Resolving the Novartis Issue

The Indian Supreme Court ruling denying patent protection to an expensive cancer drug developed by Swiss pharmaceutical giant Novartis has been universally reported as an issue of corporate profit versus human need.

In that face-off it is impossible to avoid a wide range of negative effects. The most obvious are that many lifesaving drugs are priced beyond the reach of many who need it, and in affluent countries that has made health care systems absurdly expensive. In addition, corporations have been traditionally disinterested in creating new drugs to treat the diseases afflicting many millions in poor countries.

However, as the fastest growing markets are in emerging economies, Western corporations have shifted ground in recent years and have been pressing successfully to make stiffer patent protection an intergovernmental issue. India’s 2005 patent law reducing the space for generics was adopted under such pressure, and the prices of the next generation of new drugs will reflect the change.

The issue of profit versus public need has been debated for decades without any attempt to bring the conflicting interests to a generally acceptable resolution.

As far as I can see, that is mainly because all stakeholders have been so busy protecting their own turf they have not addressed the basic issue: how best to motivate innovation and ensure cheap drugs.

That issue has a quite simple solution: delink Research and Development from Production and Marketing. In other words, there would be no expensive brand name drugs: new medicines would pass directly from R&D to generic production.

Governments could get the new system going by arranging to reward innovation, scaling pay-offs to the popularity of the product. This could be done either from general tax revenues or dedicated funds linked to sales taxes.

The immediate benefits would be plummeting health care costs in affluent countries and a shifting of R&D priorities towards creating drugs most in need.

Taxpayers would have little cause for complaint, for reduced health care costs and improved access to drugs will translate into massive savings.