Patents are one of the key mechanisms of intellectual property protection. The patent system was developed in the 19th century to incentivise innovation by granting the patent holder a temporary monopoly (generally, 20 years) in exchange for publication of the invention. Learn more about patents here.

Patent laws are regulated on national, regional and international levels. Every country has its own patent law and national patent offices to assess patent applications and grant monopolies. Regions often work together in regional patent offices [e.g. European Patent Office, African Intellectual Property Organisation, Patent Office of the Cooperation Council for the Arab States of the Gulf].

In 1995, the members of the World Trade Organization harmonised patent laws on an international level with the signing of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), making it easier for patent holders to enforce their patents globally. Rich countries with strong pharmaceutical companies have benefited the most from TRIPS. Only the least developed countries have a temporary exemption from applying the provisions of the TRIPS Agreement.

Pharmaceutical companies benefit from patents as they allow them to protect their investments in high-risk drug research and development (R&D) and recover costs spent discovering, developing and marketing new drugs. The business model of pharmaceutical companies is based on patents as it allows them to create monopolies and raise prices for their medicines to whatever the market can bear. Please read about the Gilead sofosbuvir example.

However, patents have negative side-effects regarding access to medicine. The monopoly created by a patent gives patent holders complete control over the price of pharmaceuticals in the market, allowing them to charge excessively high prices and abuse patents at the expense of public health. The patent system has also failed to deliver new medicines in low-income countries for instance neglected tropical diseases (NTDs), diseases of poverty, or where there are few patients and thus less economic incentive (also known as rare diseases or orphan diseases – see below).

In principle, after a patent expires, prices of medicines should drop as generic companies are able to begin producing and marketing  affordable versions. In reality, pharmaceutical companies are masters in prolonging (“evergreening”) their monopolies through second use patents (patents on the use of a medicine to treat a new disease area), Supplementary Protection Certificates (SPC) and data exclusivity.

The patent system can also be misused: to remedy this, the patent can be challenged in court (see Patent Oppositions). However, pharmaceutical companies sometimes request large numbers of patents (a patent ‘thicket’) for profitable medicines, so that generic companies get discouraged challenging them (one example of this is the case of Humira, a medicine that treats rheumatoid arthritis and other illnesses, written about here by the USA NGO I-MAK. To avoid the legal battles, generic companies often sign agreements that give them access in one market but delay entry in another market. Again the Humira case is a good example, where in the EU biosimilars were able to enter the market in October 2018, whereas they were prevented from doing so in the USA until 2023..

The unintended consequence of the patent system is that high-income countries pay increasingly high prices for new medicines. There is low incentive for pharmaceutical companies to develop medicines for rare diseases (see Market Failure) or medicines that need to be restricted such as antibiotic development failure.

Supplementary protection certificates (SPCs) are intellectual property rights that serve as an extension to a patent right on medical products that require authorisation by national regulatory authorities before they can be marketed. They are granted at the expiry of the patent term to compensate for the long time needed to register a medicine and obtain regulatory approval so that it can be marketed. During this time, the exclusive patent rights of the medicine cannot be exploited commercially. 

With the additional protection of an SPC, the holder of the patent rights can benefit from an overall 15 years maximum of market protection, from the moment the product first obtains the authorisation to be placed on the market. This can potentially extend the term of monopoly protection far beyond the 20-year life of a patent (see diagram below). 

High prices of medicines, enabled by patent or SPC market exclusivity, serve as a barrier to access to treatment, and the ability of healthcare systems to ensure availability of medicines for all patients. 

While SPCs are intended as innovation incentives, in reality they can impede the availability and affordability of lifesaving medicines.

Manufacturers of new medicines may be granted a period of ‘data exclusivity’, granting them exclusive rights over safety and efficacy data from preclinical tests and clinical trials submitted for the registration of the medicine by regulatory agencies.

