Patents, innovation and access to new pharmaceuticals

This paper considers the role of intellectual property rights in the development of, and access to, new pharmaceuticals. A number of studies have found patents are significantly more important to pharmaceutical firms in appropriating the benefits from innovation compared with other high tech industries. The reason for this is because the costs of drug innovation are very high while the costs of imitation are relatively low. Hence the industry is subject to significant free-rider problems. The paper discusses the economics of the innovative process and considers how patent policies have evolved in response to these characteristics in several developed countries with research-intensive drug firms. One area currently receiving policy attention is the effect of patents on the development of, and access to, new medicines for developing countries. The final section of the paper focuses on this issue and discusses the need for an orphan drug type programme to stimulate more R&D on diseases specific to third-world countries.