Pharmaceuticals, Small Business and International IP

By at 11 July, 2014, 2:51 pm

by Raymond J. Keating-

It’s important to understand that the pharmaceutical industry is about two things: small business and intellectual property.

Of course, pharmaceuticals rank as a major contributor to the U.S. economy. For example, as reported by the U.S. Department of Commerce: “More than 810,000 people work in the biopharmaceutical industry in the United States as of 2012, and the industry supports a total of nearly 3.4 million jobs across the U.S. economy, including jobs directly in biopharmaceutical companies, jobs with vendor companies in the broad biopharmaceutical supply chain, and jobs created by the economic activity of the biopharmaceutical industry workforce.”

And according to the latest economic assessment from PhRMA, “The sector also accounts for the single largest share of all U.S. business research and development (R&D), representing nearly 20% of all domestic R&D funded by U.S. businesses, according to the National Science Foundation. Members of the Pharmaceutical Research and Manufacturers of America (PhRMA) alone invested an estimated $48.5 billion in R&D in 2012, an indicator of the R&D intensity of this knowledge‐based industry.”

The pharmaceutical industry is dominated by small businesses. Protecting their intellectual property (IP) - at home and abroad - is key to their innovative capacity and survival.

The pharmaceutical industry is dominated by small businesses. Protecting their intellectual property (IP) – at home and abroad – is key to their innovative capacity and survival.

The industry’s role in the international marketplace must be noted. As for how U.S. firms specifically operate internationally, in its profile of the pharmaceutical industry, the International Trade Administration explained: “Foreign markets are critical to the U.S. pharmaceutical industry, with some multinational firms generating 40 percent of revenues or higher from overseas sales. However, U.S. trade statistics do not fully reflect the globalized nature of the pharmaceutical industry, which procures ingredients and generic drugs based on cost and quality. To maintain competitiveness, U.S. firms have established manufacturing facilities in locations based on cost, availability of skilled labor, proximity to markets, transportation infrastructure, tax, tariff, and other considerations. For example, there is significant U.S. industry production of pharmaceuticals in countries such as Ireland and Singapore, from which companies export to third countries, including intra-company exports to the United States.”

Given this grand size and scope, the bottom line remains that the industry is overwhelmingly populated by small businesses.

For example, among employer firms in 2011 (latest Census Bureau data), 57.4 percent of pharmaceutical and medicine manufacturers had less than 20 workers, 78.5 percent had fewer than 100 employees, and 90.5 percent had less than 500 workers. That’s unmistakably small business.

And vital to all of the entrepreneurs, businesses and workers in the pharmaceuticals industry is intellectual property.

Again, Commerce noted: “According to the Pharmaceutical Research and Manufacturers Association (PhRMA), U.S. firms conduct the majority of the world’s research and development in pharmaceuticals and hold the intellectual property rights on most new medicines.  The biopharmaceutical pipeline also has over 5,000 new medicines currently in development around the world with approximately 3,400 compounds currently being studied in the United States – more than in any other region around the world.”

As summed up on PhRMA’s website, “Drug research and development leads to the discovery of tomorrow’s life-changing and life-saving new medicines.  Biopharmaceutical intellectual property (IP) protections, such as patents and data protection, provide the incentives that spur research and development.  They help ensure that the innovative biopharmaceutical companies that have invested in life-saving medicines have an opportunity to justify their investments.  Intellectual property protections also help companies secure the resources for future investments in research, giving hope to patients who await tomorrow’s innovative medicines.”

So, strong IP protections are vital at home and among our trading partners. Unfortunately, those protections often fall short, or are simply nonexistent at times.

Consider problems in Canada as explained in an article by David Kappos at “Surprisingly… the most aggressive nation on the planet when it comes to restricting patent coverage for innovative new medicines may be Canada. The problem can be found in a narrow part of the country’s law called ‘the promise’ doctrine, which imposes a unique and rigid requirement for patent protection. It demands that innovators in the pharmaceutical industry prove their new drugs will pass regulatory requirements necessary to gain government approval before a patent can be granted. This is reasonable in theory, but a ‘Catch-22’ in practice. Regulatory testing takes many years to complete, and in that time, the opportunity to obtain patent protection is likely lost due to other laws requiring prompt submission of patent applications and industry reporting requirements that would, paradoxically, render the invention unpatenable.”

And then there are the ongoing woes of IP protections in India. The U.S. Trade Representative’s 2014 301 Special Report once again list India on the Priority Watch List regarding the environment for IP protection and enforcement. But is there hope with a new government in India? On the PhRMA blog, John Castellani wrote the following in mid-May:

“Last week, after an election process that took more than a month to complete with a record 550 million votes cast, the Indian people elected a new Prime Minister in a landslide election that unseated the country’s ruling Congress party.  Narendra Modi and the Bharatiya Janata Party (BJP) won enough seats in the lower house of Parliament to form a government… Research-based biopharmaceutical companies see much potential for Mr. Modi’s success, because he understands the crucial role innovation plays in economic development.  His party’s platform specifically mentions the need for a strong intellectual property (IP) regime in order to ‘maximize the incentive for generation’, while also outlining a vision for a healthcare system that improves quality and access.”

The ITA summed up international IP challenges and pharmaceuticals this way: “The originator pharmaceutical industry is heavily dependent on patents and other forms of IP protection to recoup the substantial costs of developing new medicines. The most commonly cited concerns are the lack of protection against unauthorized disclosure of test data generated to obtain regulatory marketing approval for pharmaceuticals, and unfair commercial use of regulatory test data. Other issues include laws that limit the scope of patentability for certain chemical forms, inadequate protection and enforcement of patented products on the market, the proliferation of counterfeit medicines, and lack of an effective system to prevent the issuance of marketing approvals of generic copies of patented drugs.”

Addressing these IP challenges is vital for investment, innovation, economic growth, jobs and small business in the pharmaceutical industry.

Looking ahead, let’s hope that President Obama’s newfound interest in free trade accords – namely, with the European Union in the Transatlantic Trade and Investment Partnership (TTIP), and with 11 Asia-Pacific countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) via the Trans-Pacific Partnership (TPP) – come to fruition, as they would improve IP protections with both Atlantic and Pacific trading partners, and exert added pressure on other countries to enhance their IP protections.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s new book published by SBE Council is titled Unleashing Small Business Through IP: Protecting Intellectual Property, Driving Entrepreneurship and available from here.


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