The Logic of Collective Action or the Free Rider Problem of Global Health

by Oliver Cyrus
(for the Austrian Economics Center)

Global health problems can cause effects which do not only threaten individual members of the international community but also the world system as such. This becomes quickly evident in the case of pandemics that have the potential to rot out entire populations or the current growing antimicrobial resistance undermining our modern health system which would collapse without effective antibiotics. Thus it is in the interest of governments, the health industry and other stakeholders to cooperate for collective actions. Unfortunately, the nature of cooperation is often contested through individual expectations at the expense of others. Finding the right equilibrium is an art of its own…

 I. The UNHLP’s new est report: Many good intentions but disputable conclusions

 Nobody can seriously doubt that the newest report of the UN Secretary-General’s High-Level Panel lacks good intentions. Apart of many detailed and intriguing insights which deserve to be discussed in more detail certain aspects have caused rather strong reactions. Amongst others following statements have led to severe controversies:

1.   Governments should drastically restrict patentability of medical innovations: This relates to the TRIPS Agreement (Agreement on Trade-Related Aspects of Intellectual Property Rights), an international agreement administered by the World Trade Organisation (WTO) introducing IP Law in the international trading system. Specifically, the so-called “TRIPS flexibilities” hence those norms allowing member states to limit the exercise of intellectual property rights, are highly controversial. (1)

2.    Governments should make liberal use of compulsory licenses to override patents: Many countries including those in the industrialized, Western sphere have compulsory licenses in their IP Law for exceptional circumstances (e.g. urgent actions in case of disasters). A liberal use of this exception would definitely undermine the credibility of IP regimes. The effectiveness of compulsory licenses is mixed and although the High-Level Panel could not reach a unanimous decision on this matter it was finally recommended.

3.   The private sector role in the research and development of new cures should be minimized: Although the private sector has rather low incentives to invest in areas such as new antibiotics due to expected low investment returns this case should not be prematurely generalized. In many others fields biotechnology enterprises have a state of the art know-how which public institutions lack. (2)

II.The logical fallacy of the critics: Does a strong IP regime alone suffice?

There can be no doubt that strong intellectual property rights are the prerequisite for development, prosperity and innovation. As the U.S. Chamber correctly pointed out the UN Panel missed to mention other decisive barriers which hinder access to medicines. These are excessive tariffs and taxes on imported products or poor local health infrastructures. Bearing in mind that the UN’s own data unveil that 95% of essential medicines are no longer under patent it becomes hard to believe that intellectual property is seen as a problem for a better access to health products. (3)

According the U.S. Chamber’s International IP Index, economies with strong IP protections are 60 % more likely to provide environments fostering biotech innovation. Further there is a strong indication that economies with specific protections for the life sciences field have an average of 13 times more biomedical investment than those lacking IP protections. All these facts can be even underpinned by findings from non-governmental sources such as the Hudson Institute. The latter states clearly that “the intellectual property system has encouraged innovation that has saved millions of lives by providing the poor with access to lifesaving therapies.” (4)

Nonetheless these findings do not answer the question why some vital medicines such as new antibiotics or cures against pandemic diseases are highly underfunded. The problem lies not in the current IP regime itself but in the production costs and the potential profits justifying large investments. Developing novel medicines which will be rarely used makes economies of scale impossible. In the case of urgently needed new antibiotics, such products will be only used as a last resort in order to prevent new antimicrobial resistance. Cures against pandemic diseases such as Ebola for example are only needed during the luckily rare outbreaks but from a cost perspective it is hard to amortize the original investment. The Tufts Centre for the Study of Drug Development estimates the cost to develop and win marketing approval for a new drug of about $ 2.6 billion dollars. (5) Although this figure is highly questionable it becomes at least clear that investments in new medicines bear great financial risks. The UN estimates a death toll of around 10 million people by 2050 if the issue of antimicrobial resistance is not addressed – in fact during the last 25 years virtually no new antibiotics have been developed. This will also trigger an economic loss of about $ 100 trillion dollars which is roughly 2-3.5% of global GDP by 2050. (6) Currently it seems that there is a lack of awareness that such threats pose systemic risks on a global scale. They have become a matter of national and international security hence demanding innovative answers between governments and the private sector. At the moment we seem to be at the stage of blame games…

III. The quest for new pathways: Can innovative business models be game changers?

A recent study carried out by the World Intellectual Property Organisation (WIPO) emphasizes a paradigm shift in current health policy debates. While in the past years’ access to essential medicines and the lack of research for rare diseases were the sole agenda, the focus has broadened now substantially. Promoting innovation is regarded now as paramount in considering new ways how to ensure an equitable access to vital medical technologies. (7) Nonetheless different business models were already discussed in the past especially those suggesting a “de-linkage” of the financing of R&D through pricing and high volume of sales. Although such approaches can be in single cases reasonable, as pointed out by the Chatham House (8), they cannot be seen as an overall cure for the current dilemma. Undermining the current patent system is certainly not the right path nor should it be misused as a scapegoat for lacking innovation.

