The Patent of Biomedicine: The Pharmaceutical Industry in the Pre-Patent Era and Post-Patent Era

What happens if the pharmaceutical industry is not protected by patents? What changes has the emergence of the patent system brought to the commercial operation rules of the pharmaceutical industry?

The "pre-patent" era of the pharmaceutical industry

If we want to study the impact of the patent system on the commercial world, an ideal experiment is to find a commercial society without a patent system, clone it, and add the patent system to the cloned commercial society while keeping other conditions unchanged. We then observe the respective trajectories of these two parallel societies from the side and draw conclusions by comparison. However, in the real world, such experiments are not feasible. So, can we go back in time and have some insight by comparing the development of the pharmaceutical industry before and after the impact of the patent system?

Let's go back to the United States at the beginning of the 20th century. At that time, pharmaceutical technology had basically changed little for decades. At that time, pharmaceutical companies did not need medical representatives or marketing to doctors, because except for narcotics, all drugs could be easily purchased without prescription. In other words, the pharmaceutical industry at that time was not significantly different from other manufacturing industries.

That all changed with the FDA Act of 1938.

A very important part of 1938 bill is the requirement that any new drug must be approved by the FDA before it can be marketed, which allows the FDA to prevent potential safety hazards from appearing on the market. The emergence of the 1938 Act also made "prescription drugs" and "over-the-counter drugs" clear "for the first time. Previously, although there were cases of sales through doctor's prescriptions, drugs other than narcotics could be purchased directly at pharmacies without a prescription. In other words, before the 1938 Act, there was no clear line between over-the-counter and prescription drugs. However, the 1938 bill has completely changed the way prescription drugs are sold. The customers faced by pharmaceutical manufacturers have changed from "patients" to "hospitals/doctors". What makes these new "customers" special is not only that they have more expertise, but also that they do not pay for the products they decide to buy. Many times, doctors don't even know the exact price of a drug. In other words, the person who pays the money has no decision-making power, and the person who makes the decision does not need to pay the money. Because of this, drug sales are less sensitive to price changes than they were before 1938.

Formation of new game rules

Although the 1938 bill has changed the pharmaceutical industry from an ordinary manufacturing industry to a "special manufacturing industry" that requires government approval to produce and sell, the entry threshold for drug production is still relatively low, which corresponds to this low entry threshold., Is fierce market competition and price war. Taking antibiotics as an example, in 1944, 19 different American pharmaceutical companies produced penicillin, and the largest 5 companies accounted for 88% of the market share. By 1950, the market share of the top five penicillin manufacturers had dropped to 43%, and the price of penicillin had plummeted in five years, from nearly US $4000/pound in 1945 to less than US $300/pound in 1950.

However, a series of subsequent changes have subtly changed the rules of the game in the pharmaceutical industry.

The first is technological progress. Selman Waksman invented the method of screening antibiotics from soil, and successfully used this method to screen streptomycin in 1943. Later, Waksman won the Nobel Prize in Physiology or Medicine in 1952 for this discovery.

Secondly, as technology advances, patents are beginning to play an increasingly important role in the pharmaceutical industry. As mentioned above, the previous pharmaceutical industry was not an active field of research and development, and penicillin and other drugs do not belong to the "invention" category of patent protection because they are "substances that exist in nature. However, with the development of technology, it was found that the newly developed drugs could be protected by patents. Merck improved the production process and purity of streptomycin, and obtained the first "composition of matter" patent for streptomycin in 1948 (U.S. Patent No. 2,446,102). Although Merck obtained the patent right for streptomycin, Merck licensed the right to many manufacturers and manufacturers without discrimination because of the fear of public opinion accusing him of using the discovery that has a significant impact on public health for his own personal gain. This made streptomycin go back to the old path of penicillin-generic drugs emerge in endlessly, the market competition is becoming increasingly fierce, and the price quickly plummeted.

After that, new drug research and development enterprises began to no longer issue equal patent licenses to other manufacturers. On the contrary, they began to use the "legal exclusive rights" granted by patents to build competitive barriers and gain competitive advantages. As these new drug developers become the only companies on the market that can provide a certain drug product, they begin to control the relationship between supply and demand. In order to maximize the benefits, one approach is to reduce production and maintain relatively high prices by keeping the product in short supply; the other is to not sell directly and instead profit from high patent licensing fees. When the second option is adopted, the licensee, who has paid a high license fee, must recover the cost and profit by raising the price of the drug. As a result, after the introduction of the 1938 Act, "prescription drugs" that are less sensitive to price changes have become popular. If a prescription drug that is not sensitive to price changes meets the previously unmet market demand and obtains the "monopoly right" granted by law through patent protection, then by actually controlling the relationship between supply and demand (monopolizing the source of the drug and raising the price of the drug) Or by charging high patent license fees, new drug research and development companies can maximize profits. Since the license fee usually depends on the sales of the final product, the variables are large, and the follow-up verification of the actual sales quantity of the licensee requires too much energy, many new drug research and development companies have chosen the path of self-production and self-sales.

