Health and Innovation: In the Eye of the Storm

Medicines Australia 2011 Parliamentary Dinner, Canberra, Australia

March 2, 2011

Francis Gurry, Director General, World Intellectual Property Organization

Honourable Ministers,
Honourable Members of the House of Representatives and Honourable Senators,
Distinguished Guests,

It is privilege for me to have this opportunity to speak to you tonight in the dining room of the nation’s Parliament. It is very fitting to speak about intellectual property in a dining room, as the first recorded instance of intellectual property was amongst the Sybarites of Ancient Greece. They awarded a twelve-month exclusive right of exploitation to the chef that invented the best new dish. It is a telling story because it shows that, from the beginning, the policy of intellectual property has been to encourage outcomes in the areas that society values. For the Sybarites, that meant pleasure. For us, in the complex, contemporary world, that means many things, but above all, health, for as Thomas More recognized in Utopia, health is a precondition to the enjoyment of all other things.

Innovation is essential to health. It is a truism, of course, that new treatments and cures will come from innovation. But let us not forget that the microbial world is also very good at innovation. Its cost structures are inexpensive and efficient, it borrows laboratories and premises free-of-charge and its cycles for bringing on new products are very short. If we cannot find ways of being better than it at innovation, we will, in a very densely populated planet, where persons move from place to place with greater and greater ease, come out a sorry second. We must, therefore, encourage innovation; we must encourage investment in research and we must provide a framework for bringing new medicines from early-stage discoveries right through the very complex process to marketed products. Intellectual property and, more particularly, patents are a powerful encouragement to, and framework for, this innovation.

But we also know that there is no point in having new medicines unless they can benefit those who need them. And so there is the question of balance, which I think lies at the heart of all intellectual property, whether we are talking about cultural creations or new medicines, a balance between, on the one hand, the incentive to innovate and, on other hand, the diffusion of the social benefit of the innovation. Striking that balance in the field of health is an extraordinarily difficult challenge because it involves trying to resolve contradictory realities – the realities of health economics, the economics of innovation and the intensely competitive world of the pharmaceutical industry, on the one hand, and the reality of access to medicines and the right to health, on the other hand; or, in other words, the reality of the market as against the reality of compassion.

Further layers of complexity are added to this inherently difficult balance, in my view, by three factors.

The first of those is the disjunction between the enormous cost of successful innovation, on the one hand, and the low cost of imitation, on the other hand. The development of a new drug requires years and hundreds of millions of dollars of investment. In 2008, the Health Care Sector was the second largest investor (after Computing and Electronics) in research and development (R&D) amongst the 1,000 biggest corporate R&D spenders in the world, spending some $120 billion1. Seven of the top 20 corporate investors in R&D worldwide were from the Health Care Sector and the Sector had the highest research intensity, spending some 12% of sales on R&D2. Yet, despite the enormous investment that a new medicine requires, once discovered and made available on the market, it can usually be reproduced by a competent graduate student in a very short period of time. The contrast between the cost of innovation and the cost of imitation again requires a balance to be struck by policy-makers, in this instance a balance of market forces, between, on the one hand, the needs of the research-based pharmaceutical industry and, on the other hand, the cost efficiency of the generic industry. The research-based pharmaceutical industry has on its side the policy instruments of patents and data exclusivity. The generic industry has on its side the lower cost structure that using the research and innovation of others brings.

A second factor adding complexity to the balance is that, internationally, health is emblematic of the disparities in wealth and resources that exist between countries. In particular, when the world is considered as a global market, it can be seen that market failure occurs quite frequently. Where the necessary wealth to purchase medicines does not exist amongst a category of consumers or patients, there is no economic or market incentive to invest in innovation in respect of the diseases that affect those consumers or patients. Market failure has led to the so-called 10/90 gap, whereby 10% of the world’s diseases attract 90% of the world’s R&D3. While not an exact measure, the 10/90 gap is symbolic of the disconnect between needs and investment internationally in the health sector. For example, while 500,000 people die each year from neglected tropical diseases (NTDs), it is estimated that only $1 out of every $100,000 invested in biomedical R&D is spent on NTDs.4

A number of instruments have been developed in recent years to address the problem of market failure. Public-private partnerships are one such instrument. They combine the traditional role of government in seeking to redress market failure with corporate social responsibility. There are a number of successful examples of such partnerships, including the Meningitis Vaccine Project, launched to respond to the need for a better vaccine for epidemic meningitis, the Global Fund to fight AIDS, Tuberculosis and Malaria and the GAVI Alliance to strengthen immunization systems.

