Why Does the EU Hate Medical Innovation?
The confidential European Union draft for revisions to general pharmaceutical legislation has leaked. The first piece of news is that the Regulatory Scrutiny Board, an independent EU body that assesses proposed policies, laws, or actions, has significant “reservations.” And, indeed, some of the reservations are frightening when it comes to the future of healthcare technology innovation in Europe.
Specifically, the assessment points out that, “the report should better assess the impacts of reduced regulatory protection periods on the sectors capacity to finance future innovations and international competitiveness.” That’s precisely correct, considering that the main result of the proposed revised legislative framework would be to gut patent protection, seriously erode the intellectual property rights of healthcare innovators, and deny cutting-edge therapies to the citizens of the European Union. That’s a lot of reservations.
The draft legislative recommendations show a pathetic misunderstanding of where new medical technologies come from. The Commission is proposing revisions that would reduce key incentives crucial to the research and development of medicines in Europe, and further accelerate the flight of healthcare venture capital funding out of the EU to the United States and China. It seems the bureaucrats in Brussels have a very limited understanding of the drug development dynamic combined with a very thorough kind of globalist indoctrination in their distaste for the value of patents and intellectual property.
Drug research is risky and expensive. For every 5,000 molecules developed in the lab, only one successfully advances through lab, animal, and clinical testing and receives regulatory approval. After accounting for all these failures, it costs almost $3 billion, on average, to bring a single medicine to pharmacy shelves.
Biotech investors only take these risks because of strong intellectual property (IP) protections, which prevent rival companies from copying an innovator’s idea and selling it as their own. For example, when a startup receives its first patent, the firm’s chances of attracting funding from institutional investors—such as venture capitalists—increases 53%, according to a National Bureau of Economic Research working paper.
If IP didn’t exist, few companies would ever invest in drug research and development. Why invest billions in creating a new medicine if a rival could simply freeload off that work and sell a cheaper knockoff version?
Actions have consequences. Bayer, for example, has recently announced that it will cut 12,000 jobs across the company, including about 900 of its 8,000 R&D positions.
In the words of author Philip Dick, “Reality is that which, when you stop believing in it, doesn’t go away.” The heart of the EU debate must evolve from a knee-jerk distaste for “Big Pharma” towards a debate over revitalizing Europe’s leadership role in healthcare research and development through smart and savvy free-market principles.
Countries with strong IP laws produce higher volumes of new treatments. The United States has the most robust IP protections, which explains why American scientists develop over half of the world’s new drugs. Gutting patent protections would further discourage research and development in Europe and further exacerbate the lag European patients already face in the accessibility of new treatments to serious and life-threatening diseases.
Studies, such as the Global Intellectual Property Index, demonstrate that the global biopharmaceutical sector invests a higher portion of sales in research and development than any other sector, including information technology. Countries that don’t offer high standard IP protections will not provide the assurance that investors seek. That acts as a significant drag on investment. Nations such as Singapore and the United Arab Emirates have developed visions emphasizing the need to grow by aggressively nurturing the life sciences and investment in innovation and have put forward specific policies to encourage more investment, employment, and innovation. Forewarned is forearmed.
A key unintended (although clearly predictable) consequence of the EU draft legislation would be to significantly reduce an innovator’s opportunity to recoup a medicine’s development costs. The very predictable result will be that new research programs in Europe will dry up. IP protections incentivize firms to make big research investments, which in turn produce breakthrough treatments not just for COVID-19, but for other diseases, like cancer. Weakening these protections would be enormously foolish and counterproductive.
The confidential European Union draft “impact assessment” calls it right, “The report does not sufficiently demonstrate the EU added value, nor the proportionality of the preferred option … The report should discuss more thoroughly how legal certainty for innovative businesses can be adequately ensured.” And, finally, “The report should be clear on who will benefit from the new measures and who will bear the costs and what the distributional impacts are for medicine developers, the pharma industry (including generics), SMEs, healthcare systems, and patients.” That’s all Brussels-speak for “Proceed with caution.” And that warning must be duly noted.
Peter J. Pitts, a former USFDA Associate Commissioner, is President of the Center for Medicine in the Public Interest, and a Visiting Professor at the University of Paris School of Medicine.