In the EU, this data exclusivity lasts for a period of 8 years, plus an additional 2 years of market exclusivity from the date of approval of the medicine. After this period, the manufacturer is obliged to release the information to companies wishing to develop generic versions of the medicine. Read more about this here.

As a result, new medicines protected by data exclusivity remain unaffordable and inaccessible to many patients, as pharmaceutical companies are able to increase prices as far as the market allows, and generic producers are delayed in their approval and marketing of cheaper generic products. Read more about this here.

There is no exception to the 8-year period of data exclusivity, meaning that EU countries cannot register a generic product during the data exclusivity period, even when the medicine is needed for compelling public health reasons or emergencies, or when a compulsory licence has been issued on a medicine patent.

The data exclusivity legislation of the EU goes beyond what is required by international intellectual property law [see Patents and IP], which does not require states to confer exclusive rights over data related to marketing approval. It only obliges states to protect undisclosed test data submitted for the registration of new chemical entities against unfair commercial use as started in Article 39.3 of the TRIPS Agreement.

Data exclusivity legislation prolongs the period of time during which affordable generic medicines are not available, thus limiting the accessibility of certain medicines to patients in need.

Orphan drugs are drugs intended for the treatment of a rare disease (a disease occurring in 5 or fewer patients per 10,000 inhabitants). Under normal market conditions, there is low economic incentive for pharmaceutical companies to develop drugs intended for such a small number of patients. Consequently, only 5% of rare diseases get appropriate treatment. The 7000 rare diseases lacking treatment is an important public health issue.

The European Orphan Medicinal Products Regulation (2000) aims to stimulate the development of products to diagnose or treat rare diseases, by awarding 10 years of market exclusivity to new orphan medicines. This protects pharmaceutical companies from competition from similar medicines with similar indications, which cannot be marketed during the exclusivity period. Read more about this here.

As a result of the Orphan Medicines Regulation the number of orphan drugs registered in the EU increased from 8 in 2000 to 169 in 2019. However, there are still huge access problems stemming from poor availability and affordability of orphan drugs, and thousands of rare diseases still lack an effective cure. The Regulation was intended for new orphan drugs, but companies also use the system to ‘repurpose’ old drugs, for which they also get 10 years of market exclusivity in the EU. As a result, companies can charge exorbitantly high prices, raising the cost of orphan drugs constantly. Read more about this here.

As a result, drugs approved through orphan market exclusivity policies are often inaccessible due to their high price, as a result of pharma companies’ abuse of their dominant market positions. Entry to the market of more affordable generic drugs is further delayed by ‘evergreening’ and ‘repurposing’ old drugs by pharma companies to extend market exclusivity for as long as possible.

Medicines in general cannot be marketed and sold to patients unless they have marketing authorisation from a relevant medicines regulatory authority at the national or regional level. This means that even if an alternative treatment exists, if it has not received regulatory approval in that country or region, patients may not have the option to use it.

Perhaps the most widely recognised example of this is the case of pyrimethamine (brand name Daraprim), an antiparasitic medication usually used to treat comorbidities in people living with HIV. The medicine went off patent in the 1950s, but when it was bought by Martin Shkreli’s Turing Pharmaceuticals in 2015, its price was instantly hiked from $13.50 a pill to $750 a pill. Turing was able to do this because they had a monopoly on marketing rights for the medication. That monopoly was further enforced by a tightly controlled distribution system for the medication: it was only available from a single source in the United States, Walgreens Specialty Pharmacy. By limiting sources for the medicine, Turing made it more difficult for other companies to obtain samples needed for bioequivalence testing, which would be needed to register a competing version of pyrimethamine with the US Food and Drug Administration. Thus the regulatory system was able to be leveraged to keep potential competitors from the market and maintain high prices.

