% that would not
have been developed
60%
38
25
17
12
1
11
1
0
0
0
0
Country Context in
Fostering R&D
• The scientific resource base
• Legal protection of investments
• The operating relationships
between politicians, civil
servants, regulators, institutions
and industry
• The incentives for investment
General Measures of Technological
Development
Technologies
Creation
Diffusion of recent
innovations
Diffusion of old
innovations
Patents
granted
to
residents
(per
million
people)
1998
Receipts of
royalties
and license
fees
(US $ per
1000
people)
1999
Internet hosts High – and
(per 1000
medium –
people) 2000 technology
exports
(as % of
total goods
exports)
1999
Telephones
(mainline &
cellular, per
1000 people)
1999
Electricity
consumption
(kw – hour
per capita)
1998
USA
289
130.0
179.1
66.2
993
Japan
994
64.6
49.0
80.8
France
205
33.6
36.4
Korea
779
9.8
Brazil
2
China
Human skills
Mean years of
schooling
(age 15 and
above) 2000
Gross tertiary
science
enrolment ratio
(%) 1995-97
11,832
12.0
13.9
1,007
7,322
9.5
10.0
58.9
943
6,287
7.9
12.6
4.8
66.7
938
4,497
10.8
23.2
0.8
7.2
32.9
238
1,793
4.9
3.4
1
0.1
0.1
39.0
120
749
6.4
3.2
India
1
-
0.1
16.6
28
384
5.1
1.7
Bangladesh
-
-
0.0
2.9
5
81
2.6
-
Nigeria
-
-
-
0.4
-
85
-
1.8
Ethiopia
-
-
-
-
3
22
-
0.3
Uganda
-
0.0
-
2.2
5
-
3.5
0.3
Mozambique
-
-
-
12.2
5
54
1.1
0.2
Source: This table was compiled using data provided in the Human Development Report 2001 –
“Making New Technologies Work for Human Development”. Published for the United Nations
Development Programme – New York, Oxford University, Press – 2001
Incentives for Investment
• Publicly funded research
• Public and private venture finance to
support entrepreneurial projects
• Support for small businesses
• Pricing and regulatory flexibility
• Intellectual property rights
Social and Economic
Benefits of Strong IP
1. Improved healthcare through access
2.
3.
4.
5.
6.
7.
to newer medicines
Access to modern technology and
information
Stimulation of indigenous R&D
Job creation
Raised profile as country to host
investment
Joint ventures and economic growth
Reduce “brain drain”
Corporate Strategies:
Skills Development
• Strong IP ensures strong
investment in people with
technical skills and experience
• Knowledge transfer
Weak IP Rights – Low FDI
1994 World Bank Study found that the
strength of IPP regimes effect :
• Extent and composition of FDI
• Types of technology that are
transferred through FDI
• In particular – in Chemicals and
Pharmaceutical Industry
R&D Spending as a Predictor of Foreign Direct Investment
U.S. Foreign Direct Investment and Research and
Development Intensities, 1995
■ Chemicals and
allied products
(pharmaceuticals)
FDI stock as a percentage of value added
45
40
35
30
Food and kindred products
Industry machinery
and equipment
25
Transportation
equipment
20
Electronic and other
electric equipment
15
10
Primary and fabricated metals
5
0
Services
0
2
4
6
8
10
12
14
16
R&D expenditure as a percentage of value added
Note: R&D expenditure refers to company and other (except federal) funds for industrial R&D
performance. Source: U.S. Bureau of Economic Analysis and National Science Foundation
Strong IP - Benefits
Developing Countries
• Local clinical trials
• R&D and biotech research into local
diseases
• Improved local research institutions
Pharmaceutical Industries
in Emerging Countries
Brazil (IP Laws 1996)
South Korea (IP Law 1986)
• Local firms are more active
and have increased exports
• Patent filings by Brazilian
companies have increased
• Local firms market share
increased to 89% by 1990.
• Local firms have 75% of
patent applications
• Now an exporter of modern
pharmaceutical technology
India (IP Law 1999?)
