Does U.S. medical research subsidize other countries?

The U.S. is the world leader in producing new medicines. The country’s strong intellectual-property laws, coupled with a comparatively free-market pricing system, encourage firms to research new treatments. Companies wouldn’t take on the enormous cost of developing a new drug without a solid chance of recouping their investment. On average, a new medicine takes 10 years and costs $2.6 billion to develop, according to the Tufts Center for the Study of Drug Development.

The problem is that rather than promote innovation, many other countries impose price controls on prescription drugs—including new medicines invented in the United States—to make them artificially cheaper for consumers. If American companies refuse to sell their medicines at these steeply discounted dictated prices, foreign countries threaten to break their patents and produce knockoff versions of the medicines.

Because foreign countries can import new U.S. drugs and price them however they see fit, many have largely checked out of the innovation business themselves. The U.S. produced 57% of the world’s new medicines between 2001 and 2010, up from less than a third in the 1970s, the Milken Institute reported in 2011.

Leading U.S. business and political leaders strongly believe that without adequate IP protection important U.S. industries would be undermined, and many high-technology jobs and companies would disappear.

Sen Orrin Hatch IP Speech, Nov 6, 2015Senate Finance Committee Chairman Orrin Hatch, a leading proponent of TPP, said “Our economic competitors and geopolitical adversaries are well aware of the importance of IP to the U.S. economy,  And, whether it is by stealing American intellectual property directly or by creating bureaucratic and regulatory mechanisms to essentially do the same thing indirectly, a number of foreign governments have long been engaged in a full-time effort to undermine our IP advantage.”

Hatch concluded by saying that if the administration’s trade deal fails to meet high standards for intellectual property rights in TPP, that a renegotiation may be necessary.

“While I understand that parties have deemed the negotiations closed, the agreement cannot enter into force if Congress doesn’t agree to it.  At the end of the day, USTR may need to go back to the negotiating table and try again. That result is not ideal, but it is certainly not unprecedented,” Hatch said. “I understand that renegotiation may be difficult, particularly with so many parties involved.  But at the end of the day, the alternative to renegotiation may very well be no TPP at all.” 

On the other hand, critics maintain that U.S. IP preserves high prices, “monopoly profits,” and high executive compensation in the U.S. pharmaceutical industry.

“The pharmaceutical industry relies on patent protection for profits and claims to reinvest those profits into more research for medicines that save lives. But the system has an inherent flaw when people with infectious diseases cannot afford the life-saving drugs and companies focus most effort on the health woes of the wealthiest who can afford treatment. Economist Joseph Stiglitz recommends an alternative approach: governments setting priorities by offering prizes for researchers and firms in addition to patents. “With better-directed incentives (more research dollars spent on more important diseases, less money spent on wasteful and distorted marketing), we could have better health at lower cost,” writes Stiglitz for Project Syndicate. The health-care market has many distortions, the economist cautions, so ordinary economic theories of pricing and distribution do not provide maximum benefits. And economic gains for a few could be meaningless as infectious diseases spread.”

The May 2007 “Bipartisan Agreement on Trade Policy” sought to address these differences in its statement on “Intellectual Property”

“Within this overall framework of strong intellectual property protection, the agreement reached with the Congressional leadership aims to incorporate certain flexibilities. These modifications are aimed at further ensuring that developing country free trade agreement partners are able to achieve an appropriate balance between fostering innovation in, and promoting access to, life-saving medicines. The results are fully in line with this Administration’s long-standing trade policy objectives in the area of intellectual property.

“In particular, the agreement with the Congressional leadership entails the following elements related to intellectual property, medicines, and health:

o Clarification that the period of protection for test data for pharmaceuticals by developing country FTA partners will generally not extend beyond the period that such protection is available for the same product in the United States, coupled with a provision that will encourage our partners to process marketing approval applications for innovative drugs in a timely manner.

o Clarification that developing country FTA partners may implement exceptions to normal rules for protecting test data if necessary to protect public health.

o A more flexible approach, for developing country partners, to restoring patent terms to compensate for processing delays. This flexibility is accompanied by new provisions stipulating that trading partners will make best efforts to process patent and marketing approval applications expeditiously.

o More flexibility in terms of the types of procedures that developing country partners may implement to prevent the marketing of patent-infringing products.

o Integration within the intellectual property chapter of a recognition that nothing in the chapter affects the ability of our FTA partners to take necessary measures to protect public health by promoting access to medicines for all, and a statement affirming mutual commitment to the 2001 Doha Declaration on the TRIPS Agreement and Public Health.


Read more

“How Other Countries Freeload on U.S. Medical Research,” Wall Street Journal, Feb 21, 2017

“How the U.S. subsidizes cheap drugs for Europe, International Business Times, Sep 14, 2015

The Global Biomedical Industry: Preserving U.S. Leadership, Sep 2011

Senate Finance Committee Chairman Hatch: “Inadequate IP Protections Could Complicate TPP Passage,” Nov 6, 2015

“Prizes, not Patents,” YaleGlobal Online, Mar 19, 2007

Bipartisan Agreement on Trade Policy, May 2007


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