Patent Buyouts Research Articles

Financial Impacts of Paying for Gene Therapy for Sickle Cell Disease Under Alternate Prices and Financing Mechanisms

To understand the role of alternative prices and financing mechanisms on a payer's budget impact and the manufacturers' risks and returns for gene therapies. This paper uses fundamental economic principles to interpret the implications of alternative pricing mechanisms in terms of the manufacturer's appropriation share of the value and how alternate financing mechanisms alter it. It demonstrates these concepts by studying the financial impacts for a payer and the manufacturer across alternative pricing and financing mechanisms that could be used by the US Centers for Medicare and Medicaid Services (CMS) to pay for gene therapy for sickle cell disease (SCD). Unlike value-based and manufacturer-set monopoly prices, an effective monopoly price can be derived to guarantee monopoly profits for manufacturers during their exclusivity period, thereby providing a high appropriation share and substantially lowering price and budget impact for a payer. For SCD gene therapy, the 10-year budget impact for CMS would range from $8.6 Billion-$12.8 Billion under a value-based price, $10.2 Billion-$15.2 Billion under a monopoly price, but reduce to $7.7 Billion under an effective monopoly price. The latter price would still fetch over 50% of the total surplus to the manufacturer while mitigating their risk of sales volume. I show that significant budget impacts for funding gene therapy are not mitigated across alternative financing mechanisms at any given price. The price determines most of the budget impact. The option of a patent buyout may help negotiate down prices to effective monopoly prices.

Building mass support for global pandemic recovery efforts in the United States.

Containing the COVID-19 pandemic will confer global benefits that greatly exceed the costs but effective solutions require the redistribution of vaccines, technology, and other scarce resources from high-income to low-income countries. The United States has played a central role in coordinating responses to previous global health challenges, and its policy choices in the current pandemic will have a far-reaching impact on the rest of the world. Yet little is known about domestic support for international recovery efforts. We use a series of conjoint and persuasive messaging experiments, fielded on two national surveys of the US adult population (N = 5,965), to study mass support for international redistribution. We find clear evidence that the general population strongly supports allocating vaccines to own-country recipients before others. But despite this "vaccine nationalism," Americans are also willing to support the US government playing a major role in global pandemic recovery efforts, provided policymakers forge international agreements that ensure moderate domestic costs, burden-sharing with other countries, and priority for certain types of resources, such as domestically manufactured vaccines and patent buyouts. Finally, we test five different persuasive messaging strategies and find that emphasizing the relatively low costs and large economic benefits of global vaccination is the most promising means of increasing domestic support for international redistribution. Overall, our results demonstrate that policymakers can secure broad public support for costly international cooperation by crafting responses aligned with the economic interests of the United States.

Tools to Incentivize Research and Development for Pharmaceuticals

This article is a review of the current state of pull mechanisms and differential pricing in relation to incentivizing pharmaceutical research and development. In many developing nations, there is a shortage of pharmaceuticals for their specific infectious diseases because these markets are not always viewed as profitable to firms. To combat this issue, governments and organizations need to work with firms to incentivize research and development for medications and vaccines for these diseases. Pull mechanisms are one way to achieve this goal as they only reward successful products; through the use of tax credits, patent buyouts, purchase agreements, or a combination, we could reward firms which makes the market more attractive to other developers too. We could also use differential pricing for the same purpose. Allowing firms to charge varied prices based on specific factors like a country's real gross domestic product per capita would increase access to needed pharmaceuticals while still keeping the market attractive. The synthesis of current literature shows that although these strategies have been moderately successful on their own, such as with the GAVI fund, they have also failed because of a lack of support, such as with the Vaccines for the New Millennium Act. Therefore, we might need to develop new strategies, such as combining policies, to spur innovation and development.

The patent buyout price for human papilloma virus (HPV) vaccine and the ratio of R&D costs to the patent value.