• Leading Indian companies
are preparing for post 2005
scenario with new product
development
• Formation of Indian
Pharmaceutical Alliance by
10 leading companies
Mexico (IP Law 1991)
• Tripling of R&D investment in
Mexico by research-based
pharmaceutical companies
• Competitiveness of domestic
industry enhanced by
technology transfer
Canada Case: Development of
the Pharmaceutical Sector
• 1922 – Canadian manufacturers right to
imitate and produce any other drug
regardless of patent rights
• 1969 – Introduction of compulsory
licensees, resulting in flourishing of
generics industry
• 1993 – Compulsory licensing system
abandoned
Canada Case: Development of
the Pharmaceutical Sector
Results:
• Exponential growth in R&D
• $ 900 million in 1999 vs. $ 166 million
1988
Canadian
Total Pharma R&D Spending
$ millions
1000
900
900
825
800
700
600
500
412
400
300
200
103
57
28
100 10.4
18
0
1967 1972 1977 1982 1987 1992 1997 1998e
1984-1987 - as compiled by Peat Marwick, 1988-1995 - as compiled by
the PMPRB,
1997, 1998 as compiled by Deloitte and Touche
India Case:
Weak IP - Unrealized Potential
•
•
•
•
Unreformed patent law
Strong generics industry
Strong price controls
Little R&D expenditure – 1.4% of sales in
1992-93
• General lack of commitment of foreign
investment
• In 1999, China* received 20 times more FDI
then India
* Reformed patent laws in 1993
Investment in R&D and IPP
Total Expenditure on
R&D
(1996)
$bn
Rank
%
GDP
Rank
USA
185
1
2.40
5
Japan
153
2
2.98
France 36
4
Korea
13.5
Brazil
Patents
Granted to
Residents
(1994-5)
No.
(‘000s)
Patents Abroad by
Residents (1995)
Opinion Survey on
Adequacy of Own
National IP
Protection
No
Rank
55,900
2
109,000
1
7.44
6
2
83,800
1
80,900
2
5.83
24
2.32
6
14,400
6
33,480
4
7.37
8
7
2.8
7
6,170
70
2,434
16
3.95
38
4.07
16
0.57
25
470
25
275
28
5.06
30
India
2.19
23
0.77
13
430
26
78
34
3.71
41
China
3.93
17
0.48
27
1600
13
213
29
4.76
33
Source: IMD World Competitiveness Year Book 1998
Score
(0-10)
Rank
Rank
Korea Case: Patents and
Infrastructure
• 1987 introduction of patent law
• Since 1970s strong economic growth
• Manufacturing economy = 32% of GDP
in 1999
• Successful health care and education
systems
So, why have Korean
pharmaceutical companies not
been major players ?
Korea Case: Patents and
Infrastructure
• Between 1987-mid 1990s development of
legal system, improve infringement
procedures and attitude change regarding
IPP
• Focus on domestic herbal medicines
market
• Restrictions on foreign imports and
ownership
Korea Case: Patents and
Infrastructure
• Increase in R&D between 1986 - 1998
• 1986 - 1.35 % of sales vs. 1998 - 2.17 %
• These increases due to stronger IP and
reduction in barriers to foreign entry and
ownership
• Still much less expenditure than in India,
EU and US companies
China Case
• China has advanced and substantial knowledge
resources in the university system and in
government research institutes, in relevant areas
• R&D expenditure is increasing, with greater
contribution from enterprises (including foreign
investment) in addition to universities
• Entry to WTO and TRIPS is a key development
• China has great potential to create a world-class
research based pharmaceutical industry coexisting
with global generics supply
What About the Tradeoffs Between
Short-Term Access and
Innovation?
• The increase in consumer benefits
from providing greater access to the
stock of prescriptions drugs now
available, and
• The loss of consumer benefits due to
the reductions in efforts to develop
and market new prescription drugs.
A New Study Examines the Bottom
Line on the Tradeoff
• For every dollar in consumer benefit
realized from providing greater access,
other consumers as a whole would be
harmed at a rate of three dollars from
reduced innovation.
• This 3 to 1 ratio of harm to benefit
indicates that consumers would not be
served by policy changes that would
reduce patent protection or accelerate
generic entry.
Conclusions
Benefits For and in LDCs:
• Social
• Economic
• Healthcare
• Education and R&D
• Infrastructure