Can patent duration hinder medical innovation

Abstract

We argue that, in the pharmaceutical industry, excessive patent duration can deter investments in innovative treatments in favor of me-too drugs. The point is that too-long durations foster incentives to collude to delay investments in R&D for innovative treatments. We give a set of sufficient conditions for which collusion is a subgame-perfect equilibrium; that is, the threat of punishing any deviator is credible. We then show that reducing current duration always breaks down market discipline, and so does an increase in duration for innovative treatments. Optimal patent duration must then be a trade-off between breaking down market discipline and rewarding innovation.

Reaching for mediocrity: Competition and stagnation in pharmaceutical innovation

“…Most notably, Ganuza et al [2009] model how priceinelastic doctors, who make drug purchase decisions on behalf of insured patients, induce firms to invest in follow-on innovations instead of pioneering drugs and encourage them to spend on persuasive as compared to informative marketing to increase demand for me-too drugs. Focusing on diseases such as HIV/AIDS, Leoni and Sandroni [2016] model how excessive patent duration can encourage firms to collude with one another to produce marginal innovations rather than full cures. González et al [2016] generate a model of follow-on drugs with patients that are horizontally and vertically differentiated, and intermediate doctors that act as perfect agents for the health care system.…”