The antibiotics revolution changed the face of modern medicine. It was initiated by the accidental discovery of penicillin by Alexander Fleming in 1928. Antibiotics cured serious and fatal infectious bacterial diseases like pneumonia and tuberculosis. They also made possible important surgical interventions like Caesarian sections, hip surgeries and other medical procedures that are frequently accompanied by infections post-operation. Antibiotics have become an indispensable weapon, too often taken for granted, in our battle against infectious bacterial diseases.
There is, however, a very ominous crisis facing the antibiotics industry. Because bacteria are living creatures, they mutate and evolve. And because their life span is extremely short, they can evolve through multiple generations within the life time of a human being. Thus an accidental mutation that is resistant to an antibiotic quickly multiplies and the drug begins to lose its effectiveness against the disease. Since the 1980s, antibiotics have been steadily losing their effectiveness to the point that the bacteria for some diseases have become resistant to most of the available antibiotics.1
The phenomenon of resistance handicaps drugs for an infectious disease relative to, say, drugs for chronic conditions like heart disease. A 40-year old drug for heart disease is just as effective today, though it may not be used because better drugs are available. In contrast, an antibiotic that was very effective forty years ago may be much less effective or even totally ineffective today because bacteria have developed resistance to it. Typically, the greater the sales and consumption of the antibiotic, the more chances the bacterium has to develop resistance to the antibiotic, eventually rendering it ineffective. This is why an antibiotic is considered an exhaustible resource, like oil.2
This exhaustible nature of an antibiotic, however, is typically ignored by the consumers (and the doctors who prescribe them). This problem is pervasive worldwide but is particularly detrimental to a country like India and other developing countries, when antibiotics are over-prescribed and often given even for viral illnesses for which antibiotics are ineffective. The serious consequences of the subsequent antibiotic resistance are starkly highlighted in the following statistic: in the single year 2013, more than 50,000 babies in India died because the disease bacteria had become resistant to multiple drugs.3
With existing antibiotics losing their effectiveness in the battle against infections, it is imperative that new antibiotics are produced to replace them. The market is normally expected to provide the inducement necessary for pharmaceutical companies to conduct the Research and Development (R & D) to generate new drugs. But this is not happening fast enough. The cost of coming up with new antibiotics, the slow process of drug approval, the attractiveness of the returns on lifestyle drugs, among others, account for the slow rate of innovation in the antibiotic industry. With increasing worldwide demand for antibiotics and a mere trickle in the pipeline of new antibiotics, the world of modern medicine has reached a serious global crisis. People are dying of illnesses that were routinely treated a decade or two ago and common surgeries have now becomes too dangerous to perform for fear of infections that may set in.
A Surprising Role for Competition
What role can competition and intellectual property play in averting this crisis? Are they even relevant to this problem of antibiotic resistance? To understand this, consider a monopolist who has effectively fifteen years of time left on her patent (patent life) before it expires. So, she has fifteen years left to recover her R & D expenses through the profits made from the monopoly that the state guarantees by preventing the entry of competitors. In choosing prices, she will take into account that excessive sales today will reduce future effectiveness of the drug through acquired resistance and, therefore, adversely impact future profits.
However, the monopolist will not be concerned about drug ineffectiveness past fifteen years, because the drug patent expires after that, when generics will enter the market and erode her profits. So, a monopolist can conceivably produce and sell “too much” of the antibiotic because of her short time horizon. To avert this sort of overproduction that spurs resistance, the patentee should be granted a longer patent life. This would reduce the monopolist’s incentive to overproduce.4
In this research, it was found that there may be better ways to curb the overproduction of antibiotics and extend their effective lives. It may be possible to lower resistance by increasing competition from non-identical but substitute drugs. This is surprising because competition, even if imperfect, raises total output and so we might think that it would hasten and not slow down, the buildup of antibiotic resistance. The reason for lower resistance is that, in increasing competition by going from monopoly to say a duopoly (where there are two firms) with different, substitute drugs, the output of each firm is smaller than the monopoly output.
If X is the pioneering monopoly drug, the introduction of another imperfect substitute drug Y lowers the output of X because Y steals some of the business of X. So, the buildup of bacterial resistance to X from exposure to X (“own resistance”) is reduced. However, there is another sort of resistance that can occur when there is more than one drug. When bacteria are exposed to drug Y, they may also develop resistance to drug X (“cross resistance”), so that the production of drug Y makes X less effective. The greater the production of drug Y, the greater is the cross-resistance of the bacterium to drug X. The reduction in own resistance is economic in nature: the new competition steals some of a firm’s business and reduces its sales. The second effect is biological in nature: one drug increases the bacterium’s resistance to the other through biological mechanisms.