Human papillomavirus (HPV) is responsible for almost all of the 570,000 new cases of cervical cancer and approximately 311,000 deaths per year. HPV vaccination is an integral component of the World Health Organization’s (WHO) global strategy to fight the disease. However, high vaccine prices enforced through patent protection are limiting vaccine expansion, particularly in low- and middle-income countries. By limiting market power, patent buyouts could reduce vaccine prices and raise HPV vaccination rates while keeping innovation incentives. We estimate the global patent buyout price as the present discounted value (PDV) of the future profit stream over the remaining patent length for Merck’s HPV vaccines (Gardasil-4 and 9), which hold 87% of the global HPV vaccine market, in the range of US$ 15.6–27.7 billion (in 2018 US$). The estimated PDV of the profit stream since market introduction amounts to US$ 17.8–42.8 billion and the estimated R&D cost to US$ 1.05–1.21 billion. Thus, we arrive at a ratio of R&D costs to the patent value of the order of 2.5–6.8%. We relate this figure to typical estimates of the probability of success (POS) for clinical trials of vaccines to discuss if patent protection provides Merck with extraordinarily strong price setting power.

Who’s Afraid of Section 1498? A Case for Government Patent Use in Pandemics and Other National Crises

COVID-19 has created pressing and widespread needs for vaccines, medical treatments, PPE, and other medical technologies, needs that may conflict — indeed, have already begun to conflict — with the exclusive rights conferred by United States patents. The U.S. government has a legal mechanism to overcome this conflict: government use of patented technologies at the cost of government paid compensation under 28 U.S.C. § 1498. But while many have recognized the theoretical possibility of government patent use under that statute, there is today a conventional wisdom that § 1498 is too exceptional, unpredictable, and dramatic for practical use, to the point that it ought to be invoked sparingly or not at all, even in extraordinary circumstances such as a pandemic.Yet that conventional wisdom is a recent one, and it conflicts with both history and theory. This Article considers the role of § 1498 in the context of national crises and emergencies like COVID-19, a context so far not addressed substantially in the literature on the statute. We find that government patent use is not nearly as exceptional as it is commonly made out to be, and indeed has been not only used but expanded through statutory amendment over the last century. Review of the development and use of the statute during both world wars and the post–September 11 period reveals widespread acceptance of government patent use as a tool for addressing imminent national problems, and it illuminates particular features of government patent use that become especially pertinent in times of crisis. In the United States, government patent use and national emergencies have a close and special relationship; each has shaped the other.Drawing from the lessons of history and analysis of the statute, we develop a novel framework for comparing § 1498 to other policy tools, including prizes, research grants, and patent buyouts. Under this framework, four features of § 1498 stand out: speed of invocation, flexibility in the scope of its use, post-crisis determination of compensation, and use of an impartial adjudicator.Whenever these four features are advantageous — which will be true in most national emergency situations, as we demonstrate — the U.S.government should strongly consider government patent use over patent buyouts and other policy tools. We show the advantages of these four features in a case study: government patent use to expand supply and access to the COVID-19 treatment remdesivir. Accordingly, and contrary to the conventional view of § 1498, we conclude that government patent should be an ordinary tool of government policy.

The Patent Buyout Price for Human Papilloma Virus (HPV) Vaccine and the Ratio of R&D Costs to the Patent Value

The Patent Buyout Price for Human Papilloma Virus (HPV) Vaccine and the Ratio of R&D Costs to the Patent Value

Patent Buyout in a Model of Endogenous Growth

This paper considers the prospect of a government patent buyout in a model of endogenous growth. To this end, I modify a standard quality ladder growth model by incorporating possibility of imitation, and rent protection activities (RPAs) by the innovator. The government finances the buyout by imposing a per unit sales-tax on the goods. I show that in this set-up, patent buyout by the government can lead to higher level of welfare without lowering an economy's growth rate along the balanced path. I highlight two sources of welfare improvement - elimination of monopoly pricing, and reduction in RPAs.

Market outcomes and dynamic patent buyouts

Patents are a useful but imperfect reward for innovation. In sectors like pharmaceuticals, where monopoly distortions seem particularly severe, there is growing international political pressure to identify new reward mechanisms which complement the patent system and reduce prices. Innovation prizes and other non-patent rewards are becoming more prevalent in government’s innovation policy, and are also widely implemented by private philanthropists. In this paper we describe situations in which a patent buyout is effective, using information from market outcomes as a guide to the payment amount. We allow for the fact that sales may be manipulable by the innovator in search of the buyout payment, and show that in a wide variety of cases the optimal policy still involves some form of patent buyout. The buyout uses two key pieces of information: market outcomes observed during the patent’s life, and the competitive outcome after the patent is bought out. We show that such dynamic market information can be effective at determining both marginal and total willingness to pay of consumers in many important cases, and therefore can generate the right innovation incentives.