Notes: 

1 “Report of the UN Secretary-General’s High-Level Panel on Access to Medicines: Promoting innovation and access to health technologies,” 2016, http://static1.squarespace.com/static/562094dee4b0d00c1a3ef761/t/57d9c6ebf5e231b2f02cd3d4/1473890031320

/UNSG+HLP+Report+FINAL+12+Sept+2016.pdf, accessed September 2016.

2 Ibid.

3 US Chamber, “U.S. Chamber Condemns UN Report Attacking Patents: High-Level Panel recommendations ignore decades of data and input of key countries,” 2016, https://www.uschamber.com/press-release/us-chamber- condemns-un-report-attacking-patents, accessed September 2016.

4 Ibid.

5 DiMasi, Henry, G. Grabowski, Ronald W. Hansen, “PR Tufts CSDD 2014 Cost Study: Cost to Develop and Win Marketing Approval for a New Drug Is $2.6 Billion,” Tufts Center for the Study of Drug Development, 2014, http://csdd.tufts.edu/news/complete_story/pr_tufts_csdd_2014_cost_study, accessed September 2016.

6 “UN Secretary General’s High Level Panel on Access to Medicines: Promoting Innovation and Access Factsheet,” A New Deal to Close the Gap in Health Innovation and Access, 2016, https://static1.squarespace.com/static/562094dee4b0d00c1a3ef761/t/57d74b232994ca43043e01b4/14737272749 10/HLP+Factsheet.pdf, accessed September 2016.

7 World Intellectual Property Organisation (WIPO), “WHO, WIPO, WTO Trilateral Cooperation on Public Health, IP and Trade,” 2016, http://www.wipo.int/policy/en/global_health/trilateral_cooperation.html, accessed September 2016.

8 Kevin Outterson, “New Business Models for Sustainable Antibiotics,” Chatham House, CENTRE ON GLOBAL HEALTH SECURITY WORKING GROUP PAPERS, 2014, accessed September 2016.

Bibliography

DiMasi, Henry, G. Grabowski, Ronald W. Hansen. “PR Tufts CSDD 2014 Cost Study: Cost to Develop and Win Marketing Approval for a New Drug Is $2.6 Billion.” Tufts Center for the Study of Drug Development, 2014. http://csdd.tufts.edu/news/complete_story/pr_tufts_csdd_2014_cost_study, accessed September 2016.

Outterson, Kevin. “New Business Models for Sustainable Antibiotics.” CENTRE ON GLOBAL HEALTH SECURITY WORKING GROUP PAPERS, Chatham House, 2014, accessed September 2016.

“Report of the UN Secretary-General’s High-Level Panel on Access to Medicines: Promoting innovation and access to health technologies.” 2016. http://static1.squarespace.com/static/562094dee4b0d00c1a3ef761/t/57d9c6ebf5e231b2f02cd3d4/1473890031 320/UNSG+HLP+Report+FINAL+12+Sept+2016.pdf, accessed September 2016.

“UN Secretary General’s High Level Panel on Access to Medicines: Promoting Innovation and Access Factsheet.” A New Deal to Close the Gap in Health Innovation and Access, 2016. https://static1.squarespace.com/static/562094dee4b0d00c1a3ef761/t/57d74b232994ca43043e01b4/14737272 74910/HLP+Factsheet.pdf, accessed September 2016.

US Chamber. “U.S. Chamber Condemns UN Report Attacking Patents: High-Level Panel recommendations ignore decades of data and input of key countries.” 2016. https://www.uschamber.com/press-release/us- chamber-condemns-un-report-attacking-patents, accessed September 2016.

World Intellectual Property Organisation (WIPO). “WHO, WIPO, WTO Trilateral Cooperation on Public Health, IP and Trade.” 2016. http://www.wipo.int/policy/en/global_health/trilateral_cooperation.html, accessed September 2016.