The introduction of imperfect competition, then, produces two offsetting effects. Under some circumstances, when cross resistance is not excessive, the economic effect overwhelms the biological one. In other words, the market share of a drug reduces when a substitute is introduced. Hence, under a duopoly, competition from a substitute causes the decrease in production of an antibiotic. In doing so it reduces own resistance more than it increases cross resistance. In such cases, introducing more competition actually lowers the rate at which the bacterium acquires resistance to the drug. At a time when the need to preserve our antibiotics is paramount, while keeping them affordable to low-income populations, this outcome through competition would be a welcome development.
Where Do Patents Enter the Picture?
But how is increased competition related to intellectual property? This is where another aspect of the patent, namely, patent breadth, is relevant. Patent length tells us for how long a patentee can earn monopoly profits by preventing generics from infringing on her intellectual property. Patent breadth tells us how “distant” a substitute or a competing drug must be in its chemical composition in order to receive a patent. A very broad patent would virtually exclude all competition; a very narrow patent, on the other hand, would ensure a lot of competition from substitute drugs.
Thus patent authorities can use patent breadth to facilitate competition between existing drug producers. In particular, narrowing patent breadths in the antibiotic industry may be conducive to reducing resistance through business stealing when cross resistance is not too serious. To moderate potential resistance harm, a country’s regulatory body could admit only those new drugs showing relatively low cross-resistance to current drugs.
Furthermore, we also find that socially optimal patents under competition will be longer than those under monopoly. A longer life under competition slows down bacterial resistance as each firm curtails its own production to improve its drug’s effectiveness; this, in turn, reduces the cross-resistance inflicted on its rivals. That is, patents are extended under a narrow patent, not for the conventional reason of increasing R&D incentives, but rather to attenuate the evolution of antibiotic resistance and extend the drugs’ effective lives.
In many scenarios, the patent policy facilitating competition, described above, would be socially preferred to awarding a monopolist with a broad patent on a pioneering antibiotic. It would be better not only in terms of reducing antibiotic resistance but also in terms of society’s welfare because competition, in the form of lower prices and product diversity, would increase benefits to consumers.
Patents garner profits for the patentee through sales; the revenues generated are entirely sales-dependent. Antibiotic resistance is also sales-dependent. Thus, patents can be utilised as an instrument to influence sales, which in turn determines the rate at which antibiotic resistance develops. Patents can maintain the sales of antibiotics at a socially optimal level in the light of antibiotic resistance.
Allowing entry of more antibiotics has an additional advantage. Scientists have been researching alternative methods for reducing the pace of resistance. One method is that of mixing, where one antibiotic is given to one group of patients while a second antibiotic is administered to a different group, and so on, in order to slow down resistance. Another method is to use one drug for a while, then after the bacterium becomes resistant, replace it with another and, after a while, return to the first drug, and so on. If the two drugs have what is known as “collateral sensitivity”, then exposure to one drug makes the bacterium more sensitive (less resistant) to the other. That is, the two drugs can be used in combination so as to moderate the growth of resistance. These and other promising methods, however, require the availability of multiple antibiotics that are imperfect substitutes. This can be made possible by choosing appropriate patent policies.
What About the Incentives to do R & D?
Will greater competition (narrow patents) erode profits and therefore impinge adversely on the incentive of firms to engage in R & D? After all, a critical component of solving the antibiotic crisis is not only to extend the effectiveness of current drugs but also to incentivise pharmaceutical firms to replenish the pipeline of new antibiotic drugs.
Indeed, if the narrowing of patent breadth is the only policy action implemented, R & D effort might be discouraged. However, this need not be because, as noted, a relatively narrow patent can maximise society’s welfare when implemented with a simultaneous increase in patent life relative to a monopoly-protected, broader patent. In some circumstances, the profits accruing to each firm for a longer period of time may be sufficient to offset the decline in profits due to competition.
However, in some cases the socially optimal policy will not adequately incentivise R&D activity among competing firms, relative to a broader, longer patent. Therefore, should patent protection be increased in order to encourage R&D? This research argues against adjusting the patent policy to achieve greater incentives to develop new antibiotics, as this would distort incentives for efficient sales of the current drugs. Rather, the authors argue that complementary, sales-independent mechanisms, such as prizes, grants or expedited regulatory reviews should be used to improve R&D incentives. Prizes are complementary to patents in solving the two-fold problem of reducing bacterial resistance against current drugs while increasing development of new antibiotics.
Resistance to antibiotics has created a global health crisis. This article argues that patent policy can play a central role in alleviating this serious problem and also in helping scientists in their attempts to attenuate the growth of resistance. These research findings have particular relevance for countries with large and vulnerable populations, like India, for which the emergence of bacterial resistance can have devastating effects on mortality and the quality of life.
Note: This article is based on the findings reported in Eswaran, M. and Gallini, N., 2019. Can Competition and Patent Policies Avert the Antibiotic Crisis? Canadian Public Policy, March, pp. 74-92.