Retreating from strong bio-industry innovation incentives could damage our health

The biotech sector is rarely mentioned in the US patent reform debate, but proposed legislation and recent court decisions present it with major challenges

Tens of millions of Americans participate in a 401(k) plan, taking home smaller pay cheques to secure long-term economic prospects. The US patent system and effective patent systems worldwide rely on the same basic principle of investment. By temporarily forgoing the cheapest possible access to today’s technology, patents encourage investment in newer and better technologies for the future. Just as retirement planning promotes long-term economic health, maintaining strong patent protection in the biotechnology industry is vital to improving the physical health of people worldwide.

The long-term investment at the heart of the US patent system is one that Americans have willingly made for generations, driving innovations in biotech that have revolutionised the prevention and treatment of many life-threatening diseases. These developments have undeniably enhanced the quality and sustainability of life throughout the world. From a scientific standpoint, it is an exciting time in the industry – the application of advances in information technology and biotech is creating the potential for unprecedented progress in preventing, diagnosing and treating humanity’s most debilitating diseases.

Short-termism threat

Unfortunately, there has been a shift away from the forward-thinking mindset towards a short-sighted play for cheaper access to existing technology. Public funding for research in the life sciences is falling and incentives for innovation are being degraded. The patent system – the primary incentive that encourages investment in life sciences innovation – has been declared inapplicable to major sectors of life sciences by the US Supreme Court. Meanwhile, Congress is considering additional changes that could further diminish the strength of the US patent system. Major interests are pressing hard for reforms that could quickly make the US a laggard in patenting.

Patents are crucial to biotech in two ways. First, the exclusivity provided by a patent gives those taking on significant risks by investing in R&D the opportunity to make good on their investment. Studies have shown that an exclusivity period of at least 12.9 years is required just to recoup the development costs of the average biotech drug. Second, the patent system provides a built-in mechanism for encouraging follow-on innovation: disclosure. A key feature of patents is that they are published; inventors obtain exclusivity in exchange for teaching the world their invention. Without this incentive, biotech innovators will – to the extent that it is practical – be liable to rely instead on trade secrecy. Over-reliance on trade secrecy deprives other innovators of critical access to insights gained from the inventor’s research, leading to needless repetition of failures and inefficient allocation of resources. This is particularly problematic in biotech, where innovation occurs mainly by accretion, with each breakthrough building on the last.

Some conflate higher prices facilitated by temporary exclusivity with monopolistic extortion. This not only discounts the significant risks borne by investors in the life sciences, but ignores how efficiencies realised through technological improvements serve to reduce medical costs in the bigger picture.

Take the immense potential of advances in diagnostics to facilitate optimal treatment of patients. Aggressive over-treatment of patients (with accompanying negative side effects), together with the futile provision of drugs targeting a particular sub-type of a disease that the receiving patient does not have, carries a significant cost. Granting patents in personalised medicine encourages investment, leading to enhanced efficiencies in treatment, preventing wasted costs and counterbalancing the higher prices for inventive procedures afforded by temporary exclusivity. At the same time, patent disclosures – and their inevitable transition into the public domain – facilitate follow-on innovation, contributing to a virtuous cycle.

Diagnostic advances

Advances in diagnostic testing may hold the key to effective treatment for devastating afflictions, such as cancer. Diagnosing recurrence of many types of cancer earlier is likely to be of immense curative value – but few cancers have obvious biochemical markers of recurrence. Advances in the life sciences promise to unlock these genetic mysteries, but at significant expense. From identification of a manageable set of genes as predictors of clinical pathology to validation studies and data analysis to commercial launch, this protracted process is fraught with technical and regulatory hurdles. With costs in the tens of millions and frequently crossing the $100 million mark, a strong patent system is vital to incentivise investment in this life-saving and potentially game-changing industry.

When we reflect on the investments required to create new diagnostics in biotech, the short-term costs from patents are the deal of a lifetime. Stepping back even further confirms the wisdom of a strong patent system. Nearly 80 years (and many patents) removed from signing the US National Cancer Act of 1937, the chances of being cured today of the most common type of childhood leukaemia are around 90%. Such an advance would have appeared challenging in 1937, but not unimaginable. This optimism towards the potential for medical advances is precisely why citizens have been willing to make investments in the present for future gains.

Tomorrow’s life sciences innovations promise to be equally, if not more impressive than past accomplishments – but no less risky or expensive. To overcome today’s confounding afflictions, we must double-down on strong patent protections to protect our investment in innovation.

David J Kappos, former director of the US Patent and Trademark Office, is a partner at Cravath, Swaine & Moore LLP, New York.

David Hoffman is senior corporate counsel of IP & Transactions at Genomic Health, Redwood City, California

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