China’s Drug Patent Grab Makes Coronavirus Scary for Pharma

(Bloomberg Opinion) -- The coronavirus outbreak in China is already threatening to undermine the global economy. It may soon create a similar shake-up in the drug industry. 

I'm not talking about pharmaceutical companies’ attempts to develop a vaccine, but about intellectual property. Chinese researchers have applied for a patent on an antiviral drug candidate called remdesevir owned by Gilead Sciences Inc. The drug is being tested in clinical trials in short order, but the company could eventually be cut out. 

If the patent is granted, it will confirm long-standing drugmaker fears about China's commitment to IP protection, raising concern about the industry's future in a crucial market. It also could further erode the already weak incentives for pharma to invest in drugs to combat emerging infectious diseases. The risks of seizing the patent may outweigh any benefit. 

Gilead's drug was unsuccessfully developed to treat Ebola but has shown promise in lab settings against diseases similar to the new coronavirus, which first emerged in the Chinese city of Wuhan and has since spread around the globe, infecting thousands and claiming hundreds of lives.

Chinese researchers want to patent remdesivir specifically as a possible coronavirus treatment. Given the devastating impact of the disease in Wuhan, it's understandable why researchers would think about taking this step. For Gilead, it's not the worst-case scenario — that would be a full-on compulsory license where a country fully seizes drug rights in an emergency. But the company could see any potential return on the medication curtailed if China starts manufacturing it. 

China's increasingly affluent population represents a huge opportunity for drugmakers. Many are investing heavily in the region despite previous data integrity and sales scandals. Leadership has recently demonstrated a greater commitment to IP rights in its initial trade deal with the U.S., but granting this patent could erode trust in the government and scare off foreign drugmakers. 

The consequences wouldn't be limited to declining corporate confidence in China, even if this is a one-time emergency event. The world dramatically under-invests in drugs to combat infectious diseases, and a move like this by the Chinese government wouldn’t help.

Developing such medicines isn't very profitable, compared to drugs for rare diseases and cancer. That's especially true when it comes to emerging viruses, in spite of the obvious risk. Outbreaks are more common in developing countries, which limits pricing power. By the time a company has managed to get approval for any given drug, often a years-long process, there's a good chance that the outbreak will be over.

Seizing the rights to treatments dents drugmakers’ already limited incentive to invest in infectious-disease drugs, let alone spend heavily to develop and maintain the ability to respond rapidly to outbreaks and scale up manufacturing. Without the promise of some kind of return, investment is going to dry up.

I'm not a rah-rah pharma guy. The industry often abuses the patent system, especially in the U.S., in order to profit for years off of old drugs to the detriment of patients and the health-care system. Its pricing practices are frequently unconscionable.  This isn't one of those situations.  It's arguably one of the rare cases where the ability of drugmakers to profit needs to be boosted rather than crimped. 

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

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