Another example is chenodeoxycholic acid (CDCA), a treatment for the rare genetic disease Cerebrotendinous xanthomatosis (CTX). CDCA was marketed from 1976 to 2008 in the Netherlands for the treatment of gallstones, at a price of €0,28 per capsule, and from 1999 onwards was used off-label to treat CTX. But in 2017, Leadiant Biosciences acquired marketing rights for CDCA, withdrew the product from the market for use in gallstones, secured marketing authorisation for CDCA as an orphan drug, and then promptly raised its price 500-fold.  The Pharmaceutical Accountability Foundation submitted a competition law based complaint to the Netherlands’ Authority for Consumers and Markets (ACM) in response, which successfully resulted in a sanction of 19.6 million Euros . For more information, see our case study on CDCA.

Several orphan drugs are also maintaining their high prices, even after the 10 years exclusivity have ended. See the ZIN orphan drug report 2020 for more information.

In some cases, there is only one treatment for a particular ailment, meaning a monopolised medicine is the only option for patients suffering from it. 

There are many reasons why a treatment might be the only option. It could be a new-in-class medicine. For example zolgensma, a novel gene therapy that treats a childhood onset genetic illness called spinal muscular atrophy. While zolgensma represents a clinical breakthrough, it was priced at the backbreaking $2.1 million (€1.9 million) per patient, earning it the title of ‘most expensive drug in the world.’ When there is no competition or other options to treat an illness, high prices are often unavoidable. 

Other examples of this include single-source products or products that are the only registered treatment for a particular illness (see section above: only one product registered). Competition can also be eliminated through anti-competitive behaviour such as mergers to monopolise supply chains or monopolisation of registration (see supply chain issues below, as well as ‘competition law badly applied’ in the section on poor enabling environment). 

Patents and other legal monopolies will also eliminate competition and can drive up prices (see ‘access problems due to monopolies’, above).

Bottlenecks in medical supply chains can cause several challenges, including stock outs, shortages, and high prices on dwindling or limited stock. They can be caused by any disruption to the supply chain – either a difficult to source component, disruptions in trade, or interruptions in transfer of materials (such as cell lines) needed to expand production of complex biologic medicines.

This is particularly true in cases where – thanks to the drive to lower prices – there is minimal resilience in supply chains, usually from  overdependence on a small number of sources for a product.

For example, during the Covid-19 pandemic, many consumers in the US noticed shortages of the over-the-counter painkiller paracetamol (acetaminophen in the US), more than 70% of which is made in China. Quarantines in China resulted in cascading shortages of paracetamol, among other medicines: China makes about 80% of the global supply of the anticoagulant heparin, and supplies about 80% of the Active Pharmaceutical Ingredients (API) to India's generic drug industry, the world’s biggest source of generic medication. 

API is the part of a medication that has therapeutic effect; while not the sole component (other critical parts include delivery mechanisms, formulations, or taste masking, for example), API is obviously critical to a drug’s functioning. Some 80% of global API manufacture has now been outsourced to India and China, which creates a particular vulnerability in the supply chain should anything happen to disrupt supply from those places, as was the case during Covid-19.

The concentration of API in a few places is part of a general goal of getting lower prices; manufacturing API in High Income Countries could increase resilience of the supply chain but might be more costly. Food supply chains are a similar parallel: many countries subsidise local agricultural production, even when it would be cheaper to import food from abroad, because food security is a national concern.

Limited suppliers can also leave the door open for corporate malfeasance. For example, Leadiant Biosciences entered into an exclusive contract with the Italian API manufacturer of Leadiant’s medicine CDCA, and used that exclusive deal to prevent hospitals from obtaining the raw material needed to compound more affordable versions of it. This led to an investigation by the Italian competition authority. For more on this, see our CDCA case.

Supply chains can also be interrupted by uncertain demand to keep supply lines open. This happened in the case of Chagas disease, an insect-borne parasitic infection affecting primarily rural communities in Latin America. Uncertainty in demand influenced production decisions of manufacturers of key ingredients, leading to shortages.