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Authors: Jayashree Watal and Rong DAI

Abstract: This paper examines access to new and innovative pharmaceuticals in a post-TRIPS era. The WTO’s TRIPS Agreement (TRIPS) makes it obligatory for WTO members – except least-developed country members (LDCs) – to provide pharmaceutical product patents with a 20-year protection term. Developing country members, other than LDCs, were meant to be compliant with this provision of TRIPS by 2005. Access to medicines generally includes two distinct components, viz. availability and affordability. This study investigates these two sub-components of access to medicines and poses two questions in this context: (1) How does the introduction of product patents in pharmaceuticals affect the likelihood of pharmaceutical firms making available new and innovative medicines in those markets? (2) For launched new and innovative medicines, how much do firms adjust their prices to local income levels in order to make these products affordable?

Using launch data from 1980 to 2017 covering 70 markets, the study finds that introduction of product patent for pharmaceuticals in the patent law has a positive effect on launch likelihood, especially for innovative pharmaceuticals. However, this effect is quite limited in low-income markets. Also, innovative pharmaceuticals are launched sooner than non-innovative ones, irrespective of the patent regime in the local market.

Using a panel data set of originator and generic prices from 2007 to 2017, the study finds evidence of differential pricing for both originator and generic products. Overall, originators differentiate by about 11 percent and generics by about 26 percent. Differential pricing is larger for pharmaceuticals that treat infectious diseases, particularly for HIV medicines, than for non-communicable diseases (NCDs), suggesting that global responses to infectious epidemics have benefited people with those diseases in poorer markets in terms of access to cheaper generics. However, neither originators nor generics adjust pharmaceutical prices fully to local income levels. We also find that the more effective way of driving down prices is competition within a particular medicine market which occurs in the absence of market exclusivity.

Citation: Watal, Jayashree and DAI, Rong, Product Patents and Access to Innovative Medicines in a Post TRIPS Era (May 27, 2019). Available at SSRN: https://ssrn.com/abstract=3394851