Inventing Prizes: A Historical Perspective on Innovation Awards and Technology Policy

Prizes for innovations are currently experiencing a renaissance, following their marked decline during the nineteenth century. Debates about such incentive mechanisms tend to employ canonical historical anecdotes to motivate and support the analysis and policy proposals. Daguerre's “patent buyout,” the Longitude Prize, inducement prizes for butter substitutes and billiard balls, the activities of the Royal Society of Arts and other “encouragement” institutions—all comprise potentially misleading case studies. The article surveys and summarizes extensive empirical research using samples drawn from Britain, France, and the United States, including “great inventors” and their ordinary counterparts, and prizes at industrial exhibitions. The results suggest that administered systems of rewards to innovators suffered from a number of disadvantages in design and practice, which might be inherent to their nonmarket orientation.

Market Outcomes and Dynamic Patent Buyouts

Patents are a useful but imperfect reward for innovation. In sectors like pharmaceuticals, where monopoly distortions seem particularly severe, there is growing international political pressure to identify alternatives to patents that could lower prices. Innovation prizes and other non-patent rewards are becoming more prevalent in government's innovation policy, and are also widely implemented by private philanthropists. In this paper we describe situations in which a patent buyout is effective, using information from market outcomes as a guide to the payment amount. We allow for the fact that sales may be manipulable by the innovator in search of the buyout payment, and show that in a wide variety of cases the optimal policy still involves some form of patent buyout. The buyout uses two key pieces of information: market outcomes observed during the patent's life, and the competitive outcome after the patent is bought out. We show that such dynamic market information can be effective at determining both marginal and total willingness to pay of consumers in many important cases, and therefore can generate the right innovation incentives.

Promising Trends in Access to Medicines.

It is a vast understatement to say that the problem of access to medicines in developing countries is complex. Access is limited by a range of factors including inability to pay, a lack of infrastructure, and corruption in some countries. Surrounding and exacerbating these structural and technological problems is the layer of legal rights created by patents and their licensing that complicate and render more expensive the preparation and delivery of needed medicines, particularly those that need to be adapted to the social, health and cultural environment of developing countries. This article provides a survey of innovative strategies that aim at maximizing the potential of patents to facilitate the development and delivery of medicines against diseases, the burden of which falls principally on developing country populations. To understand the context in which these strategies are being proposed and implemented, the article reviews the battles over access to medicines beginning in the late 1980s. It then surveys some of the principal suggestions put forward to better direct innovation systems in addressing the critical health needs of the world’s majority including advance market commitments, patent buy‐outs, prize funds, public–private partnerships and patent pools.

First, Do No Harm

First, Do No Harm

Financing Drug Research: What are the Issues?

The current system of patent financing for prescription drug research leads to large and growing inefficiencies. In addition, patent rents create perverse incentives that can lead to both bad health outcomes and the slowing of the research process. This paper examines several alternative mechanisms for financing prescription drug research including a prize system, an auction-based patent buyout system and direct public funding for research. It outlines the advantages and disadvantages of each system by a series of criteria, including marginal cost pricing, openness of research findings, incentives for excessive marketing and the adequacy of research funding.

Access to Global Disease Innovation

The pharmaceutical IP system works well in high-income countries able to afford government subsidies and social insurance. It does not work for the poor in low and middle-income countries. For global diseases (Types I and II), innovation is assured by high-income country markets alone, permitting an accommodation for the poor in low and medium-income countries such as a patent buyout or other access programs which support equitable access without damaging optimal innovation incentives.