At WIPO, we have been exploring with pharmaceutical companies and other interested research institutions the possibility of forming a global consortium for open innovation in the field of NTDs for the purpose of sharing, on a voluntary basis, research and libraries of compounds. If all goes well, we hope that it might be possible to make an announcement about the nature and participants in the consortium around the middle of the year.

What seems to be emerging in practice, in many instances, is willingness on the part of corporations and other economic actors to distinguish between market and non-market situations. The Global Consortium mentioned in the previous paragraph would, if it materializes, be one such example. The Statement of Principles and Strategies for the Equitable Dissemination of Medical Technologies in the developing world, adopted originally by the Association of University Technology Managers (AUTM), Boston University, Brown University, Harvard University, Oregon Health & Science University, University of Pennsylvania and Yale University, is another5. Subscribers to the Statement agree that, in negotiations with potential licensees, they will make vigorous efforts to develop creative and effective licensing strategies that help promote global access to health-related technologies. In a different area of intellectual property, scientific, medical and technical publishers have, through WIPO, agreed to make available a large range of scientific periodicals, free-of-charge, to anyone in a least developed country and, at a very modest price, to those in 58 other developing countries. The practice of tiered-pricing, which goes against the thrust of a single global market, is a further example.

A third factor adding complexity to the balance is the rapid and radical changes that are occurring in the geography of economic and technological production. The developing countries’ share of global GDP in purchasing power parity terms has increased from 33.7% in 1980 to 43.4% in 20106. As is well known, certain countries and regions, in particular, have emerged as leading engines of growth. In terms of technology production, China has become the fourth biggest filer of international patent applications under the Patent Cooperation Treaty (PCT). China passed the United Kingdom, in 2008, and France, in 2009, in the number of international patent applications filed. On that base, already bigger than those of the United Kingdom and France, in 2010 the number of international patent applications filed from China increased by 56%. These are but glimpses of a landscape in profound change. Our political terminology no longer reflects economic reality; it reflects rather the economic reality of the 1970s. Rather than a neat divide between developed and developing countries, it is more appropriate to think in terms of a changing spectrum of economic development in which the location of particular countries often differs from the positions that their political addresses might suggest.

The changing landscape emphasizes the need for empirical approaches to the policy task of determining the point of equilibrium in the balance. In Geneva, at the instigation of Pascal Lamy, the Directors General of the World Trade Organization (WTO), the World Health Organization (WHO) and the World Intellectual Property Organization (WIPO) have initiated cooperation between the Secretariats of the three organizations for this very purpose of encouraging an empirical approach and for bringing to bear, within that empirical approach, the different policy perspectives of trade, health and innovation. An example of such an empirical approach is the incipient idea of a patent database or landscape of the medicines on the List of WHO Essential Medicines, which would better inform us if and where patent protection exists in relation to those medicines, a prerequisite to any evaluation of the impact of patent protection on the availability of essential medicines.

It is clear that there are no easy answers in the field of health and innovation. The policy balance between encouraging innovation and ensuring the widespread enjoyment of the social benefit of innovation in the field of health will always to have to be managed on a tightrope, the tightrope that results from the intersection of economics, health and innovation policy in a fiercely competitive market environment. Staying on the tightrope without losing balance is vital for an economically viable health sector, an innovative health sector that advances the fight against disease and illness and, of course, our most fundamental desire, the enjoyment of good health.

1 See Barry Jaruzelski and Kevin Dehoff, “Profits Down Spending Steady: The Global Innovation 1000, (2009) 57 Strategy + Business.
2 Ibid.
3  Commission on Health Research for Development, Health Research: Essential Link to Equity in Development, New York, Oxford University Press, 1990. See
4  See
  5  See
6 Robert B. Zoellick, “The End of the Third World? Modernizing Multilateralism for a Multipolar World”, Woodrow Wilson Center for International Scholars, April 14, 2010.