This change was clearly demonstrated in later tetracyclines. In 1948 Lederle introduced chlortetracycline, in 1949 Parke-Davis introduced chloramphenicol, and in 1950 Pfizer introduced oxytetracycline. At that time, people did not know the chemical structure of the active ingredients of these three drugs, nor did they know their side effects. They only knew that their antibacterial effects were similar and better than penicillin. Each of the three companies has a patent to protect its own product, and thus ensures that no other manufacturer can produce the same product. However, because the efficacy of these three drugs is similar, they bring similar "benefits" to "consumers", so the three companies still have a competitive relationship with each other. They need to find and show their "shining points" in areas other than "curative effect", so targeted advertising and brand promotion strategies come in handy. However, because the main "innovation" activities of this period are still based on Waksman screening methods, the "new drugs" discovered by various pharmaceutical companies are still similar in terms of efficacy. Although each manufacturer has protected its own specific products through "patents", so that the competitive pressure of producing "the same product" has been alleviated during the validity period of the patent, the competition between "similar products" is still quite fierce, because these drugs are not exactly the same but similar in efficacy are aimed at the same consumer group.

Pfizer was the first to realize that in order to stand out in such a competitive landscape, it is necessary to master "unique skills" in terms of "innovative means". Pfizer hired Robert Woodward, an organic chemist at Harvard University, to study the chemical structure of oxytetracycline. Through Woodward research, Pfizer not only understood the chemical structure of oxytetracycline, but also improved on the basis of the Lederle drug chlortetracycline, and obtained tetracycline by removing a chlorine atom from chlortetracycline. Robert Woodward was awarded the 1965 Nobel Prize in Chemistry for his outstanding work in synthetic chemistry.

Lederle heard about Pfizer's actions, so he quickly carried out the synthesis of tetracycline, using Pfizer's method, and applied for his own patent. With the publication of Pfizer and Lederle related research results, other pharmaceutical manufacturers also began to try to use different methods to produce tetracycline. Among them, Hayden Chemical Corporation and Bristol successfully used their own methods to produce tetracycline, and applied for patent protection for their respective methods.

Then there was a scuffle between these companies over who invented what and who should get what rights. Along with a series of legal actions and a series of non-legal channels of negotiation, communication and licensing, patent litigation is just a pawn in this game. In the end, Pfizer granted five companies patent licenses based on their product patents, allowing them to legally produce tetracycline, and received a corresponding patent license fee. Pfizer, with its core patents, has finally gained an absolute market advantage. The cooperation and agreement reached between these five companies kept the price of tetracycline stable for a long time, without repeating the mistakes of penicillin and streptomycin, avoiding the occurrence of price wars. It is worth noting that the production cost of tetracycline is only less than 10% of its selling price, because of the patent protection, which greatly increases the profit margin of the drug. If we compare the differences in profits between different drugs from the same manufacturer over the same period, we have a more interesting finding. Take Lederle as an example. The total profit margin of all drugs sold in 1955 was 20%, of which the profit margin brought by antibiotics was 35%, while the profit margin of all other drugs was only 3%. Considering that penicillin and sulfonamides were essentially money-losing among the many antibiotics sold in Lederle at the time, the 35% of the profit came essentially entirely from the patent-protected product tetracycline.

In the long-term patent scuffle, the five companies that finally joined forces occupied the market for broad-spectrum antibiotics, and those manufacturers without patents and licenses were ruthlessly excluded from the "tetracycline club. However, in the case of ensuring profit margins, how should this big cake be distributed among the five pharmaceutical manufacturers? As a result of the enactment of the 1938 Act, the doctor who holds the "prescription right" rather than the consumer who ultimately pays the bill has become a key factor in determining drug sales. As a result, pharmaceutical companies no longer aimlessly put valuable wealth on newspapers, magazines or billboards, they began to "accurately" contact with doctors who have the power to decide. At this point, the new rules of the game in the pharmaceutical industry are beginning to take shape: obtaining patents through technological innovation-obtaining tickets to enter the player's club by mastering one or more patents-and then the members of the club compete for market share through their own advertising skills.

Patent protection makes possible the high profits of drugs, and the high profits bring about rapid development. Take Bristol as an example. Before joining the "Tetracycline Club", Bristol was just an unknown raw material manufacturer. By the end of the 1950 s, Bristol became a large pharmaceutical company integrating R & D, production and sales. It can be said that it is precisely because of the "legal monopoly" status brought by the patent system to drugs that the enterprises that have successfully kept up with this wave have gradually grown from simple raw material manufacturers or drug packaging and sales manufacturers to the highly vertically integrated behemoth we see today. Importantly, we have seen similar stories play out over and over again after the antibiotic wars, all the way to the 21st century.

　　http://www.y-lp.com/pages/Article.aspx?id=4723218449505193327