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Patent Purchase as a Policy for Pharmaceuticals

Author

Listed:
  • Ben van Hout

    (Health Economics and Decision Science, School of Health and Related Research, University of Sheffield)

  • Jolian McHardy

    (Department of Economics, University of Sheffield)

  • Aki Tsuchiya

    (Health Economics and Decision Science, School of Health and Related Research, University of Sheffield)

Abstract

We consider a proposal for pharmaceutical patenting policy: namely, for society to grant and purchase the patent of the first of a new class of drug, instead of purchasing the drug, and award no further patents to runner-up drugs, producing or licensing production with price set to maximise welfare subject to cover costs. It is often observed that when the first of a new class of drugs is patented, it does not necessarily halt the development of a second and a third drug of the same class. The result may be a number of rugs with similar efficacy at similar prices well above the production costs. Where this happens, society could substantially reduce the cost of duplicated R&D and the price of the drug by buying the first patent. This would benefit more patients and produce larger health gains. Under this policy social welfare is increased, the winner is fully compensated, while the runner-up firm incurs possible losses - but there are viable conditions under which firms would not lose on average. We take a drug life-cycle approach to the welfare gains of a patent purchase policy. The results are generated based upon a number of stylised facts regarding R&D in the pharmaceutical industry.

Suggested Citation

  • Ben van Hout & Jolian McHardy & Aki Tsuchiya, 2015. "Patent Purchase as a Policy for Pharmaceuticals," Working Papers 2015007, The University of Sheffield, Department of Economics.
  • Handle: RePEc:shf:wpaper:2015007
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    File URL: http://www.sheffield.ac.uk/economics/research/serps/articles/2015_007
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Patent Purchase; Pharmaceuticals; Life-Cycle; Welfare;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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