Does patenting encourage pharmaceutical firms to develop novel drugs

Abstract

Pharmaceutical innovation has always been viewed as the greatest outcome of the patent system. This view originated from the high number of patents in the drug industry. As a patent implies the originality of the invention, the granting of a patent to a drug is believed to indicate its novelty which adds value to the public. This study aims to determine whether patents encourage innovation in the pharmaceutical industry. It posed the question of to what extent the patenting of drugs encourages innovation in the pharmaceutical industry. It analysed the current situation in the drug industry based on relevant legal and economic literature. Innovation in the pharmaceutical industry is declining mainly due to patenting strategies that involve the over-patenting of a single drug and the patenting of new uses of old drugs. The industry also uses anticompetitive behaviour through reverse payment agreements to extend their market monopolies at minimal cost. Furthermore, the study analysed the justification – encouragement to invest in research and development – usually used to support the role of patents in the drug industry. It found that firms’ investments in new drug development are not at the same level as the revenue arising from patented drugs. The study concluded that patents do not play a major role in supporting the development of new drugs. On the contrary, they provide pharmaceutical firms with a tool to abuse their dominant position in the market. As a result, patients have limited access to and a narrow choice of drugs, while there is no development of or access to drugs for neglected tropical diseases.