Foreword: Globe-Hopping Pharmaceuticals

Each spring incoming editorial staff at American Journal of Law and Medicine chooses focus for following year's Symposium Issue, and well-known scholars in field are asked to contribute to its publication. Since these authors are already experts in area, we give them free rein to explore whatever aspect of overall topic interests them most. We thought that this year's subject, GLOBALIZATION OF PHARMACEUTICALS: INTERNATIONAL REGULATORY ISSUES, might produce papers exploring high-profile international controversies related to direct-to-patient advertising, pharmacovigilance or regulation of dietary supplements increasingly consumed all over globe.3 We also expected articles dealing with regional and international efforts to achieve greater regulatory harmonization, such as those involving European Medicines Agency,4 nascent Trans-Tasman Pharmaceutical Products Regulatory Authority,5 or International Committee on Harmonisation. Two of our authors chose to examine one of those latter predicted subjects tangentially, but only one focused squarely on achieving more regulatory congruence on an international scale. This symposium topic drew forth a series of nine articles from our twelve experts that fell-somewhat surprisingly-into four seemingly disparate categories; intellectual property dilemmas affecting global pharmaceuticals, parallel trade of licit drugs between US and Canada, increasing threat presented by counterfeit pharmaceuticals, and inadequate regulation of manufacturer conflicts of interest likely to compromise human subject and patient safety. These categories encompass a wide range of subjects, but on close examination articles share a common subtext. The increasing globalization of pharmaceutical markets-trade in pharmaceuticals now constitutes approximately 3% of total world commerce7-means that no single nation can hope to resolve countless dilemmas related to drug development, safety, efficacy, access, and pricing alone. Moreover, no one-size-fits-all regulatory or market solution to these global problems exists. Instead, articles that follow attempt to grapple with second-best remedies from distinctive points of view, offering a mix of regulatory and market solutions to these complex issues. INTELLECTUAL PROPERTY DILEMMAS The first article in this collection offers Kevin Outterson's innovative approach for delivering essential medicines at low cost to developing world-where most of global disease burden lies-without depriving manufacturers of their expected return on investment in patented pharmaceuticals.8 He proposes patent buy-outs of these drugs followed by marginal cost pricing in middle and low-income nations (which he defines broadly as non-OECD countries). Treatments for chronic and infectious diseases would then be available to all residents of targeted countries, rather than just few who could afford to pay patented price. His win/win proposal would compensate manufacturers in amount of their expected patent rents from product sales in underdeveloped countries, in exchange for licenses to make generic versions of drugs available to their citizens at marginal cost. Outterson acknowledges that this scheme would over-include beneficiaries in some non-OECD countries with larger middle class populations (China, India, and Brazil, for example). He nonetheless posits that his solution would help to relieve disease burden in developing countries, while adequately preserving innovation incentives for manufacturers. John A. Vernon, Joseph H. Golec and W. Keener Hughen's paper elaborates on pricing/regulation interplay by exploring the links between prices, profits and R&D, from viewpoint of economists rather than policy analysts.9 Because (generally higher) U.S. drug prices are determined primarily by market mechanisms, while almost all other developed countries regulate (usually lower) prescription drug prices, some social scientists have advocated price regulation and parallel trade to reduce disparity for American consumers. …

Patent Buy-Outs for Global Disease Innovations for Low-and Middle-Income Countries

The World Health Organization’s CHOICE program analyzes the cost effectiveness of various health interventions related to the Millennium Development Goals. The program identifies the best strategies for improving health in low-income countries, using a standard set of methodological assumptions. These studies evaluate interventions in many areas, including child health and HIV/AIDS.For some of these treatments, drug costs are a significant variable: if the drug price doubles, the intervention becomes less cost effective. But if the drug price is reduced by 90%, then more therapies become affordable.Drug prices are uniquely susceptible to radical price reductions through generic competition. Patented pharmaceuticals may be priced at more than 30 times the marginal cost of production; the excess is thepatent rentcollected by the drug company while the patent and exclusive marketing periods remain. Patent rents are significant. AIDS drugs which sell for US$10,000 per person per year in the US are sold generically for less than US$200. If patented drugs could be sold at the marginal cost of production, cost effective treatments would become even more attractive, and other interventions would become affordable.

Weltweiter Patentschutz für pharmazeutische Innovationen: Gibt es sozialverträgliche Alternativen?

: This article discusses alternative incentive mechanisms for encouraging pharmaceutical innovations that support global health policy priorities. It concludes that Michael Kremer's proposal of patent buyouts, in which a public fund pays a mark-up on private valuations of patents from sealed-bid second-price auctions, should be adapted to serve global health needs. This could boost the efficiency of research and technology diffusion in areas suffering severe market failures, like vaccine research to fight international epidemics of infectious diseases. Finally, the paper outlines a strategy for the proposal's implementation, tapping the expected financial savings to key players within the international health economy.

Patent Buyouts: A Mechanism for Encouraging Innovation

In 1839 the French government purchased the Daguerreotype patent and placed it in the public domain. Such patent buyouts could potentially eliminate the monopoly price distortions and incentives for rent-stealing duplicative research created by patents, while increasing incentives for original research. Governments could offer to purchase patents at their estimated private value, as determined in an auction, times a markup equal to the typical ratio of inventions' social and private value. Most patents purchased would be placed in the public domain, but to induce bidders to reveal their valuations, a few would be sold to the highest bidder.